Deliveroo has been dubbed London’s ‘worst IPO in history’ after its shares fell 26% in the first day of trading, which was the last day in March. Some say it was just bad timing as investors don’t like stocks that IPO at the end of the quarter. Others point to the fact that Deliveroo was operating with some seriously problematic labour practices: Deliveroo’s ‘gig economy’ drivers and cyclists in its largest market, the UK, reportedly make less than minimum wage and in some cases as little as £2/hour. Both of these factors likely contributed to the troubled IPO. I think there is something else, far more basic, going on here though – I think Deliveroo just isn’t a very exciting idea.
People love tech stocks because they’re disruptive. Through their proprietary algorithms and Silicon Valley mindset they actively change the way we live in and interact with, the world. How disruptive is Deliveroo, really? I’m fairly sure we’ve been ordering takeout from our sofas for decades. OK, so now the menus are all kept in one place and we can order from a screen rather than picking up the phone and talking to someone. Is this really the level of disruption we’re looking for in a racy tech stock? If they had the first-mover advantage, and the scale, it might be more exciting, but Deliveroo is competing with Just-Eat, Grubhub, DoorDash, and Uber Eats, all of whom are generating the same if not more in sales. Add environmental, social, and governance (“ESG”) failures into the equation and it’s not hard to see why the IPO wasn’t met with more enthusiasm.
So what does real tech disruption in the food market look like? We think our holding, HelloFresh, is a prime example. Every week you select three to five meals from an app on your phone then HelloFresh portion out the ingredients, box it up, throw in some recipe cards, and pop it in the delivery van. Sure, you’re still ordering food from your phone to your front door, but this is a very different business proposition. For a start, HelloFresh customers enjoy fresh, home-cooked meals that have been developed by in-house chefs with convenience and nutritional balance in mind. That’s a genuinely new direction from the ever-more-unhealthy traditional takeaway market.
But the innovation is even more marked if you look into the story behind each fresh box. By getting users to order their meals in advance, HelloFresh is able to forecast what quantity of each ingredient they’ll need with a high level of accuracy, and get it delivered right when they need it. They source ingredients directly from the supplier, so food goes from farm to fork while only passing through a single fulfillment center, without food growing old on supermarket shelves or getting wasted at warehouses.
This all results in fresh, healthy meals delivered with up to 82% less food waste in their operations compared to traditional supermarkets. Then, because HelloFresh is calorie and portion controlling their meals, users are prevented from overbuying too – HelloFresh customers waste 21% less food at home than a supermarket-bought meal. HelloFresh isn’t just changing the way we eat by giving their customers easy and convenient access to fresh, balanced meals. They’re also disrupting the entire food supply chain, transforming the way we access fresh food in a way that has a huge impact on reducing food waste (which currently makes up 6% of global greenhouse gas emissions).
Like Deliveroo, HelloFresh faces fierce competition from the likes of Gousto, Blue Apron, Marley Spoon, and others; but unlike Deliveroo, HelloFresh is the largest global company in its space by a long way. This scale brings huge advantages – they can afford to offer a wider variety of recipes than competitors, they can gather more data on user habits to fine-tune their forecasts and value proposition, and their customer acquisition costs are lower just by virtue of having a huge brand.
This is genuinely fresh thinking about food, rather than just using technology to enable unhealthy habits. We know which one we would rather back.
Article by Claire Jervis, Analyst, WHEB Asset Management
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