Hi everyone, and welcome to InderesTV. I am really looking forward to this interview that I have in front of me. Today we're going to talk about Cheffelo, who has performed very impressively lately, and they are about to launch in Finland. That raises the question: why Finland, why now, and how is it developing? With me to talk about this, I have the CEO of Cheffelo, Walker Kinman. Welcome.

Thank you. Nice to be here.

Very nice to have you here. I think we should start this interview with a broad question for the viewers who have never come across Cheffelo before. To all the Finnish people, maybe not as investors but as consumers. Could you explain what Cheffelo do?

Cheffelo is in the meal kit business, and we solve dinner, and we do it for families, and we do it with meals that bring families together. So a meal kit basically is all of the ingredients, all of the recipes you need, delivered right to the door in all the portions you need on a weekly basis. That's what we do.

That's what you do. You're an American running a Nordic meal kit company. Briefly, how did you end up here, and why does the Nordic dinner table matter to you?

Yeah, well, I've been married for 28 years to a wonderful Swedish wife. We've raised three kids in Sweden. And when it comes to a very practical problem that all families have, it's how do you balance life, right? So when it comes to actually getting food on the table and making sure that you have an opportunity to bring the family together at least once a day, that's really important. So meals resonate with me. It's a nice business to be in, I like it.

We need to talk, of course, about your pilot launching here in Finland. Because not that long ago, when talking about geographical expansion, you said there was nothing to offer. But early this year we then heard that you are planning a pilot in Finland, and now about half a year later, we're just days away from your planned start of this pilot. Couldn't you talk us through the timeline? What led up to this decision? What has happened since the reveal of the pilot?

So maybe it's good to qualify and say it. Entering a new geography always has a risk. And which means that you change the risk profile of the business. And at one point in time, yes. When people have asked the question, I have expressed that we weren't ready for that and we weren't ready to change the risk profile. What's very unique, and what we love about the possibility of entering the Finnish market, is that we can do everything directly from Sweden in an initial phase. So a lot of these sort of risk moments we take out because of the fact that we have a fulfillment center that we can operate out of. It's a world-class meal kit fulfillment center, one of three that we run.

It's at full production capacity, or full production swing. And it's very favorable. So we have that. We have supply chains that are established. We understand and can control unit economics. We can understand and control quality from day one. And it gives us the ability also to launch an absolutely fantastic product in the Finnish market. We do 150 recipes every single week. We have things that help personalize those recipes specifically to what the household needs and wants. And we have the ability to do it economically viably from day one. So it gives us a very good launching pad to move into a new market.

Okay. I raised a question with my colleagues here at Inderes. The reaction has been quite interesting. This type of business has been tried in Finland. They have failed. Competitors have been forced to shut down. But I also learned about Anton&Anton and Ruokaboksi that you will now compete with. What makes you think that you will succeed where others have failed? Have you studied any of the previous cases which have failed, and what have you learned about them?

Well, I think first and foremost, one of the things that we've been very successful at is focus, and focus on the things that matter, and creating a complete product solution for our customers. So here we get into the fact that it is a personalized service with sufficient variation to hit customers from day one, whether they have a two-person household or a six-person household, whether they want to eat two meals a week or five meals a week. There's a lot of very personalized and good variation within the experience that we have to offer. I think it's always a question too of how fast the market has moved from an e-commerce perspective. We've seen some trends that are somewhat slower in the Finnish market than perhaps in other markets.

At the same time, we've also seen some stuff that was not economically viable in Sweden, Denmark and Norway when it comes to e-commerce and online food. So we think we've found a sweet spot. We're very focused on solving dinner, and we found a way to do that, not just in the idea that we're selling food, but the fact of the matter is, what customers are actually paying for is a service that helps them in their life day in and day out.

Mhm. You mentioned Denmark here, because if we look at Denmark, where it took years of patience, and that was with the local brand and a local production. Finland gets neither of those to start with. We will talk more about that later. But that raises the question, how many years of patience does Finland get before you call it a success or a failure?

