HelloFresh SE (HFG) Earnings Call Transcript & Summary

Welcome, everyone, to HelloFresh Capital Markets Day 2020. I'm Dominik, the Founder and co-CEO of HelloFresh. 2020 has been one of those years where so much stuff happens that usually takes a number of years to happen. It's also been a year that has been incredibly eventful for us. We started the year off very strong, with about 50% year-over-year growth as we entered Q1. When the pandemic hit, not only us, but the whole world, we had to react in a very, very short span of time to what's going on outside. We had to hire over 1,000 new associates in less than 1 month. We had to comply with a lot of different government regulations around sanitation, safety and social distancing. And we also saw demand spiking, which meant that we were operating pretty close to full capacity in a very short span of days across all of the different markets where we're operating in today. Over Q3, we then debottlenecked our capacity constraints, especially in our international markets, and we're able to actually continue to scale up the business and benefit from a lot of word-of-mouth and customers coming to the service organically. But all of that shouldn't really be the focus of today. The focus of today is squarely on our midterm growth plan with all the different growth levers that we have up our sleeves. And we also wanted to share and articulate more around our midterm ambition level for HelloFresh. On the agenda today, I first would like to talk about our e-commerce membership model. Secondly, we then spend a large part of today on the different growth levers that we have in the business. How we can double our existing TAM penetration, how we will dynamically expand overall TAM and also the different monetization levers that we have available, given the large customer base and brands that we've built up over the last couple of years. We then spend some time on our efforts around sustainability and how we are one of the most, if not the most sustainable offering on the wider food market. Christian will then finally spend some time on our financials and on our midterm outlook before we have a session dedicated to your questions to Q&A. I'm joined today by my colleagues of the management Board; Ed Boyes, our Chief Commercial Officer; Thomas, my co-CEO and co-Founder; as well as Christian, our CFO. The mission that we have is we want to change the way people eat forever. When we started the business 9 years ago, we very quickly figured that the way people approach home cooking hasn't really changed in decades. What we wanted to do was to provide them with tasty, healthy meals in a very convenient way and at a very affordable price point. And we think we have achieved some of that already. So as of today, we're still holding very much true to the initial mission that we had for the business. What has changed over the last couple of years, however, is the vision that we have for the overall company. While we started out with a great value proposition for a very small segment of cooking enthusiasts, we have now, over time, developed into a business model with a lot more mass appeal. And so our vision is that we want to become the world's leading meal solutions group, for all type of different customer groups and all type of different meal occasions, also outside of the dinner occasion that we're targeting at the moment. If you look at our overall ambition level, then I think we still -- that we have come a long way, but we still have a long way to go. If you look at the vision and if you look at where we are today, then our ambition level remains very great. Our ambition is to grow to EUR 10 billion in revenue at very attractive double-digit AEBITDA margins. How do we want to do that? First of all, we think we can maintain a 15% plus CAGR by doing more of what we've been doing so far. By actually increasing our TAM penetration in the existing markets, launching new geographies and also internationalizing the different food brands that we've already set up in the U.S. and bring them to our international markets. That should give us about a 15% plus CAGR for years to come alone. On top of that, with the brand that we've built up and the customer base that we've built up, we think there's a big opportunity to better monetize that customer base and to sell and attach more products to each order of those customers. Don't forget, we're also strongly cash generative, which gives us a very great opportunity to actually go into adjacent verticals, either by setting them up ourselves inside HelloFresh or by investing into attractive M&A opportunities. So a 15% CAGR in our core business, plus another 5% to 7% CAGR through better monetization and through additional investments into new business models and adjacent verticals puts us firmly in the camp of 20% plus CAGR growth for many, many years to come, which helps us to achieve the vision, the mission and also our ambition level, which are the EUR 10 billion revenue at very attractive double-digit AEBITDA margins. First of all, I wanted to do a slight tangent, though, and talk about our e-commerce membership model. We are not an enterprise SaaS model, and we've never claimed that we are. We're also not your average e-commerce model, but we're also -- we're actually a mixture of the 2. There are some features in our business model that are SaaS-like, but mostly, we are a standard e-commerce model with a number of advantages over those e-commerce models. If you look at SaaS models, and SaaS models usually benefit from very powerful revenue retention. The best SaaS models actually have negative churn and make more revenue with the same group of customers in year 2 or year 3 than they make in year 1. SaaS businesses typically also operates in fairly small TAMs and tend to have very high customer acquisition costs. If you compare that to a normal e-commerce model, you tend to see that in consumer models, you just have very different usage patterns. Revenue retention is not as strong as in SaaS models, but e-commerce models benefit from much larger target markets to go after. And also from the fact that customer acquisition costs are usually a fraction of what you tend to find in SaaS models and you have the opportunity to reengage customers over time when you've actually improved your product and service levels. One of the biggest questions that we get asked and one of the misconceptions out there is that we are hurt by low order rates from our existing customer base. That couldn't be further from the truth. And so given that we're actually trading at a discount to the best e-commerce companies out there, we wanted to look at the first year order rates as well as the long-term order rates compared to those e-commerce businesses and benchmark ourselves to that. So we start with the first year order rate. We're looking here at a basket of the best-in-class e-commerce companies on the U.S. market. Why do we choose the U.S. market? Because it's the one market where credit card data is widely available. And so we didn't want to just take our own internal data. We wanted to rely on external sources and to make sure that directionally, you have a good idea about how order rates trend for us versus for best-in-class e-commerce and food delivery platforms. If you look at the numbers, you can see that compared to e-commerce, we have a 71% higher order rates in the first year. Compared to food delivery, we have a 34% higher order rate in the first year. That is due to the fact that upon joining, we devoid customers to a weekly cadence. Before they then find their own usage patterns over time. There are some customers who continue to do it on a weekly basis. There are others who use it on a more occasional basis. And then again, we have customers that only trial it out and find out that their lifestyle or their dietary preferences don't match with the offering that we have. But again, compared our first year order rates to a basket of the best e-commerce companies out there and the best food delivery platforms out there, we trade very, very positively. Now how does it look for the second year for the long tail? Also here, I think the message is very positive. Index to the end of the first year. And then looking at the second year and the third year, we can actually see that we continue to have higher order rates than a basket of the leading U.S. e-commerce players in the U.S. Not only that, also looking at our long-term cohorts, cohorts from 2016, 2017, 2018 and 2019, you can see 2 things. Number one, that retention patterns in year 2, year 3, year 4 are very, very stable. And secondly, that's our cohorts are improving over time as a result of all the investments that we do into our products and into our service levels. Talking about usage patterns. I just wanted to give a bit more context what we mean by that because I think it's extremely important for a consumer model to understand that there are different usage patterns, and that it's not like an enterprise SaaS model. So if you look at HelloFresh, there's a number of customers that feel they wanted to do more cooking at home. But for some reason, the products that we have, the price point that we have or the lifestyle that they pursue don't match with the product that we have. Those are trialists, which then stop after having received a number of orders. We then have customers who are more seasonal users, who upon joining us get 3 orders in a row, then stop for a quarter or 2 before they actually resume eating HelloFresh meals at home. You also have the type of customers that order once and then default to a monthly cadence. And you obviously also have customers that start out on a HelloFresh plan and make that the go-to solution for their weeknight dinners. So in the beginning, you tend to see that everyone is ordering. Over time, all of the different customer segments find the right frequency, find the right usage patterns for themselves, and that's how our revenue retention over time actually evolved. The key message here, it's especially in year 2, year 3, year 4 and beyond, very, very stable and very, very predictable. The second feature where we feel we have a significant advantage over normal e-commerce models is around the profit pool along the whole value chain that we're able to capture. If you look at a grocery retailer, then that grocery retailer needs to share the profit pool along the value chain with the producer, with the manufacturer, with the brand, and then only captures the retail margin. We, on the other hand, capture most of the profit pool end-to-end in the supply chain. We do manufacturing ourselves. We do distribution ourselves, and we deliver it directly to consumers, which means that compared to normal grocery models, we just capture a much, much, much larger share of the profit pool. Whereas grocery retailers and other retail models are usually targeting 5% to 8% AEBITDA margins, we are actually able, by capturing that whole profit pool to scale our margins at scale to 15% to 20% AEBITDA. That's a huge difference. And if you take that back to overall valuation levels, et cetera, having a target margin that is twice that of other e-commerce companies or grocery retailers actually means that it also deserves a significant premium over them. So to sum up, there's a number of distinct advantages that we have over classic e-commerce models. First of all, usage patterns are typical consumer usage patterns as you tend to find them with other marketplaces and with other e-commerce companies. We benefit from very, very strong first year order rates. We then have very stable order rates in our second, third and fourth year, which allow us a high demand predictability. We also benefit from a vertical integration into the supply chain and from the high share of own products. Over 90% of our products in a HelloFresh box are actually own share. Putting those 2 things together means that at scale and at maturity, we can reach a much, much higher AEBITDA margin than all other e-commerce models. On top of that, given that we have negative working capital, we're also in a position to generate very strong free cash flows. Now let me come to our [ multilac ] growth strategy. We're not a one-trick pony. We actually have a lot of different growth levers at our disposal. First of all, we think from current 10 penetration levels, we can still double that penetration over the next couple of years. Secondly, there's a number of different TAM expansion strategies that we pursue, which will allow us to dynamically increase the TAM that we're going after. And then finally, with the brand and with the customer base that we've built up, we see plenty of opportunities to better monetize those 2 assets into the future. Let me start with TAM penetration. Ever since we started HelloFresh, we've been a part in the wider food market. Now the food market is one of the largest categories out there. It's a category that is worth about EUR 3.3 trillion in the 14 markets that we actually operate in today. Compared to that overall market, we're still tiny. Consensus has us at about $4.3 billion in revenue for 2020. So if you compare where we are today and