HelloFresh Faces Common Startup Struggle: Hitting Critical Mass that Allows Cuts to Marketing Expenses

Stu Woo reported in Friday’s Wall Street Journal that, “Rocket Internet SE has mastered the process of identifying promising technology startups—and then starting copycats in other countries.

“In nine years, the Berlin-based company, one of Europe’s highest-profile tech companies, has launched about 100 online businesses in 110 countries.

“But questions remain about whether many of those ideas—such as a meal-kit service called HelloFresh—will ever be profitable businesses.”

The Journal article noted: “Founded by [Chief Executive Oliver Samwer] and his two brothers in 2007, the business monitors tech startups world-wide for others to copy. Executives then assign a team of roughly 20 engineers, marketers and managers to launch clones. Rocket holds stakes in the copycats and focuses on a few areas, including selling food, furniture and fashion over the internet.

“Mr. Samwer’s strategy is for his startups to expand for five to nine years before becoming profitable.

“Illustrating the challenge of that strategy, though, is HelloFresh, a meal-ingredients delivery company. Rocket said Thursday that HelloFresh losses more than doubled to €45.7 million in the first half of 2016. Rocket’s chief financial officer, Peter Kimpel, blamed the cost of the startup’s expansion in the U.S.”

The Journal article added that, “HelloFresh is five years old and competes with companies such as Blue Apron and Plated in the U.S. It also operates in Australia and several European countries. A clone of a Swedish company, it delivers weekly boxes with gourmet dinner recipes and fresh ingredients. Next week’s menu includes bayou-spiced rockfish.

“At one point, HelloFresh was one of Rocket’s most promising investments, with executives planning for an IPO last November, valuing the company at the time at €2.6 billion. Rocket pulled those plans, citing unfavorable market conditions.”

Mr. Woo also added that, “Its biggest struggle is the same as that for many startups: hitting the sort of critical mass that would allow it to throttle back on expensive marketing. Free of that significant cost, the business, in theory, would be poised to capture the profit baked into its economic model.”

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