HelloFresh experiences extreme levels of customer churn, prompting it to employ aggressive marketing tactics to safeguards its revenue.
HelloFresh has lost millions of customers worldwide since its peak in Q1 2022, where it had 8.52 million members. Fast forward to Q2 2023, the amount of subscribers had fallen to 6.64 million, a drop of 22 percent. HelloFresh is caught in a whirlwind of what is aptly known as subscription fatigue among economists. Why is HelloFresh failing to keep its customers onboard?
Meal Kit retention problem
In May 2017, CNBC reported that early adopters of meal kit delivery providers were set to cancel their subscriptions. While proponents got hooked on the convenience, health benefits and cheaper alternative to eating out with the family, many customers had already abandoned ship. CNBC cites figures from Cardlytics that found that over half of meal kit customers canceled their subscription within six months.
The Cardlytics analysis that analyzed around 45,000 meal kit customers who signed in January 2016, revealed alarming cancellation numbers that would run any business into financial ruin. The research showed that 77 percent of customers remained for one month. This figure fell to 48 percent when reaching the six month point and only 29 percent of customers were still subscribed after one year.
Part of the explanation can be found in the high discounts that companies like HelloFresh, Blue Apron and Plated offer to new customers. This might work to help customers get familiar with the service, but it fails to keep them onboard. CNBC notes that this can negatively impact the company’s margins when they fail to convert these customers to their normal priced subscription offerings.
The problematic churn rates seemed counterintuitive to results published in July 2018 by global public opinion and data company YouGov, which suggested that HelloFresh was gearing up to be a strong player in the meal kit delivery industry, despite worrying churn rates within the segment. The analysis conducted by YouGov found that German-based HelloFresh was overtaking US Blue Apron in terms of positive brand perception in its home market.
In June 2019, meal-kit delivery company Good Eggs published its Family Food Fix Survey, analyzing consumer attitudes toward meal kit deliveries and their subsequent subscription model. Good Eggs found that 93 percent of the 821 respondents, weren’t subscribed to a meal kit service such as Blue Apron or SunBasket among otters, with 23 percent who were once subscribed to a meal kit service, but have since then canceled.
The respondents had several major frustrations with meal kit delivery services, with 66 percent noting the high costs. This was followed by portion sizes being too small (41 percent) and subscription management (41 percent). Subscription management has been a particularly dubious practice at HelloFresh.
Expensive meal kits
The high costs have been a recurring theme for meal kit delivery companies. A September 2022 survey conducted by the Agri-Food Analytics Lab at Dalhousie University showed that meal kits were perceived as more expensive than other options. Interest in meal kits had also waned as pandemic restrictions eased.
The team found that in the last 12 months, 7.4 percent of Canadians had ordered meal kits, down from the 8.4 percent recorded just a few months earlier in May 2022. A sharp decline compared to November 2020, where 12.8 percent of Canadians indicated to have purchased meal kits. When the researchers reconducted the survey several months later, they found that price and packaging were the primary drivers for Canadian consumers to cancel their subscriptions.
The team noted that the average price per serving at a meal kit provider averaged between $8 to $13 (Canadian) per meal. The survey showed that 78 percent of consumers dropped the service due to this high price, with 67.5 saying they found the packaging too heavy. Research associate at the Agri-Food Analytics Lab, Janet Music, explained that the team wasn’t surprised regarding the results.
The pandemic lockdowns forced consumers to explore new meal preparation avenues, which was a good opportunity for them to explore services. However, Music adds, that as inflation results in soaring food prices, consumers will be less willing to spend the extra on meal kit delivery services. Meal kit providers lean heavily into convenience, which can be easily cut from the expenses list.
HelloFresh subscription issues
Problems with subscriptions have been a running theme for HelloFresh. In February 2016, the Dutch consumers organization Consumentenbond received complaints about the aggressive acquisition tactics employed by HelloFresh. The meal kit delivery company, which started its rapid expansion across the Netherlands, partnered with large brands such as Zalando to distribute discount vouchers. However, the terms and conditions came with more strings attached that HelloFresh was willing to communicate.