compare what's the overall environment that we operate in, then I think you see that there's a lot of penetration upside for us. Now obviously, we're not targeting the whole food market. And so far, we've been focused a lot on dinners. We think dinners is actually a very attractive opportunity because not only is it the opportunity where most of consumer spends goes to. It's also an opportunity that especially for the ex home opportunity, so home cooked weeknight dinners, there hasn't been a lot of change over the last decades. Now going forward, as I explained with the vision that we have, we also see plenty of opportunity to actually go more into lunch occasions and into breakfast occasions. We're going to talk more about that in the monetization strategy section that Ed will cover in a couple of minutes. However, if we go back to the market, the food market that we operate in, then I think we have an extremely convincing customer value proposition. We are the only model that combines high convenience with high affordability. If you compare us to all other modes of actually consuming dinner, whether that's procuring your own ingredients at a supermarket, much lower convenience. Whether it's about a food delivery platform, great convenience but much higher price. Whether it's about restaurants, great convenience, but also much higher price. So really looking at that metrics, I think that it's very, very hard to see another service that matches the value proposition that we have around high affordability and very high convenience. Now our TAM penetration to date has been growing quite significantly over the last couple of years. But at the same time, we've expanded our TAM. And so we can actually now reach more than 135 million households in the different target markets that we operate in. As of today, we are in 14 markets, the biggest one being the U.S., and in the U.S., we actually target the top 60% of households income with our $5 product, EveryPlate; our $9 product, HelloFresh; and our $12 price point, the Green Chef. In our international markets, we're targeting the top 40% of households as we're operating only with our HelloFresh brand. If you take those 2 assumptions and you compare that to the overall household that do cooking in those 2 target segments, then you see that in the U.S., we have a target household number of 77 million to go after and target household size of about 60 million to go after in our International segment. If you then look at the penetration levels that we had in the last quarter, you start to realize that in the U.S., we're just slightly above 3% overall penetration levels. And in International, we're at about a 4.2% penetration levels. So plenty of upsides to go after over the next couple of years. The way to increase TAM penetration is actually twofold. On the one hand side, we can increase TAM penetration by growing in line with overall market growth. On the other side, it's about taking share from existing competitors. So if we look at the first dimension, increasing our TAM penetration by growing in line or faster than overall market growth, we need to look at what is projected market growth actually. And here, I think the good news is that online food is still years, probably decades, behind other firmly established categories, such as consumer electronics or apparel. As a matter of fact, as of today, less than 4% of the overall food market is actually bought online and happening online. Experts suggest that this will more than double over the next 5 years to come. Now if you just think that we'll be growing in line with that overall market growth, then that alone would help us to reach our overall CAGR targets. I think that's something that's a massive tailwind, not only for our business model, but also for other established food business models, that more and more people have now learned over the last couple of months, how to buy food online, what different types of services exist, and we think we can benefit from that development for the next years to come. The second dimension, which we can increase our TAM penetration is to take share from competitors. And I think we actually have a track record, both in the U.S. as well as in our International segment of expanding market share quite significantly over time. In the U.S., from 2015, where we were trending at below 20% market share to most recently, we were close to 60% market share. We have, over time, due to our improvements in the products, in price and in service, managed to increase market share quite significantly. Even during the pandemic, when we were majorly capacity constrained, we've actually been able to further increase market share by 1 point since the beginning of the year. In our international markets, we have some markets that are very little competitive, and we have other markets where we actually have strong competitors. Now in the 2 markets where we probably have the strongest competitors, the U.K. and Canada, we've also managed to massively expand our market share over the course of this year. We've actually gained 7 points in market share in the U.K., making us by far the largest player in that market. We were the largest player before that, but we further expanded our advantage over other players. Canada, on the other hand, we've also expanded our market share by about 4 points over that period. How have we done that? We've done that by reinvesting over and over again into our growth strategy to come up with the growth flywheel. We talked about our growth flywheel already at last year's Capital Markets Day, but I think it's such an important concept that I want to spend 1 or 2 minutes on it to really make sure I get the message across the right way. For us, as we gain in scale, we naturally have opportunity to actually improve our margins. Now whenever we improve margins and have structurally lowered our cost base, we're thinking whether we should actually take that cost advantage to the bottom line or whether we should reinvest it into improving our service and improving our product. Usually, we go first to improving our product and service levels because given where we are in terms of TAM penetration, there's a lot more share to capture over the next coming years. So as we improve our products and service levels, we actually provide customers with a better experience. That better experience then leads to higher order rates from customers. And those higher order rates again, actually lead to better leverage on our marketing costs. Now as we go through that growth wheel a couple of times, and over and over again over the last couple of years, we actually also generate very significant data around all of those different touch points. And will also come up and further enhance the software that we're building across all the different parts of the business. Now that combined to a very strong balance sheet and access to the best talents actually means that over time, we're able to get better and better at what we do and hence, also reach out to more and more customer segments and to take share from other competitors that compete in the same vertical business. Improving product selection and service levels are actually 2 dimensions that have proved very successful for us over the last couple of years. If you think back just 4 years, by 20 -- by beginning of 2017, our offering was 6 meals per week on the menu. Now with that offering, we've been able to reach out to a number of customer segments throughout all the markets that we were present in. But we also realized that there's a lot of different customer groups that don't find the right meals for the diet that they have, for the lifestyle that they have or for the different preferences that they have around meals and meal types. So what we did over the last couple of years is to massively expand choice in our menu. We went from 6 meals in 2017 to actually 28 meals today. And with that menu expansion, we've been able to further put a lot more different cuisines, a lot more different meals onto our menu. And hence, also been able to satisfy a lot of different customer segments over time. Now if you look how far we've come from 2015 to today, then it's very clear that our ambition is not to stop where we are today. But to further expand our menu to make sure we can reach as many different customer segments as possible also in the future. So the ambition level for 2025 is to go from the just short of 30 meals that we have today to over 100 meals by 2025. With that, we think we can address a lot more meal occasions, and we can address all different types of customers, irrespective of the diet, irrespective of their lifestyle. The second dimension is around service levels. And when it comes to services levels, this is what we usually look at is the time it takes from your order to your delivery. Because the faster we can actually deliver your order to you, the more flexibility we introduce in new week. And so from 2018 to today, we've actually decreased the average time that it takes for your order to arrive by 2.5 days, or by 27% over that period of time. Again, that helps us to reach out to new customer segments that previously were not in a position to order HelloFresh frequently because we have made it not easy enough for them to actually decide at a time when they know what's happening in the next couple of days and whether they want to receive an order or not. Our ambition level for the next couple of years is to continue on that path and to further increase all of the service levels throughout the different countries that we have. Finally, I also wanted to talk about reactivations. Reactivations are a very important part of our business models. If you think back to the customer usage patterns, then you tend to see that there are some customers who use us on a weekly basis, others that use us on a monthly basis. And then again, customers that use us when they feel a certain trigger in their life: when they come back from vacation, when they have New Year's resolutions or when they actually have some other points that pushes them towards reengaging with HelloFresh as a service. Now as we have built a very established and mature customer bases across all the different markets that we have, we now also have a much larger opportunity than ever before to reengage those customers that are just occasional users or that have been dormant for some time. You can see how that share of reactivations has grown as we have established a much more mature customer base over time. We came from about 11% of re-engaged customers in a quarter by 2015. That grew to 25% of customers that we reengaged that were dormant up to 34% share just before the pandemic started. Now as you think that we'll scale the business over the next couple of years again, you start to realize that a larger and larger share of customers will come from customers that haven't ordered in the last quarter. And this is actually a very profitable pool of customers for us because we know they have understood how HelloFresh works. We already have the details in our customer database. And so we can reengage them at a fraction of the customer acquisition cost that we engage first time customers or activate new customer segments for. Now if you take those 3 things together, much more menu choice, better service levels and a much, much bigger pool of customers that we can reengage over time, then you see how our marketing payback periods have also changed over time. While it took us about 9 months for the 2017 cohort to breakeven on the marketing investment, we actually improved that for the 2018 cohort to about 7 months. And now the 2019 cohort is actually already just shy of the 6 months mark. What that means is that everything that we actually invest in marketing to bring in new customers to our platform, we have made back in contribution profit after just 6 months. And with every additional order that we get out of that group of customers, that's pure contribution profit that contributes to our bottom line. I think this is a very, very powerful message and marketing payback periods of shorter than 6 months is really something that both in e-commerce as well as in SaaS, if you wanted to compare us against this, which you shouldn't, something that is unproperly unheard of. So to sum up the section around TAM penetration, if you look at where we are today, 2020 penetration, we think there is a very large share of customers, of households that have all the right characteristics and all the right trades to become customers of HelloFresh that we haven't reached out to. We also think that there is an increasing opportunity to reengage customers that have, at some point before, ordered with HelloFresh, and we have a lot of good data around how the probability of formally engaged customers is to actually come back to our platform. We will also continue to invest more into service level improvements and product expansion. And if you take all of those things together, we think that's a very clear path from how we can get from our 2020 penetration of 3% to 4% in the different segments to doubling that penetration in the midterm over the next 5 to 7 years.

