Popular meal service raises a red flag about its business model

Meal kits are a reliable solution for those who hate cooking, don’t have time to grocery shop, or simply lack the energy to do either. The DIY meals provide scheduled meal plans containing easy-to-follow recipes with pre-portioned ingredients that are delivered straight to people’s doorsteps.

HelloFresh is a meal kit service that rose to popularity during the COVID-19 pandemic. CDC restrictions, which led to multiple-months-long quarantines, reduced hours at grocery stores, and continual food shortages caused by disturbances in supply chains and a lack of industry workers helped make meal kits mainstream. 

💰💸 Don’t miss the move: SIGN UP for TheStreet’s FREE Daily newsletter 💰💸

However, now that life has returned to a new normal, the food industry has also faced a drastic shift. This caused HelloFresh to lose many of the new clients it had gained during the pandemic, which in turn led to slowdowns that prompted it to make changes in its operations.

Related: Warren Buffett was right about this popular beauty retailer

Last year, HelloFresh closed one of its Atlanta distribution centers, which resulted in 727 layoffs. 

That same year, the company announced it planned to close its distribution center in Nuneaton, England, by mid-2025, putting around 900 employees at risk of losing their jobs. 

Despite the multiple layoffs, HelloFresh expanded its business to Australia in 2024, opening a new distribution center in Sydney.

HelloFresh meal kits became popular during COVID-19 but food shopping habits have changed, affecting the company’s profits. 

Getty Images

HelloFresh makes a major announcement regarding its operations

HelloFresh (HELFY)  announced it is closing its distribution center in Grand Prairie, Texas, on May 13 and consolidating operations to its Irving location in the same state. 

As a result of this closing, 273 employees will also be laid off, but the company claims it has committed to providing its eligible impacted workers with financial support and relocation help. 

Related: Starbucks CEO announces major update on turnaround plan

“As the meal kit market normalizes, we are now focused on diversifying our product offerings and driving profitable growth by optimizing our operational footprint,” said HelloFresh in a statement.

Its Irving facility is the most technologically advanced of its two Texas distribution centers. This enables the company to provide customers with more customized offerings, which is one of the reasons it chose to keep this location running. 

HelloFresh unveils its strategy to stabilize its profit margin

During its latest earnings call, HelloFresh disclosed that the recent closures and consolidations are part of its new business strategy. This strategy focuses on reducing costs to stabilize its gross profit margin since it has been facing continuous slowdowns over the last few years.

According to HelloFresh’s fourth-quarter earnings report for fiscal 2024, revenues declined 2.7% year over year, with its North American market down nearly 4%.

More Retail News:

McDonald’s brings a foreign fan-favorite to U.S. consumersPepsi to buy popular alternative brand to destroy rivalPopular retail chain unveils strategy to get Gen Z in-store shopping

The company says it has simplified leadership structures, merged different regional teams, and achieved headcount efficiencies to make growth more profitable. 

“Taken together, these measures will improve unit costs, lower our fixed cost burden, and have already led to a strong margin trajectory in the second half of 2024 with more to come over the course of 2025 and 2026. At the same time, this will free up the funds to drive our ambitious customer experience roadmap,” said HelloFresh CEO Dominik Richter.

Although Richter stated that more cost-cutting efforts will be made in the company’s workforce and operations, he didn’t specify which locations would be affected. 

Related: Veteran fund manager unveils eye-popping S&P 500 forecast