Well, the good news is that we can be profitable in Finland from day one, as long as we have unit economics to acquire customers in a right way, we don't add cost structure to be able to be present in Finland. So every sale in Finland based on that model is actually an incremental addition to profitability in the business. At the same time, we know we need to build a brand, we need to find customers. And because of the way meal kits work, you do expect more investment up front to find those customers that are going to be really happy with the service and be with us for a long time. So when it comes to patience, I think we're quite realistic in what it takes to build a business. And we're looking forward to doing that now in Finland.

Mhm. And if we look in Norway, high grocery prices have helped your case there. Does that logic transfer to Finland as well? Or how is that situation there?

Not so much. I think here, we're not talking about trying to substitute the grocery store, even in Norway. That's not what the value proposition is. The value proposition is actually meals that unite families and bring you together. And you'll see this in even our new visual. When we talk about our branding and how we're changing our visual identity, the identity and the brand that will be presented first and foremost in Finland is an offering that is for all tables, essentially being able to meet a wide audience with all of the food requirements and taste preferences and whatnot that they have, to the size that fits the family and doesn't have any food waste.

Mhm. Like you mentioned, in Norway, Sweden, and Denmark, you have local brands, but Finnish families will be the first anywhere to get a box that says Cheffelo. Could you briefly explain the local brand model, but also why Finland gets the group's own name?

That's an interesting question, but a lot of it has to do with brand equity and the brand equity that we have today in Linas, in Godt Levert and Adams. In fact, for a longer period of investment in building a brand, what we get out of a unified brand identity is a lot of economies of scale in terms of brand assets and how those translate. We also are very, very sure that we are selling the same product in the same way in each of the markets that we're offering. So to create different brands for that doesn't make sense. It's also much more costly to do it.

But the brand is also something we've worked with for quite some time in terms of saying we're looking for a brand that also has legs. It travels internationally. It's not language-dependent in the sense that when you say Linas in Sweden or Denmark, you get too much local nuance. That doesn't translate out of the existing market. So with the brand, and also with this presentation that we're doing with the new brand identity, we're doing something with being a modern brand, a friendly brand, a warm brand, a little playful, to appeal also to both a wider audience and a younger audience across the market.

I understand, like you mentioned, you will start this Finnish pilot with help from the Swedish facility that's located in Mölnlycke outside of Gothenburg, west side of Sweden. That's quite far geographically from Helsinki. How will the actual meal kits get there, and how do you see the dynamic affecting your business model?

You'd be amazed at how distances and supply chain work, and I've learned a ton of stuff in this business. But today we deliver to the northern part of Norway, for instance, from Oslo, we deliver all the way up to the northern parts of Sweden. Of course, we do have the Baltic Sea in the middle of it, but you'd be surprised by the fact that there are very well-established transportation routes across the Baltic Sea. There are very well-established transportation routes across the Baltic Sea. There's a lot of commerce moving already today between Sweden and Finland. So we extend supply chains a little bit. But when we think about the fact that we will be producing in Sweden for the Swedish market and the Finnish market. At the same time, we will be delivering in Finland at the same time we're delivering in Sweden. So it's the same quality product that moves across a little bit longer space. And from a cost perspective, we don't see any material differences in cost.

Okay. Interesting. You're starting with the Helsinki region here in early September. What must happen, like volume or retention, before Tampere, Turku or others can order? Is there a map with dates, or does the rest of Finland just wait for the results?

I think we've talked a lot about a pilot project, right. And one of the things that's nice about pilot projects is you have the opportunity to learn before you make massive investments. So I think for us, there's also a lot of things that we need to learn that we don't know today about Finland. But then it also comes back to having an organization which is data-driven. It is a learning organization. It has a lot of curious people who like understanding new things as well.

So I think as I see it over time, we're talking about a pilot project to move us to a phase where we adjust the product fit, even to the extent that it is even more acceptable in the Finnish market than what it is today. And then we talk about larger-scale launches. But all in all, it's an economics equation. The more deliveries we have, the more we can increase delivery densities, the more we can increase delivery efficiencies. And as those build out, it makes sense to expand.

I understand. I read in your Q2 report that sales and marketing expenses were reduced here in Q2. What is your view on marketing connected to Finland and your trial here? How much will you spend on marketing in Finland?

