Canadian meal-kit leader Chefs Plate still eyeing IPO

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The leader of Canada's fast-growing meal-kit delivery market is holding firm to plans to go public as early as next year, despite a choppy reception to a spate of rival offerings this year.

However, the founders of Toronto-based Chefs Plate Inc., which generates more than $50-million in annualized revenues, acknowledged their three-year-old startup needs to be profitable before testing the public markets.

"We fundamentally believe that focusing on profitability is getting important and…we have our sights set on that in 2018," said Chefs Plate co-founder and chief strategy officer Patrick Meyer, as the firm disclosed $10-million in new financing from existing investors Acton Capital, Emil Capital and InvestEco Capital as well as Comerica Bank. Chefs Plate also said it now delivers 450,000 meals per month to subscribers across Canada, up 350 per cent since mid-2016. The average Chefs Plate meal costs just over $10 per serving each.

"We're definitely still considering the public markets in 2018 [or] 2019, and we believe we're approaching the proper stage" to go public, said Mr. Meyer, who, like co-founder and chief executive Jamie Shea, is 28. "But we've seen a few other meal-kit companies go prematurely and it's become clear that public investors definitely want to see a strong path to profitability and proven execution."

The grocery business has been redrawn along digital lines this year following Amazon.com's $13.7-billion (U.S.) acquisition of Whole Foods, with Canadian grocers Loblaw Cos. Ltd., Sobeys Inc. and Metro Inc. shifting resources to ecommerce and home delivery.

It has also been a big year for the meal-kit delivery market, a relatively new subsector of ecommerce where players ship prepared ingredients and instructions in refrigerated packages to consumers, who prepare the meals at home. Giants Blue Apron Holdings, Inc. of the U.S. and Germany's HelloFresh SE, as well as Chefs Plate's smaller Canadian rival Goodfood Market Corp., have all gone public since May, while U.S. grocer Albertsons Cos., and several packaged-goods giants have invested in meal-kit startups this year.

Despite forecasts that meal-kit delivery sales will reach $10-billion by 2020, some doubt the market's sustainability, given the heavy marketing spend by industry players and survey results showing many new customers soon drop the services.

That has been reflected in the cool reception to the three meal-kit IPOs. Blue Apron's June offering price was cut to $10 a share and the stock has since dropped by two-thirds on Nasdaq after it reported a worse-than-expected second-quarter loss and declining customer base and promised to slash marketing costs.

HelloFresh, with 1.3 million active customers, including some in Canada, has seen its stock trade flat since it went public on the Frankfurt Stock Exchange this month. Montreal-based Goodfood has sparked little interest since going public on the TSX via a reverse takeover of a shell company in late spring on the heels of a $21-million subscription receipts offering at $2 per unit. Goodfood's stock price nudged up by 5 per cent Wednesday to $2.10 after the company reported revenue of $7.5-million in the fourth quarter ended Aug. 31, up 16 per cent from the previous quarter and 652-per-cent higher than the same period a year earlier. The company's subscriber base stood at 31,000 at the end of the quarter, up 35 per cent from three months earlier.

Acton Capital venture partner Hannes Blum said despite "a little bit of negative sentiment around the whole space," Chefs Plate can prevail by remaining disciplined on costs, controlling marketing expenditures and discounting "and really scaling up the business in a reasonable way." He said such discipline has been key to the success of Linas Matkasse, the Swedish pioneer in the space, which Acton also backed.

"We have lots of confidence because we've seen that in Europe before," Mr. Blum said. "We always thought mid- to long term it would be the best strategy to work toward profitability and show that you can scale that business without an immense amount of capital….I think we see a bit more urgency right now to prove that we can be profitable."

Chefs Plate also recently hired former Indigo Book and Music supply chain senior vice-president Denny Palarchio as its chief operating officer. Mr. Shea said the company, which expanded nationally this summer, is focused on investing in its technical infrastructure and automating its facilities. He also hopes to expand on early partnerships with consumer packaged goods firms following successful co-branded promotions with Stella Artois and Starbucks.