Dive Brief:

• HelloFresh, the global meal kit company based in Germany, reported a 68.9% increase in active U.S. customers over the past year, according to a news release. The company now has 1.2 million U.S. customers and confirmed previous reports that it has overtaken Blue Apron as the market share leader in U.S meal kits.
• The company’s U.S. revenues grew 49.4% to €179.5 million ($213 million) while margins increased 8.2% to 26.8%. HelloFresh also raised its growth outlook for the year. It has nearly 700,000 customers outside of the United States.  
• HelloFresh has not yet turned a profit, but expects to reach break-even status on an adjusted earnings before interest, taxes, depreciation and amortization basis by this year’s fourth quarter.

Dive Insight:

HelloFresh is now the leader in the $5 billion U.S. meal kit market. Where close competitor Blue Apron has struggled, it has capitalized, and it is now positioned to continue growing in the months and years ahead. HelloFresh is also more operationally disciplined than its U.S. rival with higher operating margins, stable customer acquisition costs and no high-level fiascoes. It’s also gobbling up customers while Blue Apron is actually losing them as it pulls back on marketing spend.

While many of its competitors focus exclusively on market segments like regional cuisine, vegetarian cooking and special diets, HelloFresh is hitting on these segments too, and trying to outmuscle smaller competitors on spending and data science. The company has a "one pot" cooking line, a global cuisine line and offerings that require just 20 minutes of prep time.

In March, HelloFresh increased its focus on specialty diets by acquiring Green Chef, which makes gluten-free, paleo and keto meals and is expected to contribute around $15 million in quarterly revenues. Acquisitions like this, industry analysts say, are going to accelerate as the difficult economics of meal kits increasingly favor large players.

The industry’s economics will remain a challenge for HelloFresh. It isn’t yet profitable, and like every other meal kit company out there, it has a hard time acquiring customers without burning through marketing dollars.

Scale will improve HelloFresh’s margins and help it get a better return on its marketing spend. But holding on to customers over the long term could prove difficult. According to a recent analysis by Daniel McCarthy, an assistant marketing professor at Emory University who follows the meal kit industry, just 17% of HelloFresh’s customers hang around for longer than six months.

Blue Apron may be down, but it’s certainly not out. The company recently announced it has trimmed its losses and placed its kits in a handful of Costco stores. It’s also planning a promotional offensive, with pop-up shops set to open in cities across the country.

In-store meal kits are becoming a growing threat to subscription companies like HelloFresh. Grocers that have dabbled in the space are now ramping up their selections chain-wide. Walmart now competes in the space, while Amazon has tested its own meal kits.

In an interview with Food Dive earlier this year, HelloFresh’s North American president Tobias Hartmann said supermarket growth validates the meal kit concept, and dismissed the threat these companies pose.

“They're not in the business of creating food," he said.

There are at least a few grocers who would contest that characterization. As retailers continue to increase their meal kit assortment — and in doing so, capitalizing on consumer demand for convenient, no-commitment options — online players like HelloFresh would do well not to underestimate them.