I'm Ed Boyes, Chief Commercial Officer of HelloFresh. And today, I'm going to take you through the second 2 pillars of our growth strategy, TAM expansion and monetization. Starting with TAM expansion and an overview of our plans to further expand our TAM over the coming years. To kick it off, let's go back to our vision, which Dominik sets out at the beginning of the presentation. Our vision is to be the world's leading fully integrated food solutions group. We started by focusing on meal kits, which primarily solve customer pain points around weeknight dinners. But given the sheer size of the food industry, we see many potential adjacent opportunities to build businesses in new markets. And we'll enter those new markets by leveraging several strong capabilities we've established whilst building up our core business over the last decade, namely, our highly efficient, perishable direct-to-consumer supply chain, which is now live across 14 geographies; our data and tech-enabled approach to direct-to-consumer customer acquisition and retention; and our rapid and iterative product development processes, which can easily be applied to other customer segments and food types. So today, I'm going to highlight 3 of our near-term focus areas in terms of expansion, which leverage these capabilities to enter new markets. The first is geographic expansion. The second is price positioning. And the third is convenience. Before that, a brief look back at what we've achieved over the last 5 years in terms of TAM expansion. This chart shows how our target audience has expanded in both our U.S. and International segments over time. As you can see, TAM expansion is not a new topic for HelloFresh. In fact, we've continuously expanded our TAM in parallel to driving higher penetration rates in our mature markets. In our International segment, we've built up a TAM of around 60 million households, which has almost doubled since 2015, primarily as a result of opening up new geographies. Meanwhile, in our U.S. segment, we've also significantly expanded our TAM by establishing new meal kit brands, which target households with different budget levels. Firstly, Green Chef, a more premium brand, which caters to specialty diets. And secondly, EveryPlate, which targets low to mid household income levels. And when we launched EveryPlate, we specifically engineered a product, which was going to be competitively priced compared to median household spend on dinner in the U.S. at roughly $5 per portion. So that allowed us to open up the 50th to the 60th income percentile, which was where we initially focused our advertising efforts. More recently, we've actually seen extremely strong results expanding this targeting to the 40th to 50th income percentile, an additional 10% of households. And this results in a total target audience for our brands in the U.S. at now 77 million households. So if you put all of that together, you can see that we've expanded our TAM by more than 60% over the last 5 years, adding more than 50 million households in total. Now historically, the most important lever for us in TAM expansion came from launching new geographies. Since our inception in 2011, we've launched new geographies at a pace of around 1 to 2 new markets per year. And over the next 5 years, we plan to continue this pace of new geography expansion. And we already now have a clear pipeline of markets we plan to launch over the next couple of years. These markets would add an additional 10 million to 20 million households to our TAM. And I think what's important to note about geographic expansion as a TAM expansion opportunity for HelloFresh is that so far, we've established a very successful track record entering new geographies. And we've actually built up strong businesses in every single major market we've entered. This track record came partly as a result of being really disciplined around the markets we decide to enter. And here, you can see 4 of the key criteria we look at when assessing the attractiveness of a new market. Firstly, number of households, how big is the market? Second, overall income level, which helps us understand whether we can sustain sufficiently high average order value to enable good unit economics. Third, e-commerce adoption rates, which is a really important indicator of consumer readiness to buy food online. And then finally, supply chain infrastructure, which helps us gauge our ability to serve really high-quality products while sustaining an attractive gross margin. I think the good news is that especially those last 2 dimensions continue to develop across all geographies. So we believe that actually, over time, more and more markets will become attractive and viable for us to launch meal kit businesses into. After we've selected the right geography, our key focus is then leveraging our central teams and playbook to increase the odds of a new geography being successful. There are now several parts of our business, which give us an unfair advantage in entering a new market, a few of which you can see here on this slide. Just picking out a couple of examples. Firstly, production. We've now successfully launched more than 30 different in-house distribution centers, all on time and within budget. Secondly, tech, where our in-house platform allows us to launch new geographies in a matter of weeks and new markets can benefit from a highly converting checkout funnel, which has been optimized to 4 meal kits over 10 years and thousands of experiments. And lastly, marketing. One of the real pain points for new direct-to-consumer businesses is figuring out how to acquire customers at scale. Well, we've established strong capabilities already across a wide range of direct-to-consumer channels, which can be activated from day 1, something that often takes new players several years or significant investment to figure out. And those are just a few examples. There are many more across the group. So if you combine our rigorous selection process with this proven playbook for executing new geography launches, we're really confident that new geographies will contribute meaningfully to our medium-term aspirations to grow the business to more than GBP 10 billion in revenue. On top of geographic expansion, we've also focused over the last few years on TAM expansion via the addition of new brands, which allows us to better target and go after distinct customer segments. Our new brand launches tend to focus first on the U.S., just given its market size. And you can see here our U.S. brand portfolio. The first dimension we focused on to expand TAM via new brands was price. So in 2018, we launched EveryPlate, our value brand, targeting low to middle-income households and also acquired Green Chef, our premium organic brand, which caters to specialty diets. Going forward, the next dimension we're planning to focus on is convenience, which will do so by acquiring Factor, which is a leading prepared meals business based in the U.S. Now focusing first on price and EveryPlate. Here, you can see the extremely strong traction we've achieved since launching this value brand in the U.S. just a couple of years ago. We've now reached revenue run rate of more than $200 million, which likely puts EveryPlate as one of the largest new direct-to-consumer brands to have been established in the U.S. over this period. And the brand also now drives almost 10% of our U.S. segment revenue. As previously mentioned, EveryPlate expands our TAM significantly, adding an additional 20% of U.S. households who love the idea of meal kits that have tighter budgets. And that's almost 30 million households in the U.S. alone. Now given our scale and strong cost base, this is a segment of the market that we are uniquely able to serve. And therefore, we're also really excited about the fact that we see lower competition in this space than many other segments out there. We've positioned the product as clearly distinct to our core business with less choice and simpler recipes. And as a result, we see very limited cannibalization between the brands, with the vast majority of new EveryPlate customers having not previously tried HelloFresh. So over the midterm, we believe there's an opportunity for EveryPlate to actually be on par with HelloFresh in terms of customer numbers. Now the next dimension, we're planning to focus on in terms of TAM expansion is convenience. And it's important to first note that convenience is a natural driver of demand for meal kits. One of the core reasons our customers choose us rather than traditional grocery shopping is the level of convenience that meal kits provide. And over time, as we've expanded the menu, we've begun to offer even more convenience-focused meal kit products. Starting with quicker convenience meal kits, which take only 20 to 25 minutes to prepare. To more recently launching rapid meal kits, which can be prepared as quickly as 10 minutes and often include prechopped ingredients for maximum time saving. On this journey, we've seen that more convenient solutions tend to attract very different customer segments. So while some households are really engaged in cooking, others are much more convenience focused. Maybe it's their busy lifestyles, maybe they just aren't that interested in cooking, and so they wouldn't use an original meal kit since they're not prepared to spend 30 to 40 minutes cooking several times a week. So over time, as we expand our core menu, you should expect to see more and more of that menu dedicated to convenient options to allow us to penetrate more of this convenient-seeker segment. But beyond this, the next and really exciting part of our journey is to go one step further and begin to offer fully prepared meals, which cater to a segment who generally doesn't want to cook at all, but still seeking really nutritious, great-tasting meals. Since our current HelloFresh supply chain and production capability is not designed to manufacture prepared meals, we decided to enter this space via an acquisition in order to accelerate our entry and increase the likelihood of success. And so a couple of weeks ago, you will have heard the news that we announced the transaction to acquire Factor, a direct-to-consumer, ready-to-eat meal business based in Chicago. So why was it that we were attracted to Factor? It largely boiled down to 3 key capabilities, which we think are essential to success in the ready-to-eat space. Firstly and most importantly, we really believe that Factor has a market-leading product offering, and strong expertise to develop great tasting, healthy meals that consumers love. And this has been a big part of our success in the meal kit space over the years, really focusing on having a best-in-class product offering. And continuously improving that product. And we're really excited about Factor's track record and outlook in this regard. Secondly, Factor has really strong operational expertise having manufactured great meals very efficiently and