Nestlé Buys Into Delivered Meals -- WSJ

By Saabira Chaudhuri Features Dow Jones Newswires

Nestlé SA has bought a stake in startup Freshly -- a small investment in home-delivered food that comes as the Swiss food-and-drinks giant struggles with slow-growing demand.

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Nestlé said Tuesday it had bought a minority interest in the subscription-meals company as the lead investor in a $77 million funding round. Freshly sells healthy, prepared meals to consumers across the U.S. using a subscription-based model.

The owner of KitKat chocolate, Nescafé coffee and Maggi noodles, and its peers are wrestling with a fast-changing market, as consumers shift from packaged food to fresher, healthier options that are often bought online.

Freshly was founded in 2015 and employs 400 people. It sells to customers through a weekly online service offering a rotating menu that includes gluten-free, high-protein, low-carbohydrate and vegetarian options.

As well as broadening Nestlé's menu of products, the stake in Freshly provides direct access to customer data -- a sought-after asset for consumer goods giants because it may allow them to sell in a more targeted fashion.

"While most food choices are still made in supermarkets, it is clear that consumers are responding to a growing universe of direct-to-consumer options," Nestlé U.S. chief executive Paul Grimwood said.

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"Nestlé will gain visibility into Freshly's advanced analytics and its highly effective distribution network, and Freshly will benefit from our R&D, nutrition and sourcing expertise," he added.

Nestlé rival Unilever PLC spent $1 billion in 2016 buying Dollar Shave Club, a subscription-based razor business that sells to 3.2 million members, saying the move would help it gain access to customer data. Like Unilever, Nestlé is under threat from Amazon.com Inc., which has been expanding in packaged and fresh foods. Last week, Amazon said it was buying Whole Foods Market Inc. for $13.7 billion.

Nestlé's latest investment gives it a stake in the online prepared-meals market that is valued at $10 billion in the U.S. alone. The move comes as Nestlé CEO Mark Schneider, who joined in January, faces investor pressure to find new avenues for growth.

Last week, Nestlé put its U.S. confectionery business up for sale. The company has invested significantly in recent years to try to turn around sales of Lean Cuisine, its frozen ready meals brand, as well as of brands like Stouffer's.

In 2015, Nestlé opened a $50 million research and development center in Ohio focused on finding growth in the frozen and chilled foods market.

Overall sales of ready meals grew by 1.5% in the U.S. between 2011 to 2016, according to Euromonitor, but sales of frozen meals declined by 11%. By contrast, sales of prepared salads jumped by 29%.

Freshly's weekly menu gives people 30 different meal options, which the company says are made with natural ingredients and are contained in eco-friendly packaging. It also offers free shipping.

Freshly is currently available in 28 states. The new round of funding will help the startup construct an East Coast kitchen and distribution center in 2018, as it looks to expand nationwide. Unlike rival startups Blue Apron Holdings Inc. and HelloFresh, it sells fully prepared meals, rather than specified ingredients.

"Although North America represents 20% of Nestlé's global sales in packaged food, which makes it its largest single market, it continues to lose share in this important market," said Euromonitor food analyst Lianne van den Bos.

Nestlé U.S.'s food division president, Jeff Hamilton, will join Freshly's board.

Freshly is "directly aligned with Nestlé's strategic focus on finding new avenues to deliver delicious, nutritious meals to consumers in a way that fits their busy lives," he said.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

June 21, 2017 02:47 ET (06:47 GMT)