The Consumentenbond noted that the fine print on the cards demanded the customer was obliged to buy two meal kits. While this is reasonable on the surface, HelloFresh failed to communicate that the second box would include the normal rate, and failed to mention said rate. Customers who used this voucher felt misled, especially due to the aggressive door-to-door sales tactics HelloFresh used to sell new meal kits.
Once subscribed, the Consumentebond said it received complaints about customers being unable to end their subscriptions, being faced with a long and arduous process. If customers were able to unsubscribe, HelloFresh would either keep sending them boxes and charge for the subscription, despite a confirmation of their cancellation. HelloFresh commented it would revise its terms and conditions to prevent confusion with its customers.
A few months later, in May 2016, The Dutch Authority for Consumers and Markets (ACM) said it had persuaded meal kit delivery companies like Beebox, Marley Spoon and HelloFresh among others, to allow customers to cancel their subscriptions within two weeks. By adjusting their cancellation policies the six meal kit providers would now abide by the legally regulated 14 day reconsideration period.
Board member at the ACM, Anita Vegter, commented that numerous goods and services are accompanied by subscriptions. Consumers should therefore be adequately informed about the reconsideration period, including perishables. Just like the Consumentenbond, the ACM received similar complaints related to aggressive sales tactics, leaving customers with an unwanted subscription that failed to adhere to consumer law.
Subscription woes persist
The intervention by the Consumentenbond and the ACM suggested that HelloFresh made change for the better, but even years down the line, the meal kit delivery company was reluctant to change its dubious practices. In January 2024, the ACM warned HelloFresh once more that it should be more transparent about the terms and conditions that apply to its subscription service.
The ACM highlighted that it received multiple complaints about customers being unaware they had signed up for meal kit deliveries indefinitely. Additionally, HelloFresh reactivated subscriptions that had been canceled in the past. The company used the indefinite duration contract to reinstate the subscription. HelloFresh updated the communication of the terms, now clearly displaying the conditions at the beginning of the registration process.
On top of subscription issues, customers faced problems with their deliveries, citing that boxes haven’t been delivered or that contents were missing. Instead of receiving a refund, customers received credit. The credit couldn’t be claimed in combination with a discount code. The bread and butter of HelloFresh’s business. Furthermore, credit wouldn’t be refunded when a customer would cancel their subscription.
Aggressive street teams
In August 2017, HelloFresh had to retreat its street team program in Greenpoint, Brooklyn (NY) after complaints from residents. In a CBS2 report, the news outlet, who spoke with local residents, discovered that HelloFresh was taking its sales strategy too far. In some instances, residents were psychically blocked, even when trying to walk away, retold Chris Cobbs.
Rebecca Roarabaugh explained to CBS2 that the sales representatives kept pursuing her. She had to keep walking to wade them off. Street solicitors are a daily occurrence across many parts of New York, but the street team at HelloFresh took their sales targets to the extreme. Following residents on bus and train rides or walking with them to their destination, Jaime Mathis said. Other residents were met with the street team at their doors.
HelloFresh commented that it found the aggressive sales tactics employed by its street team in Greenpoint unfortunate, prompting the company to stop its operations in this particular neighborhood. The problems in the Netherlands and the United States weren’t an isolated incident, but seemed to showcase a company wide policy. On the other side of the globe, customers in New Zealand faced similar issues.
HelloFresh Hell in New Zealand
HelloFresh expanded rapidly around the world , taking its dubious practices along with it. In January 2023, independent, non-profit organization Consumer NZ, received multiple complaints about HelloFresh. The complaints revolved around customers being unable to skip meal kit deliveries. These boxes wouldn’t be charged when the customer put in their request within a certain timeframe.