already reached strong gross margins. Those gross margins are even ahead of where HelloFresh traded at a similar scale. And the supply chain is also really scalable, which we think will allow fast growth and for us to realize the opportunity over the next few years. Finally, Factor has got a really strong brand, and as a result, committed loyal customer base. And we see exceptionally high customer retention levels, which means we can build a really strong business on the back of that initial customer base. And so as a result of these capabilities as well as significant synergy potential from applying our best practices and economies of scale running a very similar business, we believe we can create a sizable company in this space over the next few years, which has a similar margin profile to our mature meal kit businesses. And one really important element of the due diligence process when we looked at Factor was to really understand the magnitude of TAM expansion potential, how distinct is the customer segment. And on this slide, you can actually see that historically, Factor has attracted a very distinct demographic to HelloFresh. When it comes to gender, for example, Factor attracts a significantly higher share of male customers. And when it comes to household size, the share of single households is much higher than HelloFresh. Both of these things, we think, are category driven. And so getting into this category, we can acquire a distinct segment and we can actually see very little overlap between our customers and the customers Factor has historically attracted, which means that we believe that as Factor grows in size, the growth generated will be truly incremental to our meal kit businesses. On top of this, on the right-hand side, you can see that whilst HelloFresh customers mostly choose us for dinner, factor customers are actually also very likely to use their products as a lunch solution. It's probably not surprising since customers tend to be less willing to spend time preparing lunch, but we actually think this presents us with a significant opportunity to potentially leverage Factor's strong manufacturing capability, to cross-sell some of their products to HelloFresh customers, which gives us an opportunity to increase our penetration in the lunch occasion amongst our active customer base. Now when it comes to growth outlook, we believe that the ready-to-eat category as a whole is still much, much earlier in its development than meal kits. Currently, we estimate that the market is around 5x smaller. We think that's because of 2 things. So number one, the market just started a few years later, so naturally is at an earlier stage in the adoption curve. And secondly, the market attracted less external capital in its early years but actually more recently, you've really started to see the category start to accelerate in terms of adoption as many companies in the space have found product market fit. Factor, in particular, has shown an extremely strong growth rates. You can see here CAGR of 115% over the last 4 years. That actually resulted in the business consistently being named as one of America's fastest-growing private companies. Part of this growth, we think, again, is as a result of its superior product quality. Something which has been a key driver of HelloFresh gaining such a dominant position in the meal kit market over the last few years. Additionally, Factor is currently in the process of opening up a new facility, I think, it opens next week, which significantly expands its capacity and provides a strong platform to scale the business to several times larger than it is now in the years to come. Another dimension which drove our interest in entering the space was the strong synergies we see across our business in operating a portfolio of brands, each of which targets distinct segments. For those of you who attended our Capital Markets Day last year, you might recognize this slide, which lays out where we see synergies in offering a number of brands on one common platform. The 3 key dimensions of being able to generate strong growth at high profitability for a direct-to-consumer business are customer acquisition, customer retention and contribution margin. And you can see on this slide, just a few examples of where we anticipate synergies across the portfolio in each of these dimensions. And actually, we've already realized many of these synergies in our prior acquisitions of Green Chef and Chefs Plate as well as our launch of EveryPlate. So the confidence level that we can replicate these with Factor is very high. And so as we add more brands, we improve the unit economics of the group as a whole. And as a result, have the ability to invest more confidently into growth. We expect this new brand portfolio to already represent more than 25% of our U.S. segment revenue in 2021, and that's less than 3 years after starting this journey. So naturally, there's an opportunity not only to continue to develop these brands in the U.S., but also to start looking to deploy new brands in our international markets. We started this journey already with the acquisition of Chefs Plate, which now serves as our Canadian equivalent to EveryPlate as well as this year launching EveryPlate in Australia, both of which show really strong signs in customer traction. On top of adding new geographies to our International segment, we'll also begin to trial more of this new brand portfolio and so leverage our U.S. experience to further expand our TAM within existing international geographies. So in summary, when it comes to TAM expansion, I want to highlight 2 key points: one, we've already got a very strong track record when it comes to TAM expansion, having added 50 million households to our TAM over the last 5 years; and two, over the next 5 years, we feel very confident about continuing these expansion efforts, and we'll do that by continuing to launch new geographies as well as launching new brands, targeting adjacent customer segments in our existing geographies with ready-to-eat and convince being the next focus area. So next, I'd like to talk about the third pillar of our growth strategy, which is monetization, i.e., selling more products to our existing customers. Now customer monetization has not really been a big focus of ours over the last 10 years. We focused primarily on building an exceptional core product which I think was really key to allowing us to build up a sizable customer base and strong position of market leadership. However, now, when we look at the business, we see an established, large active customer base of around 5 million households who already receive weeknight dinners through HelloFresh. So the opportunity to further monetize these customers becomes actually very attractive. And if you think about the typical monthly food budget for customers, as Dominik mentioned earlier in the presentation, roughly 60% of spend is on dinner, the remaining 40% is spread across lunch, snacks and breakfast. Today, when it comes to dinner, we have a pretty strong share of customer's dinner budget, but still a significantly lower share with other meal occasions. Even dinner, we see an opportunity to expand within by offering more peripheral dinner products like appetizers, desserts, special occasion meals. As mentioned, we've historically focused on weeknight dinners. It's a very different occasion, maybe on the weekend or date nights. And then when it comes to lunch, this has actually started to become a key focus of ours in the last year. Certain markets have started offering soups, sandwiches, quick prep salads. These products have proven to be really popular with HelloFresh customers, but right now, the range is quite limited. So over time, you'll see us invest more and more in lunch products. And then historically, we focused very, very little on breakfast and snacks. So there's a lot of white space when it comes to these 2 meal occasions. And just in terms of the financial impact of these monetization opportunities, I just want to spend some time showing you a case study of our Benelux market, which is the most advanced HelloFresh geography in terms of customer monetization. Over time, we've steadily expanded the product offering, largely through quite incremental steps. That's resulted in us building up a revenue share of around 5% from additional meals and add-on products with a range of 20 to 25 different SKUs in our portfolio. But on this journey, we've actually seen a very strong link between the size of the range and then the share of customers who engage in buying additional products. So as a result of that, we're planning to significantly step up our ambition level and expand the range to somewhere between 502,000 SKUs over the next 5 years, which we believe will drive a revenue contribution of 15% to 20% for the group. And the first step in this more ambitious expansion actually started a couple of weeks ago with the launch of the HelloFresh market in Benelux. And with HelloFresh market, what we've done is really launch a step change in the number of add-on products we sell to customers. So that now stands at around 70 products. Remember, on the previous slide, we've averaged around 20 to 25 this year. So it's a significant expansion. And we're planning to expand further again in early 2021 to more than 100 products. The assortment spans various categories. So we have speedy lunches, dairy products, bakery items, desserts, breakfast, pantry products and way more. And so whilst it's still very early days, I think in those couple of weeks since launch, we've already seen extremely promising customer traction. Right now, more than 20% of eligible customers are purchasing at least 1 product from the HelloFresh market, and that's almost doubled compared to the weeks prior to launch. As the range expands again in Q1, we hope to see even further engagement from customers and drive take up even higher as well as the average number of items purchased per customer, we also expect that to increase. So going forward, we also plan to carry out a similar expansion to the one in Benelux in several of our other major markets over the next 12 to 18 months, which will result in the HelloFresh market beginning to contribute materially to our revenue over the next couple of years. So now just to briefly summarize our growth levers section. Our midterm ambition is to grow to EUR 10 billion of revenue, and we'll do that by pursuing 3 key pillars: number one, TAM penetration. So that's doubling our penetration within our existing market, driven by more new customers, more reactivations and continual improvements to product and service quality. Number two, TAM expansion, growing the size of our market by adding new geographies and brands. And then thirdly, monetization, expanding beyond weeknight dinners to generate a higher share of our customers' overall food budget. So now I'm going to hand over to Thomas, who's going to talk about sustainability.