That. That remains to be seen. I think we will have a point in time when we talk more about sort of larger investments in the Finnish market. At some point when we feel it's time to make larger investments. At the same time, I think when we talk about sales and marketing efficiency, we've been working for a long time with reshaping the organization, reshaping the way we work to drive sales and marketing efficiencies. So the fact that in the first half-year we grew by 18%, we also did it with an absolute decline in sales and marketing expenses.

We did it also with a relative decline in how much discounts and rebates we were giving to customers to try the service. And I think that's also a testament that there's a lot that can be done even in the meal kit market in general, to move away from sort of heavy discounting and very aggressive marketing tactics and still grow and get very good cohorts.

Like you mentioned, two weeks ago, you refreshed all your brands, bolder colors and more playful voice, one promise for all tables. How is that work progressing? Is it done now, or is it still a lot of work in progress with this?

I think the brand has been live for maybe two or three weeks now. So I think it's very, very early to take a change in a visual identity and something and then say it's working or not. Feedback has been great. I mean, the feedback has been this is very lively. We've had a lot of, and I guess it's anecdotal, but it feels more fun, which is something we've been looking for for some time in terms of how do we shift our brands from being too serious, too old-fashioned, to something that actually is appealing to young families because the food that's offered is definitely young and modern.

If the brand works in Finland. Do you see it as a possible brand to roll out in different geographies as well? Or does it also make sense to roll the current local brands into the brand?

It's nice that we don't have to decide that type of thing. We have, it's an interesting question, but I think it all comes down to what makes most sense at different points in time. If you had asked me five or six years ago, would it be good to merge Adams into Godt? Both of these are very strong brands. My answer at that point in time, and I have been very resistant to it over time. However, where we're at today and how we talk strategically about the business, it made tremendous sense to do that. Migration and consolidation of brands in Norway. It's been a fantastic success, and much of the sales and marketing efficiencies that came out of our first-half result have to do with the consolidation of brands. So it's not something that we rule out, but it's also not something that's needed today.

We'll have to wait and see. Then if we go into the competition in the Finnish market, like I mentioned before. Ruokaboksi is local, profitable, and they own a big part of the Finnish meal kit customer base. What's your unique selling point here? Is it price, product, service, something else?

So when we talk about solving dinner and we talk about meals that unite families. We come back to very. Two unique competitive advantages that we have. Personalization. So smart. It feels simple is really about the variation in the meal kit. It's about how you interact with the service. It's about having your own preferences that are met and put in front of you, but done in a way which is really, really simple. You shouldn't have to do endless scrolling to find the three dishes, or four or five dishes, that you want to eat this week. So personalization is a very important part of that. We do that at scale today.

We have 300 ingredients that contribute to having 150 different recipes from two to six portions without food waste. On the other side of the equation, we also talk about the fact that we're nailing it on service reliability. This is about operational excellence. This actually happens on the line. It happens with our colleagues who are packing the boxes, with our transport partners, with everybody that's making that full equation work so that the reliability in the service week in and week out is consistent. It needs to be a whole product solution. If you're going to solve dinner and you're going to do it 52 weeks a year, you've got to be good at it. And this is where we also have a competitive advantage in our fulfillment centers, our technology, our people, our ways of working.

Mhm. Do you think the plan is to convert physical store shoppers or more take share from other competitors already on the market, who will be the first persons that buy in Finland, do you think?

I think, yeah, first persons that buy anything new are always innovators, right? So what we talk about in terms of hitting the mass market is making sure that we have a complete product solution for every day, solving an everyday problem, which is what are we going to eat for dinner? When it comes to looking at the Finnish market, though, the Finnish market is relatively small, it has a long way to go to look like the Norwegian market, the Danish market, the Swedish market. So I think honestly, I'd like to have a nice position in a market which is ten times larger than it is today. And I think that's what the. That's what the. If there's a challenge, that's what the challenge is in Finland, is growing a category which is relatively unknown today. And. And I would argue it's relatively underserved with the competitiveness and the offerings that have been made in the market today.

