The future is frozen.
Announcing Lightspeed’s investment in Daily Harvest, a subscription service delivering superfoods to your freezer.
The coldest place in the grocery store — both figuratively and literally — is the freezer aisle.
Less than half of grocery store visitors shop in the freezer aisle. It’s an uncomfortable, sterile place to linger. Products are hidden behind frosted glass. Behind the doors lie packaged food that is not particularly healthy, fresh, or tasty. Not much has changed in frozen food since Swanson introduced the TV dinner in the 1950's.
Today’s millennial consumer has an authentic relationship with food.
She wants to know where it was grown. She views food as an enabler of her health, not mere calories. She wants food that is not only fresh and tasty, but is also customized to her dietary habits and restrictions. She expresses her preferences on social media, taking pictures of her meals and following trendy ingredients as if they were fashion items. In short, her food choices are more than nutritional penchants; they are a statement about who she wants to be.
Daily Harvest has reinvented frozen food for the millennial consumer. I am pleased to announce that Lightspeed is leading the company’s $43 million Series B and that I am joining the board.
From passion project to e-commerce rocketship
Rachel Drori started Daily Harvest in her home kitchen. Her goal was to eat healthier every day and share her passion for food with her community. She sought to offer convenience food without compromise.
From humble beginnings, Rachel built Daily Harvest into one of the fastest growing e-commerce businesses we have ever seen at Lightspeed. In addition to its iconic smoothie, the company recently launched overnight oats, chia parfaits, sundaes, and even soups — all delivered through the company’s seamless subscription service. In only 15 months since launching nationally, Daily Harvest has helped over 100,000 subscribers meet their #freezergoals.
Hallmarks of a strong consumer business
At Lightspeed, we believe the best consumer businesses share a set of core characteristics:
- Clear resonance with popular culture
- Word-of-mouth adoption led by young women, who are “the early adopters of popular culture” (h/t my partner Jeremy Liew)
- Contribution to a daily habit (hey, “daily” is even in the name!)
- A founder with deep understanding of her customer’s needs and how to deliver a product that addresses them
- Demonstrable product/market fit and product/channel fit
These important traits are table stakes, however. In building Daily Harvest, Rachel also demonstrated several compelling insights into frozen as a category that are non-obvious and speak to the size of the opportunity.
Frozen fundamentally changes the business model of food delivery.
Unlike subscribers to a meal kit service like Blue Apron or Hello Fresh, Daily Harvest’s customers don’t have to contend with extra product spoiling in the fridge. If a customer orders one smoothie too many, she can put it back in the freezer and consume it tomorrow, or next week, or even next month. Because flash freezing produce picked at its peak locks in both flavor and nutrition, a frozen meal remains robust until it is consumed. The customer gets these benefits and more by virtue of consuming frozen food.
Freezers are pervasive and largely underutilized in America. Nearly every American household has one, and 36 million households have at least two. Microwaves are almost as ubiquitous. 24 million blenders are sold in the U.S. each year. Daily Harvest benefits from legacy infrastructure in American homes to “finish” frozen food.
The advantages of frozen food create comparably high customer retention and margins, enabling Daily Harvest to invest more aggressively in continued product innovation and growth.
The frozen food market is massive today, but could capture even greater “share of stomach” with product innovation.
American consumers currently purchase more than $52 billion of frozen food products each year from global consumer packaged goods (CPG) giants like Nestle (VTX:NESN, $91B revenues) and ConAgra (NYSE:CAG, $8B revenues). Frozen-ready meals like those Daily Harvest serves are the largest portion of that market. Outside of perhaps ice cream, very little innovation occurs here today. The TV dinner and frozen pizza are still the staples they have been for decades.
On top of the $52 billion legacy market, categories of packaged food that are not traditionally frozen can be reinvented with a bit of product ingenuity. A great example is soup. Prior to Daily Harvest, frozen soup had only 4% market share of the $8 billion soup market. Now, you can eat a delicious lunch like this:
Breakfast, the most important meal of the day, is ideally suited to frozen product. The average American spends only 12 minutes eating breakfast — half the time she spends on lunch or dinner. Speed is of the essence in this daily routine, but food quality is often an afterthought. That’s why fast food chains like McDonalds make $47 billion annually on breakfast, and dried cereal is still a $10 billion business for CPG’s like Kellogg and General Mills. Daily Harvest offers a fresher, faster alternative, eating its way into this incremental fast food and cereal spend. With the right product innovation, the company’s total addressable market could easily exceed $100 billion in the U.S., and much more globally.
Nearly all frozen product is sub-optimally sold through wholesale channels today.
Like razors before Dollar Shave Club, eyewear before Warby Parker, and apparel before Stitch Fix, the brands that dominate frozen food are cut off from their end users by the traditional retail channel. Food is a decade behind these other categories of e-commerce, with only 4.3% penetration. As a direct-to-consumer business and a digitally native vertical brand, Daily Harvest introduces and receives feedback on new products directly from consumers within a tight time frame. It then uses that data to make future products better and tastier. We have experienced the power of this model as investors in The Honest Company, Bonobos, and Stitch Fix and are excited to see Daily Harvest apply that playbook to food.
In short, we couldn’t be more excited to partner with Rachel and her team at Daily Harvest to create a future which will no doubt be frozen!
P.S. Want to build the future of food? We are hiring! Check out open positions here.
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