Woolworths Group (ASX: WOW) will take up a 9% stake in subscription-based meal kit provider Marley Spoon (ASX: MMM), with the major retail group to invest more than $30 million in the junior via structured debt and equity.
The investment underpins a partnership between the companies that will see them working collaboratively towards expanding the Marley Spoon and Dinnerly brands in Australia.
“As grocery spending shifts to online, home-delivered meal kits will play an increasingly large role in helping consumers save time with their weeknight meals,” Marley Spoon chief executive officer Fabian Siegel said.
“We see this partnership delivering important benefits to both Marley Spoon and Woolworths, with both parties incentivised to grow Marley Spoon’s business in Australia,” Mr Siegel added.
“We have chosen to partner with Woolworths because it is clear they understand what scale-up businesses need.”
The partnership will be initially for five years and Marley Spoon expects to benefit from Woolworths’ industry experience and large engaged customer base.
Meanwhile, Woolworths will gain “valuable insights” from Marley Spoon’s manufacturing, distribution and market experience in home-delivered meal kits.
Under the deal, Marley Spoon will issue 8,200 shares (8.2 million CHESS depositary interests) to Woolworths – worth about $4.1 million and giving Woolworths a 5.52% stake in Marley Spoon.
Additionally, the companies have executed a senior secured commercial loan agreement for Marley Spoons to loan $25.95 million from Woolworths at 7% per annum interest rate over six months.
In lieu of repaying a portion of the loan in cash, Marley Spoon can issue Woolworths 5,900 ordinary shares (5.9 million CDIs) valued at $2.95 million.
If Woolworths takes up both CDI offerings, it will own 9.12% of Marley Spoon.
Additionally, if shareholder approval is gained, Marley Spoon can transfer the remainder of the loan to a senior secured convertible note, enabling it to issue more CDIs to Woolworths.
If this goes ahead, Woolworths could hold up to a 24.9% interest in Marley Spoon, with any remaining loan repayments to be made in cash.
Marley Spoon will use part of the proceeds from Woolworths’ investment to repay a $8.6 million debt facility with Moneda Top-Holding.
Marley Spoon was established in 2014 and has been providing weekly meal kits to customers across Australian, the US and Europe.
The company runs the Marley Spoon and Dinnerly brands and at the end of 2018 had more than 173,000 active customers.
Customers can choose to have two-to-five meals delivered each week, with portion sizes varying between two and six people, and up to 20 different receipts to select from.
During 2018, Marley Spoon achieved a 78% increase (ex FX) in revenue to €92 million compared to €53.2 million in 2017, with the vast majority of revenue coming from repeat customers.
Despite the revenue growth, operating earnings before interest tax depreciation and amortisation was a €34.3 million loss – reflecting the company’s investment in marketing to capitalise on acquisition momentum.
Marley Spoon is targeting profitability by 2020.
According to Marley Spoon, food and groceries represent the biggest and “last historic opportunity” in eCommerce, with the market expected to be worth more than $5,000 billion.
Commenting on the Woolworths’ partnership to expand Marley Spoon’s slice of this market, Mr Siegel noted that despite Woolworths’ size, the group had a “genuine partnership mentality”.
“We are very excited about this opportunity, which will help us to realise our strategic plan and to demonstrate the full potential of this business.”
“The opportunity to improve both our top-line growth, and our contribution margin, along with the injection of further capital, will support the company in its transition to profitability,” Mr Siegel said.
Today’s news spurred Marley Spoon’s share price up more than 64% to reach $0.725 by mid-afternoon, while Woolworths’ share price lifted 0.32% to reach $31.43.