Mhm. If we talk more about the actual product on the Finnish market, you mentioned 150 weekly recipes, portions from 2 to 6, the full package here. Have you made any country-specific changes on the recipes for Finland, or do you think the lineup of recipes from Sweden would just be a success for the Finnish audience as well?

I think this comes down to sort of what is a pilot versus what is your final solution. And at this point in time, we're looking for can we gain customers and can we get concrete feedback? Surprisingly enough, people eat very similarly. There's always home-cooked food, there's always these sort of traditional foods that are eaten in different countries, but a lot of households are eating Asian chicken. And what's Asian chicken? Is it different in Sweden and Finland? There's a lot of interest in new ways of eating and different tastes and flavors. How are you adventurous in your home cooking when you've never cooked in a certain way? Those are the types of things that this is. This is a service that helps people across that barrier of exploration and inspiration.

So I think I wouldn't, I'm not going to, I would never go so far as to say that Finns eat like Swedes. What we can do is we can put a product in front of them that gives them a lot of variation. Some of that will be a 100% hit. Some of it will need to change. And that's something we need to figure out over time.

Yeah. cheffelo.fi is live, first deliveries are set for the Helsinki region here in early September, like I mentioned. What are you going to be monitoring most closely just during the first deliveries?

During the first deliveries, of course, we're looking to confirm food safety is working as expected. That's always the first key. We're also then looking to make sure that we're able to deliver that. The instructions to drivers have worked, that the full distribution chain works. That from the moment of packing. Through all of the steps that happen before those. The delivery hits the customer's door. That needs to work well. And then we're looking for feedback. What does the customer say? That's at the end. That's the most important. But if we don't take care of the other stuff first, then we don't even have the opportunity to hear from the customer.

Mhm. I think you mentioned somewhere around 150 million to where you start thinking about putting down a local footprint. What's the bar at the other end: after how long time under X million will the pilot be called a failure?

I think we have a window here of, you know, I would say we're in a six-month phase at least. I mean, definitely till the end of the year when we're talking about being in a mode that we call pilot mode, that should be enough time to either get the kinks worked out, work out the bugs, figure out what you need to change, or also the time to take a decision and say, we're actually not able to find customers in the Finnish market with the way that we work and how we're working. So I don't think we're sitting here for two years to figure out if we can do this or not, I think we'll have lots of data within six months.

Okay. And if we change the perspective regarding success or failure, which metric do you think that investors should be looking at to judge Finland going forward? Which figures will you reveal?

Again, it all comes back to customers. And I want to qualify that in the sense that not all customers are alike. We have new customer acquisition. We have long-tail cohorts. In this phase, though, we have to be able to acquire customers. If we can acquire customers, we can't demonstrate that we can acquire customers. We shouldn't be doing it. And over a longer period, we need to be able to demonstrate that not only can we acquire customers, but they're actually going to stay with the service because they love it. And if we can get those two right, the business will follow.

Mm. Can we read Finland as a dress rehearsal: if the brand and the cross-border logistics work here, do you start looking at other larger countries? Maybe this is far away in the future. But in your own words, it opens up the doors for other things down the road. Which doors are we talking about here?

I think strategically, when it comes to different geographies, strategically, we have opened the door in terms of looking at Finland. I think I don't sense a risk appetite which is extreme about making bold, aggressive, loss-making moves into new markets from a greenfield expansion perspective. So I would be cautious to say that the approach is to get big and go global. At the same time, I think that Cheffelo has proven that we have capabilities to do some things that are really, really interesting in the Nordics. To the extent that we can see that those have the ability to expand beyond the existing borders, it creates new opportunities, new things to think about from a strategic perspective. But that's as far as it goes. At this point.

If we go back then to a little bit more big picture, Cheffelo as a whole here in Sweden, you have become a bit of a private investor favorite, have almost doubled the present share price gain in the last three years, and that does not even include the total return of dividends. So first of all, congratulations. How has it been being part of such a successful business and at least partly a turnaround story?