Thanks, Ed. And with that, we come to a topic that is immensely important and that continues to grow in importance for all of our stakeholders, for our customers, for our employees, for us as the founders and management team, but obviously also for the investor community. And what I would like to spend the next 20-or-so minutes on is give you an overview on how we're doing when it comes to sustainability, how we have developed over the course of 2020 and what our plans for 2021 and beyond look like in the area of sustainability. First of all, let's take a look at our vision when it comes to sustainability. At HelloFresh, we want to provide the most sustainable food solution at scale to our customers across all of the markets that we're operating in. Now having said that, the external view of HelloFresh tends to be a bit of a different one in some areas. And what you see here is the ESG ratings from the 3 leading agencies, which are ISS, MSCI and Sustainalytics. And while we have improved over the course of 2020, and while we are scoring better than average and for some areas, quite a bit better compared to the average, we are also still not part of the top group. And now we believe that there is currently a disconnect between our underlying performance when it comes to sustainability and what is reflected in our external ratings. And for us, it is a huge focus in 2021 and beyond to make sure that we can close that gap. And we're planning on doing so by, first of all, making sure that we have a better external reporting, better disclosure, but obviously also by continuing to work on the underlying sustainability performance. So with that, let's take a look at what we actually mean when talking about sustainability. So at HelloFresh, that means 3 things. Most importantly, and that's number one, leveraging the direct-to-consumer supply chain to provide fresh food to our customers in the most sustainable fashion while obviously ensuring the safety, the quality and the freshness of our product. Secondly, it means promoting the well-being of our customers, employees and suppliers. And thirdly, it means actively managing and mitigating the risks that could affect HelloFresh's business performance or our sustainability efforts. Having mentioned that aspect around managing and mitigating risk, how do we actually go about that in practice? And what we're doing is following a classic 4-step pyramid approach, where the first step is to avoid risks on negative contributions wherever possible. Given that avoiding is not always possible, we come to the second step, which is about reducing negative contributions. If the first and the second step, are not possible or not efficient, we come to the third step, which is replacing. Replacing the source of negative contributions, so following a more innovative approach. And lastly, given that realistically, the first 3 steps will not always be possible, the last step in our process is to offset negative contributions if required. And with that, let's come to some real-life examples and the metrics behind them. When talking about environmental sustainability, there are basically 3 core pillars that are critical to our business model in HelloFresh. First of all, that is food waste; secondly, it is our carbon emissions; and thirdly, it is packaging and packaging waste. And for each of these pillars, we have identified metrics to be able to measure our own performance. But obviously also to be able to compare our performance versus other players in the industry. And these metrics are: For food waste, the grams of food waste per euro of revenue; for our carbon emissions, it is our CO2 emissions, again, per euro of revenue; and for packaging waste, it is the grams of paper and plastic packaging per meal that we sell. So let's jump into it and take a look at food waste to start with. Now I believe the big issue with food waste. First of all, is an ethical one. So I believe it is highly problematic to throw away millions of tons of food, while there are out there a lot of people in the world that are starving. So a big problem from an ethical point of view. Currently, 1/3 of the food that is intended for human consumption never ends up on our plates. But also when looking at food waste from the greenhouse gas emissions point of view, there is a big problem. So currently, food production accounts for about 1/4 of global greenhouse gas emissions. And accordingly, food waste is responsible for 8% of global greenhouse gas emissions. Now to put that into perspective, if food waste was a country, it will be the third largest greenhouse gas emitting country sitting right there between the U.S. and India. Exactly, why is HelloFresh better positioned to do something about food waste and to have a positive impact when it comes to food waste compared to the traditional players in the grocery industry such as supermarkets? And the answer is in our supply chain. So when you can pay out the supply chain of a traditional grocery player, which you see here on the left, to our supply chain, then you can easily spot the differences. So the supply chain of the traditional grocery retailer starts with the producer. It is a push supply chain. So basically, the producer harvests or produces a product that is then being shipped through a local warehouse, for example, of a cooperative. From there, it is shipped on to a distribution hub of a supermarket. From that distribution hub, it is being shipped to a store, where it sits on a shelf, hoping to be sold to a customer. Now at each of these steps, there is a considerable amount of food waste occurring and when you look at the last step, so as we all know, at our homes, we also tend to overbuy. So we also produce a considerable amount of food waste. When you look at our supply chain, which you see on the right here, in contrast to that, and I can spot that it is much leaner. So in fact, we have a full supply chain. So we start with a consumer, the consumer orders from us. And we only order the exact quantity that the customer has ordered from us from our suppliers. So basically, that way we do wait with the overproduction in the traditional supply chain. And given that we have a lot less intermediaries in the process, a lot less steps, food waste basically is not occurring. So given we start with the consumer, given we have the full supply chain and given our supply chain is much leaner, we're able to have a much faster process, which leads to a fresher product, and ultimately, it leads to the elimination of food waste. So it is better for the environment, no food waste. It is better for the customer, fresher product. And it is better for us since we're able to generate a higher-margin since we don't have to pay for all of the overproduction of food happening in a traditional supply chain. And that is not just something that is a theoretical concept. We're also able to nicely back that up with data. So what you see here on the left is the amount of food waste occurring in the supply chain to up until the customer's doorstep. And here, we're able to reduce the amount of food waste compared to a set of 12 leading international supermarkets, by almost 70%. But it doesn't just stop there. If you look at the right, that is the amount of food waste that is occurring at our customers' homes, compared to the amount of food waste occurring when people buy at a supermarket. So in a study with the Wuppertal Institute, we found that our customers have 21% less food waste compared to traditional retailers. So how have we performed over the course of 2020? When looking at that food waste metric and despite of all the headwinds that we've seen as a consequence of COVID, we have been able to further improve on that metric. Unfortunately, COVID led to the need for higher strategic buffers towards stock outs, towards supply interruptions, it also led to an increased level of uncertainty when it comes to forecasting. But despite all of that, for example, by being able to further reduce lead times, we have been able to improve that metric. So in summary, HelloFresh and our business model really is in a great position to contribute to a massive reduction in food waste. Taking a closer look at the second pillar, which is our carbon emissions, and here, we would really like to focus on our carbon emissions outside of direct food production. And for these carbon emissions, there are 3 sources, or 3 main sources at least. First of all, it is our production facilities. So these facilities need lighting, heating, cooling. Then secondly, we have our deliveries, so making sure the boxes get to our customers' doorsteps, and there is fuel and electricity being consumed. And thirdly, it is our offices and our corporate travel. So again, for that one, let's take a look at how we're doing compared to the large supermarkets. So looking at the CO2 emissions resulting from our physical infrastructure, you can see that we're able to reduce these emissions by north of 80% compared to that set of traditional supermarkets. And why is that? Well, the answer is relatively simple. When you think of the traditional supermarket that needs to maintain a lot of distribution hubs and literally needs to maintain and operate thousands of stores throughout the country, our typical infrastructure in contrast to that looks quite a bit different. So we have a low single-digit number of production facilities per market. So we have a much leaner and much more centralized, much more efficient setup. Again, let's take a look at how we have developed over the course of 2020 when it comes to that metric. Also here, we have been able to improve. So we have been able to almost cut our CO2 emissions in half per year of revenue when it comes to our physical infrastructure. Now that is a consequence of having a much higher capacity utilization. So out of our existing production facilities, we are producing many more boxes. So on a per box level, it means lower carbon emissions, but it also is a consequence of our increased use of green energy. An example for that would be putting up solar panels on the roofs of our production facilities. Now if you remember what I said earlier around a 4-step pyramid strategy is that avoiding, replacing, reducing is not always possible. But offsetting still is an option, and that is exactly what we are doing. So I think short and medium term, it will not be possible to not emit any CO2 or other greenhouse gases. But we are able to offset our carbon emissions, which is exactly what we are doing. So since 2020, we are the first global carbon-neutral meal kit company. So we're offsetting all of the emissions from our production facilities, from our deliveries and from our offices and corporate travel, which means that we're entirely carbon-neutral now. So with that, we come to our third pillar, which is packaging and packaging waste. Now for packaging, unfortunately, it is not possible to entirely do away with packaging material because of hygiene reasons, but also because of food safety regulation. So our strategy for packaging material is to reduce it or to replace it as much as possible. And for that, we have a packaging testing and innovation lab that allows us to roll out innovative solutions across all of the markets that we're active in. Some examples for that are replacing the old gel-filled ice packs with water-filled ice packs. The problem about the gel was the microplastic in it. So obviously, water is a much better substance. Another example would be to replace the old plastic-based cooler pouches that we were using with recycled paper cooler pouches, which massively reduces the amount of plastic we're using in each individual box. Some further examples are doing away with the traditional plastic cups you would know for dairy products, such as cream or yogurt, and replacing them with the pouches you see here on the left, which leads to a 70% reduction in plastic. Another initiative is to introduce paper-based packaging for products such as pasta, grains and herbs. And lastly, we're also testing and experimenting with plant-based substances to use them as a sort of coating for our fruit and veg in order to be able to eliminate plastic material. If you take all of that together, and here's an example from a German market, then you can see that we have been able to reduce the relative share of plastic of our packaging, to cut that in half within the last year. So also when it comes to packaging waste, we have a lot of initiatives in the pipeline to make sure that we're further improving when it comes to that area. So let me summarize. Given our supply chain and given our business model, we have a lot of advantages over traditional grocery retailers. So first of all, we contribute to a massive reduction in food waste because of our leaner, quicker supply chain. Less intermediaries are starting with the customer, we are able to substantially lower our CO2 emissions because we have less food waste in our supply chain, but also because we have a more centralized and efficient physical infrastructure. We're also in the process of making a massive push in terms of electrifying our own fleet of delivery vehicles in the Benelux by rolling out several hundred electric vehicles that are replacing the old diesel vehicles. As I said, we're also offsetting our remaining CO2 emissions. So we're the first global carbon-neutral meal kit company. And on top of that, we're also making very significant food donations to charities across all of the markets that we're active in. As I said initially, what we're working towards is making sure that these achievements are also properly reflected in our external ESG ratings. But we are also working on further improving that underlying performance. And for that, we have a quite packed agenda for next year. So some examples for the things we have on that agenda is what you can see here. So first of all, it is about achieving an ISO 50001 certification, a certification for energy efficiency management. Secondly, it is about conducting a materiality assessment, so making sure that we improve the compliance with our sustainability reporting. Thirdly, it is about doing a life cycle assessment, so really identifying areas of improvement throughout our supply chain. Fourthly, it is about conducting a supply chain risk mitigation exercise to really make -- making sure that we identify the areas of risk in our supply chain. Our fifth initiative is about introducing a plastic bank. So that is making sure that we have 3 sites which are recycling plastic packaging. And lastly, it is about working on our energy strategies, as I mentioned before, predominantly around increasing the share of solar energy that we're using in our production facilities.

