Tech

Blue Apron rival Chef'd reels in $35 million from Smithfield and Campbell Soup

Key Points
  • There's still money chasing meal-kit companies after Blue Apron's IPO
  • Chef'd is using strategic partners and investors to keep its marketing costs down
  • "I didn't have to start a company to find out that you can sell a dollar for 90 cents, or 50 cents," says Chef'd CEO Kyle Ransford
Chef'd meal kit
Chef'd

Blue Apron's horrendous six weeks as a public company isn't killing off the meal-kit market.

Rival start-up Chef'd just raised $35.2 million, according to a filing this week with the SEC. Chef'd CEO Kyle Ransford confirmed exclusively to CNBC on Wednesday that pork producer Smithfield Foods invested $25 million.

Additionally, Campbell Soup contributed $10 million in the round (a deal that was announced in May), with the remaining $200,000 coming from online grocer Fresh Direct.

Chef'd is skirting the venture capital path and is instead reeling in cash from strategic investors who are seeking to adapt to digital trends in the food industry. Corporate capital gives the company a different approach to a market that features 10 or more players all vying for consumers who want meals delivered directly to their door.

"E-commerce and direct-to-consumer is an evolving space," said Ransford, who founded the company in 2013 after a career in real estate and investing. "The strategics are ahead of the financial players in terms of understanding where the market is and what it's doing."

Research firm Packaged Facts estimated in mid-2016 that the market would hit close to $1.5 billion last year, and most forecasts show it expanding many times over in the next decade. That still represents a tiny fraction of the total grocery market, but all the growth is in online ordering.

Within the crowded field of meal-kit companies, only Blue Apron has tested the public markets. The results haven't been pretty.

Blue Apron had planned to sell shares at $15 to $17 a piece and ended up cutting that price to $10 in late June. The company, which is scheduled to report quarterly results on Thursday for the first time since its IPO, has since lost 38 percent of its value, closing on Wednesday at $6.24.

Plated, another competitor in the market, said in a filing on Monday that it's raising $12 million in debt, which could be a sign that the equity markets have soured for at least some companies in the space. Plated didn't respond to a request for comment. Other competitors include HelloFresh, Home Chef and PeachDish.

Ransford highlighted two primary characteristics that differentiate his company from Blue Apron and other players. The first is that Chef'd, which delivers hundreds of thousands of meals a month, is not a subscription business, meaning consumers can order whenever they want and from a wide selection of over 1,000 breakfasts, lunches and dinners.

Secondly, Ransford said that Chef'd spends just 1 percent of its sales on promoting the product. Blue Apron, by contrast, spent about 25 percent of its $245 million in first-quarter revenue on marketing. Rather than offering free meals and deep discounts for newcomers and spending heavily on social media, Chef'd relies on partnerships with household brands that have big budgets.

I didn't have to start a company to find out that you can sell a dollar for 90 cents, or 50 cents.
Kyle Ransford
Chef'd CEO

Last year, the start-up teamed up with the New York Times to become the exclusive meal kit for the newspaper's online cooking section, and last month Chef'd partnered with Coca-Cola to offer combination food and beverage kits. It also gets a lot of business through Amazon, where a search for "meal kits" typically puts Chef'd results at the top, and has gotten some publicity for raising money on crowdfunding sites Indiegogo and CircleUp.

"We do some discounting, but we shy away from get your first order free and deep discounting," Ransford said. "I didn't have to start a company to find out that you can sell a dollar for 90 cents, or 50 cents."

It's still a costly business that requires a hefty logistics machine. Chef'd has 350 employees, with about 85 percent of them in the company's three warehouses: two in Brooklyn and one in El Segundo, California. Ransford said he's opening a bigger facility in California and planning another in Texas for 2018.

Amazon Meal Kit vs. Blue Apron...who wins?
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Amazon Meal Kit vs. Blue Apron...who wins?

Shipping is also expensive. Chef'd delivers anywhere in the country in one to two days, a requirement in a world that's grown accustomed to Amazon. Keeping up with Amazon is more important than ever now that the e-tailer has agreed to purchase Whole Foods and moved into the meal-kit business.

Ransford said he's not aspiring to take the company public — at least no time soon. That's partly because of the performance of Blue Apron and the lack of public market appetite for this type of business. A bigger reason is that he's trying to build a company in a market with a ton of complexity.

"We're focused on managing growth," Ransford said.

— CNBC's Lora Kolodny contributed to this report.