However, Consumer NZ discovered that HelloFresh still charged for the boxes, despite customers meeting the cutoff date, whilst eligible for a full refund. By omitting its refund policy, Consumer NZ Head of Content, Caitlin Cherry, explained that HelloFresh was in violation of the Consumer Guarantees Act. She noted that a quick social media search revealed complaints from customers who were charged for boxes they never received or subscriptions they had already canceled.
In March 2023, Fiona Goodin retold her experiences with HelloFresh’s aggressive marketing tactics to the New Zealand Herald. Goodin received numerous emails and calls from the meal kit provider, who’s been trying to convince her to reactivate her account. Goodin stopped her weekly deliveries after the area was cut off from the outside world by Cyclone Gabrielle.
The cancellation triggered an intrusive customer recovery program at HelloFresh. After multiple attempts to stop her subscription, Goodin desperately tried to cancel her account through customer service. She was met with representatives where the concept of canceling a subscription seemed alien. Unsubscribing was unfathomable. In turn, she was met with a barrage of emails and phone calls to ensure she would remain with the service.
A HelloFresh spokesperson commented that it launched several training programs to ensure customer service representatives would be more sensitive to the cyclone case. However, this wouldn’t be the last brush with consumer authorities and media the meal kit delivery company would experience.
HelloFresh found itself in a pinch in New Zealand after the Commerce Commision announced in June 2023 that it would start a probe into the company after it had received numerous complaints. The Commerce Commissions said it received 104 complaints about problems with subscriptions, promotions, quality and refunds, which sparked questions whether the company was abiding to the Fair Trading Act.
HelloFresh Spam
The relentless marketing approaches at the meal kit delivery service were exemplified in the UK. In January 2024, HelloFresh was fined £140,000 ($175.900) by the Information Commissioner’s Office (ICO) in the UK. The company had sent 79 million spam emails and 1 million spam texts over the course of seven months, omitting the necessary opt-ins for sending marketing communications required under the Privacy and Electronic Communications Regulations 2003 (PECR).
The spam messages were yet another attempt by HelloFresh to keep customers subscribed to the service. Head of Investigations at the Information Commissioner’s Office, Andy Curry, said in the statement that the company’s practices were a clear breach of trust of the public. Customers were not properly informed about the implications of the opt-in.
The ICO found that HelloFresh sent out 80,893,013 direct marketing messages, consisting of 1,113,734 SMS messages and 79,779,279 emails between August 2021 and February 2022. These communications were sent out without the proper consent statement, failing to convey which medium would be used and over what period after customers canceled their subscription with HelloFresh.
In total, 8,729 complaints were logged, the ICO highlighted with the office receiving 14 complaints related to unauthorized SMS messages. While the number is very low in comparison to the amount of messages sent, it shows how a small number can uncover a pandora’s box and lead to financial damages for the party in question.
Subscription fatigue
Subscriptions are a tempting way for companies to stabilize their revenue streams, but with their meteoric rise, comes major risk. In October 2023 Professor in the Marketing unit at the Harvard Business School, Elie Ofek, warned that the overwhelming amount of subscriptions could become a company’s downfall. From software to meal kits, subscriptions have become a staple of modern life. For better or for worse, Ofek warns that companies who rely too heavily on them are at risk of losing a chunk of their customers through alienation.
Jay Fitzgerald from The Harvard Business Schools notes that the average US consumer spends an average of $273 a month on 12 paid subscriptions. While many have become used to paying for cell phone service and streaming content, a whole industry has sprung from that tries to emulate the same principle, albeit for its own product. Consumers can now subscribe to meal delivery, toothbrushes, razors and everything in between, he adds.
The subscriptions bubble however is yet to become bigger, with recurring plans expected to grow between 50 to 100 percent over the next five years. Ofek comments that this can become the industry’s Achilles Heel, as consumers will experience subscription fatigue. Companies have treated subscriptions as a fast track to revenue growth, but they will now have to tread carefully as the market saturates.
