The Business Of
Fast Food | Huel | How Do They Make Money?
Morning All!
So yesterday, we started Part 2 of The Business Of Fast Food. And our focus this week is on the meal replacement company, Huel. Just before we get rolling, let’s have a quick look at who the other big meal replacement companies are in the UK. You may recognise a few of these names…
A lot of these companies have been around for a while. So, it’s important to know that whilst Huel was only founded in 2015, meal replacement companies have been around since the 60s! And so, given that there were already quite a few competitors out there, Huel’s growth has been pretty impressive!
The chart below shows us how the company’s revenues have trended since 2016. After the explosive growth in 2016-2019, where revenues grew from £3m to £50m. Huel’s topline has now settled into a more regular ~40% growth rate since 2019. With revenues growing from £50m in 2019 to £144m in 2022.
Now, let’s really get stuck in and look at how the company actually makes these revenues!
Direct To Consumer Hueligans!
Okay, so the first thing we need to distinguish for Huel is something called channel distribution. And what I mean by this is - how do Huel’s products actually get into the hands of consumers? Or as Huel like to call their consumers - their Hueligans!
When we covered The Business Of LVMH, we looked at the channel strategy used by Nike. And we saw that Nike use two channels: (i) Direct to Consumer (DTC) and (ii) Wholesale. DTC is where Nike sells directly to individual consumers - through their Nike stores and their Nike website. And wholesale is when Nike uses a middleman - which can be FootLocker or ASOS. The graphic below should help jog your memory!
Alright, so that’s Nike’s channel strategy… what about Huel’s? Well, again we can split things up by DTC and wholesale. In DTC, Huel sell via their website. They have no physical stores. And so the only way Huel directly reaches individuals is when individuals order through the Huel website.
What about the indirect (wholesale) channel? Well, the wholesale channel is where Huel uses a middleman. And this middleman is most often a supermarket. In 2022, the company signed deals with Waitrose, Co-Op and Asda. To go along with their earlier deals with Sainsbury’s and Tesco. Remember, in this wholesale channel, Huel gets paid by the supermarket. Not when individuals buy the drinks at supermarkets. To remember how the supermarket value chain works, check out The Business Of Tesco newsletters!
Now, because Huel only sells their ready-to-drink bottles (not powders) in supermarkets. And has limited shelf space in most locations. Wholesale makes up a small proportion of sales. So, let’s focus on the DTC channel for the rest of today!
My Huel Order Is 14% More Expensive Now…
Okay, so a bit of estimating first because Huel doesn’t tell us exactly how much revenue comes from the DTC vs wholesale channels. But the company does say in its annual report that the ‘majority’ of revenue comes from their website. So, if we assume that ‘majority’ means 80%, that would mean the company makes ~£115m in revenue from website sales. And fortunately for us, the equation to calculate this ~£115m revenue is fairly straightforward! It’s…
So, 3 main revenue drivers. Let’s look at customers first. Then the order value. And then finally, the orders/customer. Weird order. But you’ll see why by the end of today’s newsletter!
Okay, so, we’re going to answer 3 questions. And the first one we’ll start with is… how many people are actually ordering Huel online? Well, the chart below gives us this info! We can see that the number of people who made an online order has grown from 576k in 2020 to 914k in 2022.
And there’s two main reasons for this growth. One is UK awareness. More and more people in the UK are becoming aware of Huel and hence ordering. And two is international awareness! Over the last couple of years, Huel have expanded into several new regions around the world. And the company’s marketing efforts outside the UK have helped grow the customer count.
Okay, so that’s question #1 about the number of customers. Question #2 (about order value) is - how much are these customers spending every time they make an order? And this is important. Like we saw in The Business Of ASML, if you’ve got customers paying high amounts every purchase. Then you don’t need to be so reliant on marketing and the need to grow customer numbers. A few customers can lead to lots of revenue!
However, Huel aren’t selling million dollar machines like ASML! And the chart below shows us that the average order value for a customer on www.huel.com was £73. This has increased quite significantly since 2020 when it was £56. And there are two main reasons why customers are spending more on their orders…
One, is increased upsell. Huel’s expanding product range means customers have been able to add more things to their basket at checkout. FYI, the Huel protein bars are absolutely brilliant! And the second reason is price inflation. And I can talk from personal experience! The screenshots below show that I used to pay £55.56 for my order in 2020. And the same order now costs me £63.34! A 14% increase!
Repeat Customers = The Major Key
Okay, so that’s 2 questions. But why are we starting a new section for the third question? Well, the reason is because this question is the most important question for Huel! And that question is - how many orders does the average customer make? Now, why is this question so important?
Because having lots of customers who only order once is terrible! Worse than terrible, it’s actually a huge problem! It means they’ve ordered once. Not really liked the product. And never returned. But how can you grow a business without repeat orders? Simple answer… you can’t!
Think about it. Why is a company like McDonald’s so successful? Sure, they have a lot of individual customers every year. But what McDonald’s customers do is that they buy from McDonald’s several times a year! They are repeat customers.
What about Netflix? You might not think that you’re paying them several times a year. But you are! The subscription model is so good at making us forget that we make repeat purchases from the likes of Netflix, Spotify, etc.
What am I trying to say? Well, great companies don’t just need customers… they need repeat customers! Now, let’s come back to Huel and our 3 drivers. They had 914k customers make an order in 2022. The average order value was £73. And if we multiply the two we get revenue of: 914k x £73 = £67 million. But we said earlier that online revenue for Huel was £115m in 2022… so where’s the missing revenue? Well, that’s repeat orders!
If we divide 115m by 67m, we’ll get 1.72. Which means the average customer for Huel makes 1.72 orders a year. And the follow-up question to that is… is that good?! And the answer is… wait till Friday! On Friday, we’ll really dive into this more. And look at what the dangers are for companies that struggle to get repeat customers. It honestly is a cracking read so make sure to open Friday’s newsletter! Just a reminder of our revenue equation below!
6th Jun 2023
And that is a wrap! Tomorrow we’ll crack on with looking at Huel’s margins and see whether they’ve been able to convert this impressive revenue growth into profits!
Have a great day!
The Business Of Team