Nestlé buys Freshly, valuing meal delivery firm at $950M

Dive Brief:

• Nestlé purchased Freshly, a provider of fresh-prepared meal delivery services in the U.S., in a deal valuing the company at $950 million, the companies said in a statement. The transaction comes with potential additional payouts of $550 million, contingent on successful growth of the business. 
• The world’s largest food manufacturer purchased a roughly 16% stake in Freshly in 2017 to evaluate and test the market. The food delivery company is forecast to post sales of $430 million in 2020, shipping more than 1 million meals per week.
• Nestlé has been rapidly overhauling its portfolio to include healthier and faster-growing options. It’s been jettisoning those in which revenue is not rising as quickly, as well as segments in which the Switzerland-based company is not one of the largest players. In the past few years, Nestlé ​​sold its U.S. chocolate business to Ferrero for $2.8 billion. It also divested its U.S. ice cream business, valued at $4 billion, to Froneri. The company is considering selling the majority of its struggling North American Nestlé Waters business.

Dive Insight:

Freshly sits firmly in the middle of several hot trends impacting the food space. It’s easy to see why Nestlé, which has been building its own presence in these areas, would be interested in adding the meal delivery company to the fold. Freshly features a menu of fresh, chef-cooked meals to customers, breaking down barriers to healthy eating by delivering nutrition and convenience.

Nestlé said the merger combines its deep understanding of what and how people eat at home and its research and development capabilities with Freshly’s highly specialized consumer analytics platform and distribution network. Nestlé noted in the statement announcing the deal that it purchased a small stake in Freshly three years ago as a “strategic move” to watch the marketplace develop. It appears to be promising, since Freshly has seen sales growth each year since it was founded.

Freshly is focused on nutrition, touting its meals are naturally sweetened and less processed than other prepared meals. It includes choices free of dairy, gluten or soy. Founded in 2012 in Phoenix, the delivery service has expanded to include a variety of single-serve meals and meal plans, and recently launched a Freshly for Business service.

While Nestlé may be known best for Lean Cuisine, Hot Pockets, Toll House chocolate chips and plant-based Sweet Earth, the company has been expanding its reach into better-for-you brands and products that focus more on personalized healh.

As the coronavirus pandemic lingers, consumers are paying more attention to what they eat and having more food at home. E-commerce services are among the biggest beneficiaries of the shift in consumer behavior. The Freshly acquisiton will put Nestlé into direct competion with meal kit companies such as Blue Apron and Hello Fresh, which have thrived during the outbreak. 

For Nestlé, Freshly gives the company full control of a business with which it is intimately familiar, while allowing it to follow through on its focus of eating better. The company no doubt could find ways to include offerings in its portfolio into Freshly’s meal delivery platform — such as Sweet Earth Awesome Grounds or Blue Bottle coffee — while collecting insight it can quickly incorporate into its own popular food brands.

Research from agricultural giant Archer Daniels Midland recently found 77% of consumers want to do more to stay healthy in the future, and Freshly gives Nestlé another way to tap into that trend.

“Consumers are embracing ecommerce and eating at home like never before,” Steve Presley, Nestlé USA CEO, said in a statement. “It’s an evolution brought on by the pandemic but taking hold for the long term.” 

The Freshly acquisiton is the latest in a series of nutrition-related deals for Nestlé. It purchased Aimmune Therapeutics, a biopharmaceutical company that makes a therapy designed to help children reduce their allergic reactions to peanuts, for $2.6 billion in August. Two months earlier, Nestlé said it would purchase a majority stake in Vital Proteins, a maker of collagen bars, beverages, capsules and powders. Last year, it acquired personalized vitamin company Persona, and in 2017 it spent $2.3 billion for privately held Atrium Innovations, a maker of nutritional health products.

With a sound balance sheet and millions of dollars in cash collected from previous sales, Nestlé has plenty of ammo at the ready to grow the company and better align it with changing consumer trends.