When customer demand rocketed, suppliers ramped up their support
Takeaway meals changed from being an occasional treat to a lifeline last year, when global lockdowns kept people indoors. Overnight, firms were facing massive changes to patterns of demand, disruption to supply chains that made it harder to source products, and increased prices.
For the food-delivery sector, the chance to connect with the millions of people stuck at home was at risk as unprecedented pressure affected suppliers and fulfilment centres.
US meal-kit delivery company HelloFresh devised a way to manage its challenges, achieving a huge boost in sales while reducing procurement expenses.
In 2020, the company delivered 600m meals to customers at home – an increase of nearly 114% on pre-pandemic figures. And these customers have been loyal – the service reportedly reached 7.3m active users globally in the first quarter of this year, an annual increase of 74.2%.
Despite this rapid growth and the disruption to its supply chains, HelloFresh still managed to cut procurement expenses by 0.6%. But staying in control during a trend shift was not easy.
Flexible business model
Unsurprisingly, there were “bottlenecks in production”, says Tilman Eichstädt, senior vice-president of product, supply and sustainability at HelloFresh.
“Procuring the required amount of ingredients was challenging at times, especially in the early stages of the pandemic, but we mastered it through close collaboration with our suppliers.”
This led primarily to “more favourable supplier terms achieved through higher volumes”, Eichstädt explains, but it also required a strategic approach to “menu planning optimisation”.
To an extent, the company’s business model and the very nature of its products were the special ingredients that brought about greater flexibility.
Unlike traditional grocers, whose customers expect them to have particular perishable products on their shelves all year round, no matter what inflationary pressures might be at play in the market, HelloFresh was able to chop and change its menus quickly, by excluding certain products that became prohibitively expensive and incorporating more economical alternatives.
For example, if the price of avocados goes through the roof, HelloFresh simply replaces the dishes containing avocados with alternative recipes until the market becomes more favourable.
Cultivate the relationships
According to Eichstädt, HelloFresh cooked up a three-part plan. First, it connected with suppliers.
As the company had spent years cultivating “a close and reliable relationship” with suppliers and a “scalable infrastructure”, when difficulties emerged it was able to act quickly, adjusting the quantities of goods sourced and speaking directly with suppliers about these decisions.
Second, it quickly expanded its supplier network to minimise potential points of failure. And, third, it “invested in data analytics infrastructure to provide better short-to-mid-term forecasts for suppliers, to facilitate planning for them”.
The company is protective of its arrangements with suppliers, and aims to cultivate a symbiotic relationship that goes beyond shopping for the cheapest price, Eichstädt explains.
“We also tried to support suppliers who were less fortunate during the pandemic,” he says, adding that this included “purchasing certain products on favourable terms for them, or contracting out parts of our supply chain”. For example, at one point it bought “surplus limes from a wholesaler in Holland and sent them to our customers”.
Partnerships pay off
The million-dollar question for firms like HelloFresh is: will the pandemic-driven taste for convenience continue when customers are able to visit restaurants?
And while they cannot cover every eventuality – ramped up delivery costs caused by extreme weather conditions in the US earlier in the year left a bitter taste – these long-term partnerships with suppliers will put HelloFresh in a good position to manage potential scale changes as global restrictions ease.