US firm Freshly is abandoning its direct-to-consumer meal-kit delivery service in favour of a retail-orientated business model.

The decision comes on the back of an announcement in November from Freshly’s owner, food giant Nestlé, to spin off the direct-to-consumer (D2C) subscription company into a joint venture with private-equity firm L Catterton.

That partnership also combines the investor’s Kettle Cuisine-owned business, a US supplier of soups, sauces and side dishes to the retail and out-of-home channels.

“We have made the decision to pivot Freshly’s business to serve the rapidly growing consumer demand for fresh prepared meals in the retail channel, where we see significant opportunity going forward,” a statement provided to Just Food read, which was attributed to a spokesperson for the combined company on behalf of L Catterton.

It added: “While Freshly’s direct-to-consumer business will be regrettably impacted as a result of this shift, we hope to soon resume serving our customers fresh ready-meal solutions, just in the retail channel.”

This publication has approached the same representative to clarify the reasons behind the decision to quit the D2C market, whether any jobs will be impacted and the timing of when products will arrive on retailers’ shelves.

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Covid influence on D2C

D2C gained traction at the height of the Covid-19 pandemic and more food companies sought to serve consumers at home during the lockdowns.

Food majors also invested inorganically in the sector. In 2021, Kraft Heinz took a majority stake in German D2C firm Just Spices following the launch of its Heinz-to-Home service in the UK. And French dairy giant Danone has also invested in the channel, taking part in a funding round last year for US meal-delivery firm Splendid Spoon via its venture-capital arm.

However, economies have since reopened, with people having the option to eat out, although the inflationary environment sweeping the world is pressuring purse strings.

Nicholas McCoy, a managing director and co-founder of Whipstitch Capital, a US-based M&A advisory firm, said there is now more “risk” associated with D2C businesses.

Speaking to Just Food in December on the deal-making outlook for 2023, McCoy said: “There’s a greater perception of risk right now among the direct-to-consumer-only companies, particularly things around meals, food delivery and things that have a regionality in nature. The things that have really pulled the stock market down are, generally speaking, tech companies that sell into or around e-commerce.”

Nestlé had not responded to a request for comment on the switch in Freshly’s strategy at the time of writing.

The food heavyweight first invested in New York-based Freshly in 2017 with a 16% interest before purchasing the remainder of the company in 2020 for US$950m.

In a brief statement in November, Nestlé said it would hold a minority stake in the venture with L Catterton and would “focus on offering a wide assortment of fresh food products to customers across geographies and a variety of channels”.

From the Just Food archive:

What can D2C deliver for Big Food?

“D2C helps us build a frictionless consumer experience” – Mars on entering the direct-to-consumer channel with Foodspring