It's always nice to be on the winning team, right? So the fact that Cheffelo is winning right now, that's mostly a business question. It translates into a higher level of confidence from investors. We appreciate the vote of confidence. It's nice to be acknowledged that you're building value, and I think the entire team appreciates the fact that they can say that they're contributing to value creation. Beyond that then, shareholder issues are shareholder issues. It's up to shareholders to figure out what the company is worth. Our focus needs to be on building the business.

And if we're going into the Q2 numbers, the EBIT margin came in at 13.4% in Q2 here, up from 8.2 a year ago. Already tracking well above your own long-term goal. Is that target now outdated, or are you deliberately being conservative?

First of all, take into consideration the seasonality of our business. So if you're looking at it for the first time, it's important to also understand that profitability fluctuates throughout the year. For instance, when we go into the third quarter, we have seasonal downturn because of vacations, seasonal vacations across the Nordics, people go on holiday, the volumes come down, we lose some of those economies of scale in terms of volume that we have seen in the first half. But at the same time, we accelerate sales and marketing expenses. So profitability in the third quarter has historically been negative, which means way off in terms of our target. So I wouldn't take a quarter as a single point.

That said, if you look at it on a rolling 12-month basis, we're very close to the upper end of that 9% threshold. I think what's satisfying about that is that we've been able to actually demonstrate that there are economies of scale and very good economies of scale in the business with growth. So it gives us the opportunity to reflect on that. We haven't made any changes, but we are very close to the levels that would indicate this level of profitability. So the question is how much more can we grow and at what point in time do we start adjusting financial targets?

Yeah. And that leads on to my next question. If you had to choose between defending this growth rate or defending this margin next quarter, which would you pick?

So I think in our business, and especially in meal kits, when you get stuck on focusing on the growth rate, there's a very dangerous point there, which is a lot of revenue actually comes from new customer acquisition. So if you want to have a continuous growth rate at a very high level, you need to have always increasing numbers of new customer acquisitions. That's a very complicated. It's a very complicated goal to set because there's a lot of variation that can happen in markets. So. So I think the answer to the question is you choose profitability over growth because profitability will fund future growth. And if you have these fluctuations in new customer acquisitions, you need to be very careful about not getting stuck and trying to chase unprofitable cohorts in this business.

And you also flagged here that the second-half growth will be lower than H1, partly because Q3 last year had an unusually strong 27% comparison base. How much of that slowdown is the tough comparison versus an actual deceleration in the business?

And this gets right back to the issue of new customer acquisition. So if you look back at Q3 last year, we had a surge in new customer acquisitions. We saw, for instance, over 60% increase in new customer acquisitions in the Norwegian market. We had some new partnerships that came online in the third quarter of last year. It was a very successful quarter. But if you don't have the same level of new customer acquisition, you will see a softness in terms of how much the growth rate will be because of how much revenue comes from new customers. Don't forget that in meal kits, and we generally say about half of the customers are gone after two months. So that new customer acquisition, 50% of it will disappear after two months. But you still need, of course, to have new customer acquisition because it is a long-tail business.

And if we then go back to the pilot here in Finland, if we talk again, let's say a year from now, what's happened then with Finland? What will you hopefully have achieved by then?

I think the natural hope is that we have a proof point that says the market is interested in meal kits, which means that we've increased our acquisition rate, we've increased our investments in the Finnish market. We're fulfilling at a higher rate. We've got a lot of customers talking about how wonderful it is to get meal kits, and it's driving the meal kit category.

And my last question here, do you have any recipe that you could recommend to any current or hopefully then a lot of Finnish new customers here. Do you have a personal favorite?

A personal favorite, I think. Next week we're going to be eating. I don't know how that translates, beef patties, I guess you'd say in English, with mushrooms. And it's a really nice dish with roasted potatoes and stuff like that. Those are fantastic. It's also a little bit more traditional. My wife loves it, which means it pops up time and again.

I think I would probably choose Bjärekyckling, which is one of these very high-end producers of chicken in the Swedish market. Fantastic dishes with Bjärekyckling. So, so these are chicken. So these are some of my favorites.

Yeah. And if you want to read more about Cheffelo, you can find more information on cheffelo.fi, and to the Finnish listeners, go and check out that page. Thank you so much, Walter, for taking your time and patience with all of my questions here.

Absolutely, great to be here.