Okay. So I'd like to spend the next couple of minutes to discuss 2 topics with you. First one is our current trading and then also how COVID has impacted our year-to-date trading. And secondly, I'd like to try to translate for you what you've heard from Dominik and from Ed before in terms of our individual growth levers, how those would translate into our financials, both in the near-term as well as in the midterm. I'll caveat: when we're talking about the future, it's obviously based on various assumptions, some of which are not under our control. So actuals may turn out differently from what I'm discussing here. First, I think it's worthwhile to revisit where we're actually coming from. Since our inception 9 years ago really, we've grown at best-in-class growth rates. The first couple of years, very significant triple-digit hyper growth rates. But then also from 2015 onwards, when we had started to gain a certain scale, we've continued to grow at a CAGR of north of 50%, up to including 2019. And in this year, year-to-date, we've seen a further step-up in our growth rate to north of 100%, somewhat aided by COVID, obviously. But it's not just the top line where we excel. We are also one of the few e-commerce companies which are firmly profitable and generate positive free cash flow. When you look at the left side here, we are profitable since 2019 and this year operates at an AEBITDA margin of 12.5%, so well above an average e-commerce company. This is thanks to some of the business model dynamics that Dominik has taken us through before. From a cash flow margin perspective, we generate a free cash flow margin of north of 13% this year, so way above any other e-commerce company out there. That means that we're effectively self-funding the very strong growth that we're going through and, on top of that, are building up our cash position. So that's where we stand right now. Let's have a look where we want to get to in the midterm. We want to build a EUR 10 billion revenue business, and we want to do that while maintaining an attractive AEBITDA margin and free cash flow profile. Now given the sizable growth opportunity we have ahead of us, for the next couple of years, you should assume that any profits meaningfully above a 10% AEBITDA margin, we would rather put back into the business to realize the massive growth opportunity. Whilst in the midterm, getting towards a mid-teens AEBITDA margin is definitely possible. And here, I'm contrasting basically our year-to-date performance with our Q4 2019. Why? Because Q4 2019 is the first quarter -- is the last quarter which was completely unaffected by COVID. Starting with top line. From around about 40% constant currency growth in Q4 2019, we've more than doubled that to north of 100% in the first 9 month of this year. From a contribution margin perspective, we actually saw certain compression because of certain COVID effects. I'm not going to dwell too much on it because I've discussed it in quite some detail on our recent earnings calls. But effectively, we saw at least a 2 percentage points compression here, primarily linked to inflated costs in the production in our fulfillment, primarily in our U.S. segment. On the marketing side, however, we've been trending this year meaningfully below the level that we had in Q4 2019. Why? Because of 2 reasons: one, given certain capacity constraints we had in a number of our markets, we had to dial back quite meaningfully on our marketing activities to avoid generating too much demand, so more demand that we could actually fulfill, in our operations. And then secondly, we also saw quite low CACs during Q2 and Q3 of this year. On the G&A front, G&A is a line item that does not scale with revenue. And therefore, we brought that down from north of 7% to around about 4% in the first 9 month of this year. And this is something that should be permanent unless you would assume that basically, our revenues would grow negatively in the future. So when you bring that down to the AEBITDA level, we've expanded our AEBITDA margin by around about 5 percentage points versus Q4 2019. Of those 5 points, around about 3 points are more transitory because of the linkage to COVID. Now talking about the COVID impacts, let me also address a question that we often got now over the last couple of month, which is, how do cohorts develop of customers who came to our service during the COVID period? So what you see on this chart here is one of various retention metrics that we look at internally. What it shows you effectively is the lifetime of customers in number of orders over a 20-week period since they first joined our service. And focus first on the chart on the right-hand side, Australia. So a person who joined us in week 14 of this year generated a meaningfully higher number of orders and had a higher retention profile compared to a person who joined us in week 14 of 2019. Now this is not surprising. Yes, if you think back early April this year, that was the peak of the COVID crisis, you should expect a high retention ordering pattern from people who joined us during that period. Now what gets more interesting is when you look at the back end of the chart, so on May, early June of this year. Back then, Australia was relatively far down the road to be back to normal. But even then, people who joined us during those weeks, they then showed a meaningfully higher retention pattern than customers who joined us in the same week of the prior year. When you look at the left side of the chart, you see a similar picture for the Netherlands, which is another country which, during the summer, was relatively far down the track to be back to normalcy. If we were to put up a chart for Germany, for example, for New Zealand, also all countries which fall into that category, they would show a similar profile. Okay. With all of that, taking that together, let me now take you through what this implies for us for 2021 as a first indicative outlook. Whilst we've doubled the business so far in 2020, for 2021, we are still targeting a very robust growth rate of 20% to 25%. I'm going to go through some of the underlying assumptions in terms of our revenue KPIs in a bit more detail in a second. But please keep in mind that this also includes around about a 3% revenue contribution from our recent acquisition in the U.S., Factor. And on top of that, also please keep in mind that we are entering 2021 with a customer base which is meaningfully higher than the customer base we had when we entered 2020, i.e., especially for Q1 next year, you should assume that the growth rate year-on-year in the first quarter is probably going to sit quite a bit above the 20% to 25% growth rate that we are putting out for the full year next year. On the contribution margin level, as things normalize and the COVID effect phases out, we want to claw back some of the margin compression we've seen this year. So both on procurement as well as on fulfillment, we are targeting to save and, therefore, expanding our contribution margin to 28% towards 29%. And that guidance, by the way, includes already any margin drag we may see from the ramp-up of new geographies, from the ramp-up of new fulfillment centers and from the ramp-up of new brands next year. Let's talk about marketing. As our capacity situation debottlenecks, we also want to be more forceful on the marketing side, i.e., you should expect our marketing expenses as a percentage of revenues turning back to a more normal 15% to 17%. We are also assuming here a certain normalization on customer acquisition costs. G&A will stay roughly stable as a percentage of revenues at around about 4%, which means for AEBITDA -- for AEBITDA margin next year, we are targeting a range of 9% to 12%. So at the midpoint, around about 2 percentage points lower than where we were in the first 9 month of this year. Let me go through what that means for some of the underlying KPIs that underlie our revenue assumption here. The biggest driver for revenue next year will be continued growth in active customers. So versus the 5 million we had in Q3 this year, we assume that we will increase that further meaningfully next year: number one, driven basically by the step-up in our marketing activities; on top of that, we also see significant opportunity to increase our reactivations again. And then the ramp-up of new markets, new brands, some of the U.S. brands that we are taking into our international markets will also contribute to that growth in active customers. On average order value, you've got effectively a number of offsetting effects, which means that on the average order value, we assume that will stay roughly stable to slightly down next year. On the average order value increasing side, you've got what Ed has taken us through before, expansion of our add-on portfolio, which then typically increase our average order value. On the other side, as we increase our marketing efforts, this also means we will work more with price incentives, which we then see reflected in our average order value. Let's talk about average order rate as well. Average order rate versus Q3 this year, we assume to be broadly stable at around about 3.8, 3.9x. However, we assume that our customers, as basically the COVID situation improves, will fall back to a normal seasonality pattern, so similar to what we've seen in 2019 and in the years before, i.e., people will go on holidays, and they will obviously pause during the time -- pause their ordering pattern during the time when they are on holidays. Okay. So that's with respect to 2021 revenues. Let me also clear off a couple of other questions that I'm often being quizzed about when we talk about 2021. First, on taxes, we are now in a situation where we've used up a substantial amount of the tax loss carryforwards we had from prior periods. And what's left, a fair share of that, we will have to capitalize at the end of the year. That means for next year, you should assume our corporate tax rate will be relatively close to a long-term blended tax rate, i.e., for next year, assume something in the area of 27% to 28% in terms of our taxes. Let's talk about CapEx now. We're at the beginning of ramping up multiple new fulfillment centers across both of our segments, U.S. and International. On top of that, we will selectively expand our production capacity in existing fulfillment centers, and we want to invest further in automation. Taking all of that together means you will see a step-up from us in terms of CapEx to around about EUR 130 million to EUR 150 million next year. Let me talk about that capacity expansion in a bit more detail. We effectively plan to quasi-double our production capacity within a space of 6 quarters, so from Q3 this year to Q1 2022, double that capacity across both of our segments, U.S. and International. And you should expect this new capacity to come on stream relatively linearly over that period. In addition, we will also further invest into our automation capabilities. This will help some of the initiatives that you've heard before, i.e., expansion of choice, expansion of our add-on portfolio will help -- be helped by those investments. On top of that, we will want to continue to compound the advantage that we've achieved over the last couple of years in terms of data, in terms of tech, in terms of our growth marketing and will continue also on that side. Now all of these investments will hopefully put us into a very good position to achieve our midterm strategic target of building a EUR 10 billion revenue business. And on the right side of this chart, you see how that breaks down into our growth assumptions across our different growth levers. So firstly, we see still in our existing markets a very significant penetration opportunity, which we will go after. On top of that, we will continue to add new geographies to ramp up our non-HelloFresh brands also across our non-U.S. markets. Both of these levers together should yield at least a 15% CAGR in the midterm. On top of that, we want to further monetize the customer base that we have. And we want to launch and scale new adjacent verticals, such as ready-to-eat and Factor, the recent acquisition of U.S., would fall into that bucket. Those 2 last growth legs together should yield a 5% to 7% growth CAGR in the future. So with that, I would like to open it up for questions.

