(Bloomberg) — Nestle SA bought a stake in online meal kit retailer Freshly and aims to help the U.S. startup expand its online subscription service for natural prepared meals nationwide, just as Amazon.com Inc., No. 1 in the 2017 Internet Retailer Top 500, plans to transform the grocery industry through its $13.7 billion bid for Whole Foods Market Inc. Nestle was the lead investor in a $77 million funding round and acquired a minority stake, the Vevey, Switzerland-based food company said in a statement Tuesday. Freshly will use the money to add a kitchen and distribution center on the East Coast next year.
The Swiss company is jumping into a business that’s rapidly becoming more competitive. Amazon is making its biggest push yet into the grocery market with its plan to buy Whole Foods, which will give consumers more ways to buy produce online, raising competition for meal-delivery services. Companies such as GrubHub Inc. deliver food from restaurants and Blue Apron Holdings Inc., which on Monday detailed plans for an initial public offering, and Sun Basket make meal kits with pre-portioned ingredients and instructions for customers to cook at home.
“While most food choices are still made in supermarkets, it’s clear that consumers are responding to a growing universe of direct-to-consumer options, made possible through innovation,” Paul Grimwood, chief executive officer of Nestle’s U.S. business, said in the statement.
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Nestle said it’s entering the $10 billion U.S. online prepared meals market to gain direct access to consumers who don’t have time to cook. The deal reflects Chief Executive Officer Mark Schneider’s effort to keep up with changing customer tastes by shifting to healthier foods. The company said last week it may sell its U.S. chocolate and candy business, and spent the past few years revamping its Stouffer’s and Lean Cuisine brands of prepared meals, which it sells via grocery stores.
Freshly, a two-year-old company with 400 employees, makes meals such as Sicilian-style chicken parm with broccoli and roasted turkey with quinoa stuffing, without any artificial flavors, colors or preservatives. Nestle said it will help Freshly in food sourcing and preparation, packaging and advertising.
Nespresso coffee has been Nestle’s biggest online success so far. By selling the capsules directly and bypassing retailers, the company gets a bigger slice of the profit, has more control over prices and can better track consumer behavior. That has led the company to experiment in direct online sales of chocolate, tea capsules and infant formula, though it hasn’t yet had any breakthrough that can match Nespresso. The coffee business recently added a subscription service in France, one of its biggest markets, sending capsules at pre-set intervals to make sure consumers never run out.
Jeff Hamilton, president of Nestle’s U.S. food division, will join the board of New York-based Freshly. The company can reach 40% of the country’s population and 28 states from its operations center in Phoenix. The East Coast center will increase that to 93%, Nestle said.
Blue Apron (No. 197) said Monday it aims to raise as much as $510 million in its IPO. Sun Basket recently sold a stake to Unilever’s venture arm and hired Bank of America Corp. and Jefferies Group LLC to lead its own IPO.
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