Meal-delivery startup Freshly has raised $77 million in new funds, financing that was led by Swiss-based food giant Nestle.
On Tuesday, Freshly announced a new Series C funding round that also was supported by existing investors including Highland Capital Partners, Insight Venture Partners, and White Star Capital. Since launching in 2015, Freshly has raised $107 million, a figure that includes the Series C financing. The new financing will be used to support Freshly’s expansion—the service is currently available in 28 states, mostly servicing the West Coast and middle region of the country.
“Nestle is the largest food company in the world and this is the first sizable investment [from their industry],” said Michael Wystrach, co-founder and CEO of Freshly, in an interview with Fortune. “The evolution of food in grocery stores is dramatically changing. We are at the very early stages of this movement but it is gaining traction and going to get better and better.”
Meal kits are a relatively new emerging category that aims to challenge both grocery stores and restaurants by sending kits to consumers/ homes that include nearly all the ingredients needed to prepare a fresh meal. There are dozens of services available, each with their own marketing hook, at times hoping to lure vegetarians, or paleo dieters, or those that want to learn more about cooking. Here’s Freshly’s pitch: it delivers fully prepared meals that can be microwaved and ready to eat in just three minutes. No cooking required.
While meal kits represent less than 1% of total food and beverage retail sales in the U.S., the nation’s largest food manufacturers are paying attention to how this new subcategory can change how people buy their food. Already, Unilever (UL) invested in meal-kit startup Sun Basket while Campbell Soup (CPB) put $10 million into Chef’d. Blue Apron, meanwhile, filed to launch an initial public offering earlier this month, the first meal-kit startup to make that move.
Meal kits and food delivery services from the likes of Instacart and Google Express are all part of the broader disruption of the $781.5 billion U.S. grocery market that has seen little disruption from e-commerce players until recently. But experts say millions of Americans want to buy their foods online and this trend partly explains why Amazon.com (AMZN) paid $13.7 billion last Friday to acquire organic grocer Whole Foods Market (WFM).
“The traditional food model is shifting and we continue to see an increase in more health-conscious consumers who are seeking new options and services that fit easily and effortlessly into their lifestyle,” said Jeff Hamilton, president of Nestle Foods Division, in a prepared statement. impossible to get from scanner data at a grocery store.
This trend away from grocery stores puts Big Food makers in a bind. For their entire existence, they’ve relied on retailers to sell their popular, decades-old iconic brands. E-commerce will change that at a time when many of the largest American food and beverage makers are already reporting slow sales as they face increased competition from nimble, smaller startups. Amid that climate, Nestle’s global sales growth for 2016 was the slowest the company had reported in over two decades. And last week, Nestle announced it would weigh the possible sale for the company’s U.S. confectionery business.
Freshly’s Wystrach told Fortune that Nestle’s investment would help the startup open more facilities and continue to meet rising demand for the company’s service, which costs $8.99 per meal. Freshly estimates that this year, it will ship over 8 million meals. The main hurdle has been meeting the demands of growing capacity; an investment from Nestle is expected to help ease that problem.
There are no plans to include Nestle’s food brands into Freshly’s kits. That differs from the relationship between Chef’d and Campbell Soup—the soup maker said a “dinner in a bowl” kit might feature a recipe with Swanson broth, for example.