We're just back from the studio next door. Thanks a lot for posting so many questions. Since some of the questions are actually to the same themes or the same topics, we try to group together some of those. We'll also stop taking questions in a minute or so because we've already received a lot of your questions, which we're very happy to answer. So let me start by answering one question that Fabienne asked us, which is, "Can you talk about the current penetration in the U.S. and internationally, not using active customers, but your total pool of customers in your database?" I think it's a very good question and also one of the statistics that we look at a lot. And so if you think about the 5 million households that ordered from us in the third quarter, then up to that date, we had a little over 3x as many households that at any point since inception have actually ordered from us. Now for all the ones who haven't ordered in the last quarter, we have a number of different variables that we actually look at to determine how likely are the ones that haven't ordered in the last quarter to order again with us and reengage with us again in the future. And our assumption, based on all the different data points that we have, is that about 1/3 of customers that didn't engage with HelloFresh in the last quarter, but have engaged at some point prior to that, will reengage with us at some point. Next question is from Shaked, which asks us, "The goal of having more than 100 menu options presumably comes with a meaningful operational complexity. What changes do you need to make in the current supply chain setup to cater to that growth?" I think, first of all, that's the ambition for -- in 5 years' time. And so 5 years is a long time. Nonetheless, it doesn't require us to make any step changes like from 1 year to the next, but rather to continue to build out all the different software systems and manufacturing facilities that we have. So it will require more investment into automation equipment in our manufacturing facilities, and it will also require that we improve our data science models and our software that we use for demand predictability, that we use for our buying operations, et cetera. But it's not going to be one step change. That goal is sort of like the ambition level for 2025 and will continuously build out towards that. Another question from Shaked, but it's a question that has been asked by different people on the call, so I'll try to group those together, which is around reactivations. "So what percentage of reactivations happen organically? How has that gone up over time? And also, what's the average customer acquisition costs for a reactivated customer?" I think the important thing with reactivations is that, number one, it refers to all customers that reengage with us that haven't ordered in the last quarter. So it's a large pool, like we just tried to identify with Fabienne's question before. When customers join us, I think we've become a lot more sophisticated around that. So up to 3 years or 4 years, we had sort of like one reengagement program for all customers. By now, we actually have a very strong segmentation in place, so that we have a pretty good idea about what are the reasons why someone cancels, how many orders did he take, what type of profile is he, what type of user is that customer actually, what's the likelihood of a user to reengage with us organically rather than for us giving them price incentives or spending media on that. And so depending on what type of customers we reach out to, we mostly work with price incentives. And price incentives are usually reflected already in our net revenue, not so much in the marketing line. Organically, we've definitely seen that by being able to much better tailor our content to why somebody actually canceled in the past. That has helped us to increase the share of organic reactivation. So a simple example, if someone at some point in the past cancels because they said, "You don't have enough menu options." And we now have scaled from 10 menu options to 30 menu options, it's obviously now much, much better for us to tailor that content and reach out to that pool of customers and tell them, "Did you know now every week, 30 new menu options?" And that should obviously be something that can be very convincing to that type of user pool. So customer acquisition cost for reactivations, to sum up, is very low. It's a little bit in media, but mostly in price incentives. And we've become a lot more sophisticated over the last couple of years in actually reengaging that customers because we know a lot more about them. There have also been a number of questions around Factor, I think mostly 2 dimensions of questions. So the first one is around competition and the competitive environment for our Factor acquisition, so in the ready meals market in the U.S. And the second dimension, what's our plan with Factor? How do we want to roll that out over the next couple of years? So with regards to competition, I think ready meals is an established category in a lot of off-line grocery stores for a long time. Direct-to-consumer, it's a category that is still pretty nascent, and that has only emerged over the last 4, 5 years really. And so as of today, our best estimate of the overall market in the U.S. direct-to-consumer ready meals, it's -- that is around $700 million. The larger ready meals market in the U.S. is in excess of $10 billion to $20 billion. I need to dig up that number. But it's a multiple, multiple higher than what the direct-to-consumer ready meal market is at, at the moment. Factor is doing about $100 million this year. So it puts it in the direct-to-consumer ready meal space at about 15% market share. And our ambition is to: number one, grow that business in line with the market, which I think is supposed to grow to a multibillion category over the next couple of years; and secondly, to leverage all the playbooks that we have inside HelloFresh to also take market share from other players in that market. And so I think the more longer-term ambition is that we grow to a similar market share in that ready meal market than we did in the meal kit market. Plus, you have a very strongly growing category on top of that. Now with regards to our plans for Factor, I think for the next 6 months or so, we're going to make sure that we introduce all the synergies that we have identified during the due diligence process. So it's going to be -- and as well as forming a strong partnership with the Factor team. Once we have done that, I think we wanted to optimize our unit economics and then sort of like pour some more fuel on scaling that business as a stand-alone business because as I've just indicated, I think it's a business that is in a very fast growing category. And we're very bullish about that business stand-alone. At a later date, I think there's also a very good opportunity to either cross-sell Factor products into our HelloFresh, into our Green Chef and into our EveryPlate customer base. But I think that's something that's probably not going to happen in 2021. For 2021, focus is squarely on integrating the teams, forming a strong partnership with the team and improving our unit economics before we really scale and cross-sell it into other business units. There was one question also asked around -- from [ Carlos ] also asked around TAM expansion as well as the Factor acquisition. "How do you make sure that management doesn't get distracted? It feels that you might be stretching thin." I think here, it's really core that: number one, we want to form a strong partnership with the existing Factor team; and number two, that we also have a very strong team internally. So you might have talking -- you might have been talking to mostly myself or Christian or a couple of other members from the senior management team. But I do think that throughout the company, we have a lot of talented individuals and a lot of entrepreneurial people. And actually, finding the right opportunities for them inside HelloFresh is going to be extremely important to tie them to HelloFresh in the long run and to also give them the right span of leadership within HelloFresh. So I think that's the most important thing there is, and I don't think that we're stretching too thin. I think we have a lot of entrepreneurial talents that we can actually give those type of challenges, too.

There was a question from [ Michael ] from Allianz to specify -- asked us to specify what we mean with midterm and when we give out those midterm targets. And so midterm for us in that context is 5 to 6 years.

On monetization and the introduction of HelloFresh markets, there were a number of questions which I will try to address now. There was one question from [ Daniel Kim ], which is, "What kind of revenue share are you seeing from Benelux as you increase assortment from 23 items to 70 items?" So the revenue share from products other than our base plan has increased, has been about 5% on average for the last year and is supposed to increase as we add more and more products to that overall mix. When we talk about that 5%, that is extra meals that customers take as well as add-on meals that customers take. Now your question was focusing on the add-on meals, and the add-on meals are about half of that 5%. And we think -- or we have seen that this can almost double by going from 20 to about 70 that we did. And we think it will further increase as we scale that up going into Q1 and then over the course of 2021. The other question was exactly on that. "So the specification, when you talk about the 5%, is that around AOV increase overall? Or what is meant by revenue share?" So as I just tried to explain, the 5% was everything that's not in your base plan, so extra meals, add-ons, et cetera. And now with the sort of like spinning up a larger HelloFresh market, we've seen that the revenue share for things like the add-on products went from 2% to 5% with the ability to scale it further. Midterm target, again, for that, is the 15% to 20%. Again, that's just something very much a ballpark number, but I think realistic if you think about scaling that to 200 product, 500 products, maybe 1,000 products or more. We don't have the plan like fully in place right now. We more see the overall opportunity that if we already own the most difficult purchase of the week, so the purchase for home-cooked weeknight meals, then we have a great ability to also kind of like capture a larger share from your overall grocery budget. And if you think about a time line of 5 years, we'll experiment our way into what's the exact best setup for us. But I think there's a very, very clear path how you can get to 15% to 20% revenue share with those add-on products.

There was also a question from Shaked from Morgan Stanley about the margin profile of our market offering. Not to go through the different margin levels, from a gross margin perspective, it's very much depending on which add-on or market product we're discussing. In terms of both contribution margin as well as AEBITDA margin, it's on average accretive to both levers. Next question is from Björn from Lupus Alpha. The -- effectively, to paraphrase it a little bit, the question is around sustainability. And whether there is the danger that we just -- that we ourselves can say we are more sustainable and have less food waste. But are we just passing it on to effectively our farmers, that's the risk? The answer is no because we've got, compared to the traditional supply chain, a much higher level of visibility. And we flag to our farmers month in advance through prepurchase orders already what ingredients and what volumes we need from them and then update them along the way. And therefore, it really creates much less food waste, not just on our level, but also across the total food chain. The next question is from Fabienne from Kepler Cheuvreux, an interesting question on logistic costs, whether we expect a certain logistic cost inflation. The answer is, in general, yes, given the stretch under which -- and pressure under which some of the networks are under, given the rise in e-commerce. However, for us specifically, the good thing is given our tech capabilities, we can mitigate quite a lot of that away, yes. So we have started not just now but also a while ago to diversify our partner base in terms of our logistic carriers and, therefore, can shift quite some volume to some of the small and regional partners as well, which don't see similar stress and similar -- and don't try to pass on similar price inflation as some of the bigger players. Next question from -- also from Fabienne from Kepler Cheuvreux is on our midterm margin targets, what that implies for contribution margin and marketing expenses as a percentage of revenues. So talking about the upper end of the 10% to 15% midterm margin targets, that implies for us a contribution margin of 30% or above and marketing expenses roughly around the 12% of revenues in the midterm. Next question is from Victoria from Crédit Suisse about our Q4 performance and the outlook that we gave out overnight, where the outperformance came from on the top line side? So this came from primarily 2 buckets: Higher customer growth than what we had previously planned with for Q4 as well as the, so far, strong development in average order rates for Q4. Another question from Victoria from Crédit Suisse. "On CapEx, what you should plan with for the periods after 2021?" So for 2021, we've guided to EUR 130 million to EUR 150 million. Thereafter, to assume around about the 2% of revenues is still a valid base assumption for periods 2022 onwards.