Ofek adds that subscriptions will have to better cater to customers, who are now trying to better balance the benefits of having yet another subscription. This could be found in the Goods Eggs survey that found that meal kit subscription costs were too high compared to the portion sizes. Subscription pricing models have been particularly popular among startups, who are under strong pressure from investors to generate revenue and create a sustainable business.
Fitzgerald points out that recent analysis conducted by Zuora has revealed that subscription-based companies are able to grow 3.7 times faster than that of the S&P 500 in the past two decades. On the surface this sounds like an immediate win and a no-brainer for companies to transition to subscription pricing. Despite these overwhelming positives, not all subscriptions are welcomed with open arms as witnessed at BMW who put pre-installed features behind a pay-wall.
HelloFresh crumbles
We can only speculate as to why HelloFresh was so keen on keeping customers onboard who don’t want to make use of the service any longer. Rarely have we seen such a relentless, merciless, approach to prevent customers from leaving from a well-established brand. Arguments might be found in the overall financial results. The inability for HelloFresh to keep its customers onboard negatively impacted its profitability and stock performance.
In March 2024, HelloFresh shares fell 42 percent after the company revealed disappointing earnings. Additionally, the company had accumulated hundreds of millions in debt. As of December 2023, HelloFresh had $780 million in debt on its balance sheet. Debt in itself isn’t a problem, but if a company is unable to back it up with revenue and profit, it can become a recipe for disaster. Debt has brought companies like BuzzFeed and Groupon to its knees. Start-ups that have seen meteoric growth, but a business model that couldn’t turn a profit.
HelloFresh is trying to cut corners wherever possible to squeeze out any profit it can get. In November 2021, nonprofit organization More Perfect Union, highlighted the appalling working conditions of warehouse staff at HelloFresh in its California and Colorado facilities. Warehouse staff worked in unsafe conditions, with some receiving severe injuries. Workers with broken arms and legs were a common occurrence. HelloFresh timed bathroom visits. All while receiving little pay.
Reducing churn
There are multiple avenues that HelloFresh could consider in order to reduce its cancellation numbers. However, within its segment, that might be easier said than done. A 2023 Capterra survey found that many consumers have become reluctant to take on additional subscriptions as costs for all these services are spiraling out of control for many. The survey revealed that 44 percent of consumers are experiencing subscription fatigue. The results underline the observations made by the Harvard Business School back in October 2023.
Services that are able to offer exclusive, convenient and highly customizable experiences are more likely to keep customers onboard. The convenience factor is something meal kit delivery services have aggressively tapped into. They reduce friction in consumers’ daily lives, with Capterra pointing toward reduced trips to stores. However, HelloFresh will have to balance customizability and price, because pricing represents one of the most fragile aspects when it comes down to subscription services.
Capterra found that 38 percent of respondents will cancel one of their subscriptions at the next price increase. This is especially tricky for HelloFresh who is feeling the burden of increased food prices. Its product is already in a high bracket compared to other subscription services. The survey showed that 65 percent of respondents find many subscriptions too expensive, which drives massive cancellations.
These cancellations are enforced by a lacking sense of value compared to the high costs, a trend the Agri-Food Analytics Lab had also observed in 2022. HelloFresh might have to explore adding new products or innovative recipes to drive value for its customers. Furthermore it should revamp its cancellation process, as difficult cancellation processes can do more harm than good.
Embracing cancellations
Easing cancellation processes goes against many marketers and business owners beliefs. It evokes a sense of angst, as it might trigger a flood of cancellations, further accelerating the already struggling business. However, when this is the case, it can indicate that the service never aligned with the customers needs to begin with, showing a failure on either the communication side or an improper product market-fit, the latter no business wants to find itself in.
Reducing friction during the cancellation process however, will prevent negative spill-over onto other platforms, such as review platforms, consumer rights organizations or the media. Something HelloFresh is unfortunately all too familiar with. Making cancellations easy will reduce the burden on the oftentimes understaffed customers service team, that have to de-escalate tension during customer interactions, putting further pressure on the team.
