Fresh Ingredients, Stale Retention: HelloFresh Confronts High Customer Churn

Just this year, HelloFresh was fined £140,000 for sending over 79 million emails and 1 million SMS messages that violated privacy regulations. More specifically, HelloFresh had not been given direct consent from a huge chunk of their customers to constantly send marketing content to their inboxes but continued to do so anyway.

And the truth is — not only were these aggressive marketing tactics unauthorized, but they weren’t exactly effective toward reducing churn either. In fact, HelloFresh has historically had huge issues with customer retention — seemingly more so than Blue Apron. So just like we did for Blue Apron, let’s break down why.

HelloFresh’s Downfall

Not only is HelloFresh being fined for their marketing practices, but their earnings are alsofalling at a concerning rate. Revenue growth has been low at a rate of 2.8% YoY in 2023, around 4% lower than average estimates, and costs have been high, partly due to their intense spending on marketing.

And maybe the reason for falling revenue could simply be that the meal kit industry has low retention all around, but even when you look at HelloFresh’s retention data compared to other meal kit companies, they still sit near the bottom of the stack.

The Marketing Mistake That Cost HelloFresh Their Business

Like many meal kit companies, HelloFresh has always offered several weeks of free meals to any customer willing to try their product. And as a result, consumers have the expectation that they’re ALWAYS entitled to free meals. So when the product is no longer free, most customers churn.

The major challenge for HelloFresh (and other meal kit companies) is determining which customers are trying their product out of interest and which are trying their product to get a free meal. But even then, HelloFresh is still continuing to offer these free trials to everyone at their own cost.

Why?

Customers are now used to all these freebies. And if HelloFresh were to stop giving out free trials, people could just turn to the many other meal kit companies that still do.

Unfortunately now, it’s nearly impossible to go back. If HelloFresh had segmented their marketing campaigns in the beginning while driving retention rather than acquisition, their CAC certainly wouldn’t be as high as it is now. Closer to HelloFresh’s IPO, their CAC was a whopping $94, which was even higher than Blue Apron’s CAC at the time.

Although HelloFresh is now doing a better job of trying to personalize marketing content and promotions by customer and segment, many HelloFresh customers have developed a significantly lower willingness to pay after getting used to freebies and discounts. And this means HelloFresh isn’t maximizing the value they could have actually gotten from each individual customer, also meaning their high CAC is hardly generating any ROI.

By offering free meals to the public, they were attempting to capture anyone and everyone, including a lower income group who wouldn’t be willing to pay for their service long term at all. This was costly AND caused their retention rates to drop over time. But it was also definitely avoidable had they made their decisions based on data like this, which could easily be found through surveys, interviews, focus groups, etc.

Moral of the Story

It’s important to understand that what HelloFresh did wasn’t necessarily a bad thing. Since their product was new and would require consumers to change their existing behavior, it made sense for Hello Fresh to give people a way to try it out for themselves before they committed. However, it’s not always easy to give out these free promotions in the beginning without cheapening the brand, spending LOTS of money, and ruining price perception and therefore retention - it’s a struggle many brands out there deal with. And spamming your customers with these promotions without their consent definitely isn’t the way to go either.

The best way to avoid this for now is by making sure even your promotions and acquisition techniques are catered to individual customers. Remember - some customers have a greater willingness to pay than others. On top of that, some customers might not need a free trial to commit. And luckily, new tools now exist that can help companies figure out exactly who needs what, in order to get the most value out of each customer. And this will ensure that you all have an easier time avoiding pitfalls like this in the future.

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