Next question is from Andrew Gwynn around our household penetration and the value for money of our products. "If the offer is such good value for the consumer, why does HelloFresh only talk about the most affluent households? Is there an opportunity to penetrate much lower income groups, even lower than current EveryPlate?" So first of all, EveryPlate at the moment is only available in the U.S. and in Australia. So certainly, big opportunity for us to also further internationalize into other markets. In those markets where we are active with EveryPlate, we try to reverse engineer the price so that it hits about the median spend that consumers actually have for dinner, so $5 in the U.S., and I think it's around AUD 7 in Australia for EveryPlate. We think this is a very compelling price point. And actually, if we look at the EveryPlate customer group, then that customer group typically comes from the 40th to 60th percentile of incomes. So if you take together EveryPlate at the 40th to 60th percentile and then HelloFresh at the 60th to 100th percentile, then I think we actually cover already almost 60% of households in those markets where we have introduced HelloFresh and EveryPlate. And I think that's also the way to go for us going forward. Another question from Andrew was around the reduction in lead times, so service level improvements. "7 days is still quite a long period. Is there possibility to make the model even more flexible for consumers? And could it help retention?" So first of all, and in our best markets, we're at the moment at 3 days from order to delivery. Unfortunately, not yet in all our markets. But I think 5 years ago, 7 days was the best that we can offer -- that we could offer in any market. As of today, it's 3 days. In some markets, it's still 7 days. So it's in between 3 days and 7 days right now, and the average is somewhere around 5 days at the moment. Certainly, the ambition level is that we get the 3 days to 2 days, and we get the 7 days to 5 days to 4 days to 3 days. Again, that's not something that will happen within 12 months. But as we build up economies of scale, as we sort of like broaden our carrier mix, et cetera, I think there is opportunity to definitely improve service levels. And service levels, next to the product improvements, the menu choice expansion, has certainly helped retention in the past. We've done a lot of experiments on that, and one of the reasons why we're pushing for faster delivery days is because there is a very clear link to a better retention profile for consumers. And I think it makes sense because you then also reach out to consumers that needs that flexibility, that can't commit 7 days in advance, but who might easily be able to commit 3 days in advance.

There's another question from Andrew from Exane about the use of our cash. So you think about the big buckets for the next couple of quarters. One, we hope that we will close on the Factor acquisition relatively soon. So that will require then -- or trigger a payment of $177 million at closing. On top of that, we have a quite robust CapEx plan for next year of EUR 130 million to EUR 150 million. Beyond all of that, we are still quite hopeful that we will also, next year, generate quite decent free cash flows to the tune of EUR 200 million or thereabouts. So we will add to our cash position. Whether we think about returning that in a certain form, through share buybacks or similar, that's something that we would want to pick up with our shareholders as a discussion at some point in -- during 2021. Next question comes from Nizla from Deutsche Bank, questions around revenue growth for Factor next year. So what I said earlier was that we expect Factor to contribute at least 3% to our growth next year. This year, when you look at the around about $100 million revenue that they're doing, if we were to pro forma that, that would represent with more than 2% of our revenues this year. So we assume that Factor will meaningfully outgrow our core business next year and potentially even a bit more. But the 3% revenue contribution and, therefore, the growth that we can derive from that, I think, is a good base assumption.

Next question is from Marcus Diebel on cohort retention. "Are you saying that you keep 20% of customers on an acquired cohort in the long term?" No. That's not what we're saying. What we're saying is that the way to track retention for an e-commerce business or for a marketplace business is mostly via revenue retention. Because given that there are very different usage patterns, it's actually quite hard to define customer retention. So let me give you an example. If someone has ordered with us in month 12 but already canceled his account, is he still a customer in month 12? That's a very tough question, and there is no generally acceptable IFRS definition for customer retention. Same story with a customer that has not ordered in the last 3 months, but actually has an order outstanding for the next week. At that snapshot point in time, is that a customer or is that not a customer? We obviously look at all those customer cohorts, et cetera, and that's an extremely helpful way to do. But I think revenue retention is something that, in a very objective way, can tell you how much of the spend of a certain group of customer do you retain over time without having to go down and say, "This customer is still active" or "This customer is not active" because there's just no generally acceptable sort of like customer retention metric for an e-commerce business available. It's very different for a SaaS business. Because in a SaaS business, once you stop a subscription, you're not going to resume that the months after. You might resume that, if at all, years and years out, but that's not the usage pattern in a consumer model. And so all the stats that we've been giving today is spend retention, revenue retention and how that shapes up and how that has actually developed over the last couple of years.

There's another, I think, a clarification point from Marcus who asks about our midterm margin -- to clarify our midterm margin guidance and longer-term margin guidance. So just to be clear, so for the midterm, i.e., the next round about 5 years, we're targeting 10% to 15%, where for the next 1 or 2 years, you should expect from us more towards the lower end of that and investing really into that growth opportunity, as discussed before. In the longer term, so beyond 5 years, we certainly see that there's a possibility to target 15% to 20% in terms of AEBITDA margin, as you can see, when you look at our International segment, for example, which is some of our most developed markets, where some of those are operating effectively and right now already within that margin span. Okay. Then there was another question for Michael from Allianz on our holding fee, so what that represents. I hope we're not going to end on a relatively boring transfer pricing topic. But effectively, from a group perspective, holding fees are irrelevant. They get consolidated out. On a segment perspective, what this holding fee represents economically is almost similar to like a pretax dividend, yes? So effectively, for certain strategic services that headquarters provides to our individual countries, we don't charge for that when that country is still loss-making, but also thereafter, not charging one-for-one for it. But we have an arrangement with our local entities in place that of a -- of the profit -- operating profit pool that they generate, a certain share of that is a compensation for those strategic services. The biggest strategic services is effectively our tech teams here in Berlin and the tech capabilities here. So this is what's behind the holding fee. For you, economically, think about it almost like a pretax dividend that the individual countries pay to the parent.

So to not end on that topic, let me pick up like 1 or 2 more questions. So one question from Rob Berg from Berenberg was around the add-on portfolio. "So with the add-on portfolio products, be it third-party or HelloFresh-owned brand, and how are you thinking about that? Would it also have the same margin benefits that you see in your core model, where you capture like a very large pool of the profits for all the products that you sell?" Right now, what we really wanted to find out is what type of products do consumers want, where can we really deliver value to them, what is most valuable to them. So at the moment and for the foreseeable future, we're mostly concerned with really understanding the consumers' taste and consumers' preferences, understanding the supply chain behind it, understanding sort of like the logistics behind it. And so right now, we're focused mostly on uptake and on -- and the sort of like optimization of the margin profile of going into own party rather than third-party products, which right now, it's mostly third-party products. That's something that can come in a later date. So I think in the beginning, making sure you understand consumers' tastes, making sure you deliver value to the consumer and have great uptake metrics. And then it's about cost optimization and really getting the brand out there on all the most important and best-selling products that we could have from that. There was also one other question which I thought was very interesting, which came in very late, but I'll try to address it, which was from [ Remy ] and around the delivery fleet expansion. "How do you think about your own delivery fleet? Do you plan to expand it outside of Benelux? What could it mean in terms of margins?" So right now, we're doing -- we're having our own fleet in Benelux as well as in Australia. Those are the 2 markets where we do deliveries with our own fleet. And in the past, we've looked at that. If there is no one who can do it at the same service level and at the same cost level as we can do it, then we were open to trying that out ourselves. And I think we've seen pretty good success in those 2 markets for this. I think going forward, there are no imminent plans to sort of like launch that into like a lot more geographies. But it's certainly something that, as sort of like over the midterm, could become an interesting place for us to be in. And interesting place for us because as we actually expand the options that we have on the menu, as we have more products that we sell in the market, all of those things are easier to do if you operate your own fleet. It's not a must. It's not a prerequisite, but it definitely helps rolling out those types of business models. And as we evolve the business model, as the consumer sees it, I think there is also a good opportunity to drive innovation on the back end, in logistics, in manufacturing and in a number of other areas of the business. Okay. There are a couple of more questions, but thanks a lot for tuning in. We leave it at that for now. I hope we've been able to articulate well our midterm ambition level and the different growth levers that we actually see for the business. I don't think there's just one thing that we are able to do, but it's really a multi-leg strategy. I was told to remind everyone that the slides as well as the video will be on our website for downloads for a couple of weeks. And if you do have any additional questions, then please feel free to reach out to our Investor Relations. With that, goodbye, and we hope to be able to see you in person at some near date in the future. Thanks, and goodbye.

Bye-bye.