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.
• Freshly is looking to boost its delivery, capacity and product offerings after seeing a surge in demand during the pandemic. Meanwhile, Nestlé has been rapidly overhauling its portfolio to include healthier and faster-growing options, 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. 

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, 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.

The meal kit company will soon start operations at a new Los Angeles area facility that co-founder and CEO Mike Wystrach said will help meet surging demand. Shipping times have more than doubled for many customers from five days before the pandemic to 12 days now. Wystrach said Freshly wants to speed up its delivery and, by the end of 2021, plans to triple its product offerings and double capacity. 

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 health.

The Freshly acquisition is the latest in a series of nutrition-related deals for Nestlé and puts the company into direct competition with meal kit companies such as Blue Apron and Hello Fresh, which have thrived during the outbreak. 

Freshly gives Nestlé 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 e-commerce 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." 

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.