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August, 2018 8:19 AM



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Marley Spoon has the right ingredients for success

Marley Spoon has the right ingredients for success

By Tony Featherstone 06.08.2018


A friend lost 20 kilograms. “What’s your secret?” I asked, expecting to hear details of a brutal exercise or dieting regime. The answer was a subscription to a low-calorie, food-delivery service.

Like tens of thousands of Australians, he paid a fee to have 21 meals delivered weekly, each designed to minimise calories and maximise taste. The process worked: my friend adjusted to a low-fat, low-carb diet and his weight tumbled.

He was not the dieting type. Having achieved the goal weight, I thought he would quickly return to his meat-pie-and-beer diet. But he has stuck with the food-delivery service as much for its convenience and taste as its low-calorie qualities. 

I considered this anecdote when researching Marley Spoon, a fast-growing startup in the global meal-kit delivery market. The Germany-based company listed on ASX in July 2018 through a $70 million float at $1.42 per Chess Depositary Interests (CDI). The shares are now $1.30, having touched $1.02 soon after listing.

Marley Spoon provides fresh pre-portioned ingredients and recipes to customers through a weekly online subscription. It’s different to the food-delivery service my friend used, which focuses on weight loss. The company describes itself as a healthy alternative to ordering takeaway food and grocery shopping, and is about taste and convenience.

Marley Spoon and other home-delivery services are benefiting from the boom in outsourcing meal preparation. Lite n’ Easy has delivered weight-loss meals for decades in Australia and several companies that plan meals, buy ingredients and deliver them have emerged. 

It’s a clever idea: there’s a large, growing market of customers who do not want the hassle of planning meals or going to the supermarket, but still enjoy cooking. Busy mums and dads who want to partially rather than fully outsource food preparation to third-party providers. 
  
I have written previously for The Bull on the trend of people spending more on eating out or pre-prepared food, and less on cooking everything at home. In the United States, consumers now spend more on takeaway food or eating out than on groceries each week and similar trends are apparent in inner-city markets in Australia.

Listed fast-food stocks, which I have covered for The Bull, are also beneficiaries of this megatrend in meal outsourcing. The rise of Uber Eats, Foodora, Deliveroo and Menulog is exposing takeaway food stores to a larger market and new customer base.

It’s a no-brainer that time-poor people will spend more money eating out, on takeaway food or on pre-prepared food offered by Marley Spoon and others. As competition in this market increases, costs will fall, making outsourced food costs more competitive against the home-prepared kind. 

Marley Spoon is well positioned for this trend. The company has over 110,000 customers in Australia, the US and Europe and has served more than 14.5 million meals since its 2014 inception. Customer volumes doubled in the year to March 2018 and revenue has grown at more than 100 per cent each year.

Marley Spoon looks like a simple business: it combines ingredients with recipes, packages and delivers them to customer homes. But there is more to the business model and the company is potentially disruptive to large supermarket chains. 

Marley Spoon sources produce after customers choose meals, meaning it does not have to hold large food inventories and has far less waste than supermarkets. It keeps 100-150 stock-keeping units and makes the food through eight global manufacturing centres. This streamlined supply chain boosts the company’s profit margins and earnings. 

Pre-prepared meals are taking off. The US market for fresh-food meal kits increased from US$1.5 billion in 2016 to US$4.65 billion in 2017, according to Euromonitor International research. The US meal-kit market is expected to be worth US$11.6 billion by 2022.

If the forecasts hold true, the US meal-kit market will increase almost eightfold in six years, albeit off a low base compared to the US$6.1 trillion global grocery market and US$1.4 trillion global full-service restaurant market. 

Macquarie Group last week published an outperform recommendation on Marley Spoon and a 12-month price target of $1.74. If Macquarie is right, the company could deliver a total return (including dividends) of more than 30 per cent over 12 months from the current price. Macquarie was joint lead manager on the IPO.

Capitalised at $181 million, Marley Spoon suits experienced investors who understand the risks of micro-caps and investing in loss-making companies (Marley Spoon forecasts it will lose $24.9 million euros this calendar year). 

Barriers to entry in meal kits are low and there is not an obvious “economic moat” or sustainable competitive advantage. The most likely is having a larger customer base with accompanying scale that makes it harder for rivals to compete. 

I like Marley Spoon’s long-term prospects. It has a good brand in a growing global market and potential to disrupt aspects of the global grocery market. For some families, having ingredients delivered and getting help on meal ideas is far better than trudging through supermarket aisles, not sure of what to eat during the week or ingredients required.

If my friend can move to home-delivered meals, after decades of cooking at home, so too can many others. Meal kits are just another part of the food-outsourcing boom, but a product segment less considered compared to online food-ordering and delivery platforms and food franchises.

Chart 1: Marley Spoon
Source: The Bull

Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at August 1, 2018.



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