Youfoodz IPO aims to triple deliveries to 1.1 million meals per week

Just eight years ago Youfoodz founder and CEO Lance Giles was busy getting his new business off the ground, cleaning dishes and packing meals until 3am.

Hungry to deliver healthy and convenient ready-made and ready-to-cook meals to Australians, Giles has since grown Youfoodz to turn over an expected $200 million in FY21.

Giles tells Business News Australia the company currently delivers around 400,000 meals around the country per week and is on track to becoming profitable this financial year, at least in EBITDA terms although not yet on a statutory level.

It is a milestone that coincides with a $70 million initial public offering (IPO) currently underway with 'YFZ' shares expected to start trading on 8 December, boasting an expected enterprise value of $164.9 million.

"It's very exciting. For any business owner it's a sense of achievement to be listed on the stock exchange and I think that unlocks so much potential," says Giles, who has come a long way since a failed venture he co-founded, My Fit Fridge, was liquidated in 2011. 

"It really enables us to take that next step as a business and continue to grow even further and be the market leader," he says, adding the positive investor response has so far exceeded expectations.

More than a quarter of the IPO will go towards paying off a loan to RGT Capital, but Giles notes the group's cash position post-offer will be $37 million.

In a space that has seen Germany-based Marley Spoon (ASX: MMM) more than double its share price since listing on the ASX in mid-2018, albeit with serious value deterioration in its first 20 months, Youfoodz is out to capture part of a $3.2 billion addressable market for ready-made meals in Australia and New Zealand.

A market report by Frost & Sullivan, commissioned by Youfoodz, estimates this market is likely to grow to $3.5 billion by FY22, representing annual growth above 6 per cent since 2016.

But capitalising on a market like this requires technology and scale. Youfoodz already has the former in spades through a manufacturing facility in Virginia, Brisbane where orders are predicted and batch sizes planned accordingly.

The IPO has slated $15 million for a new purpose-built manufacturing facility with automated components, which is arguably the most transformative announcement to come out of the prospectus. 

The company founder, who will hold a 14 per cent post-IPO interest, says the circa 13,000sqm facility will likely be in Brisbane with the goals to start construction on the 18-month build early next year.

"We plan to be moving on the build early in the new year, and we plan to be in the facility to see the full-year benefits in FY23, so we plan to be in the facility around July 2022," he says.

"From a technology landscape we've actually built our own bespoke technology that we'll be taking across to the facility, and that will only enable us to optimise our business even further.

"The real step change is when we move to the custom-built facility we'll really see a very strong drive into profit."

Giles explains around 140 tonnes of produce go through the current facility every week, so automating and refining equipment is key for improving output and reducing wastage.

"We currently do about 400,000 ready-made meals a week, and it will enable us to go to about 1.1 million meals a week," he says.

"It unlocks a lot of potential. The automation creates a lot of efficiencies, giving us great cost control on produce and the cooking methods we'll be using, all the way through to getting it out to our customer's doorstep.

"The key value proposition for us is next-day delivery. We deliver the next day in South East Queensland, New South Wales, and now also Victoria."

Until the current half-year the company didn't even have next-day delivery in Sydney, which demonstrates how quickly it is scaling up with its 100-product strong portfolio.

For regions outside of Brisbane, Sydney and Melbourne, the delivery timeframe is three days, with air freight capabilities for cities and regions further afield from its production and distribution hubs.

"We're very much looking at expanding further. We just recently expanded to Tasmania, we fly product to Darwin, also to Perth obviously," he says.

"We're actually looking at servicing more frequently. Not only do we do next-day delivery in the main locations, but we're also looking at increasing the rate of delivery in certain locations such as WA."

Giles highlights around 59 per cent of Youfoodz' sales are business-to-consumer (B2C), but the remaining 39 per cent is business-to-business (B2B) with more than 3,500 locations Australia-wide stocking its products including Coles, 7-11, Caltex and BP.

Push to subscriptions

As evidenced by the likes of Spotify and Amazon Prime, recurring revenue is the holy grail in business today with customer loyalty and habitual, constant use embedded into a subscription model.

When asked about subscriptions, Giles says to date Youfoodz has been an ordering platform for customers to "jump on and make an order whenever they like".

"We have just recently introduced a very simple subscription model, which customers are really engaging in with us, and we do believe in the years to come we'll see more and more customers become subscribers," he says.

"We believe next year we'll be upwards of 50 per cent of our customers will be subscribers versus one-off orders, and by saying one-off I mean they're on a regular basis but they're not locked in to a weekly or fortnightly delivery.

"Being omni-channel, we fortunately have a lot of our customers may order a week's worth of food online, and then the following week they pop into Coles or 7-11 to get their food on their way home or whatever it might be."

He says it is great to have an omni-channel business, but B2C is the biggest proportion and he sees it continuing to be that way in the years to come.

"Our brand is always about accessibility," he adds.

Close to $25 million of the IPO's proceeds will be for general corporate costs, including marketing, with Giles highlighting a recent partnership with media personality Natalie Gruzlewski who is now the face of the brand.

"She's been working with us over the last couple of months working closely with our product, she understands the product and she and her husband eat it on a regular basis," says Giles.

He hopes that like Gruzlewski, more consumers will be attracted to Youfoodz's quality and health proposition.

"We work closely with local farmers and growers to source product. It's that rigorous development process to make sure what turns up on the doorstep of a customer is the best quality product," he says.

"Customers see YouFoodz as healthy, and we hold that close. We're clean labelling, we don't add any additives or preservatives, we make sure we're taking that fresh broccoli let's say, getting it into the container as quick as we possibly can, and then having it impress the customer as much as we can.

"People are more and more time poor and they look for that healthy alternative, and what YouFoodz has done has taken and really revolutionised ready-made meals."

He emphasises Nestlé's foray into ready-made meals with its $US1.5 billion acquisition of US-based Freshly shows just how hot the sector is, and in the interview he doesn't appear too concerned about potential market saturation.

"The market's got a lot of growth to be had. There are players coming into it, yes, but there's a massive market there," he says.

Giles also takes positives from the rapid growth of food delivery services like Uber Eats and Deliveroo during COVID-19.

"What Uber Eats and Deliveroo have done is they've increased consumer behaviour around food delivery, and what we see is more and more people are getting familiar with getting food delivered to their doorstep now, which is fantastic because YouFoodz is in that sector," he says.

"Where YouFoodz comes in is we're healthy - you can order the meal for then and there, but you can also get your week's worth, or lunch the next day or dinner two days' later.

"The health trend is huge and we ride that and capitalise that in a good way, but it's particularly about saving time...it's an exciting time for Youfoodz, and it's exciting for an Australia-based business to be growing."

Business News Australia