Inflation: Hungryroot CEO explains how algorithm-chosen food can reduce costs

Hungryroot CEO Ben McKean joins Yahoo Finance Live to discuss company earnings, the demand for grocery delivery, inflation, reducing food waste, supply chain issues, and the outlook for growth.

Video Transcript

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BRIAN CHEUNG: The online grocery delivery industry exploded during the early days of the pandemic, but with the return to normal, delivery service HungryRoot is betting on a strategy that combines meal kits and groceries. The company's founder and CEO Ben McKean joins us live, as well as Yahoo Finance's Alexandra Canal.

Ben, great to have you on the program this morning. Just want to ask you about what you're seeing in terms of trends here, because people are going out. They're going out to eat at restaurants. They're shopping at brick and mortar stores again. So what are you seeing in terms of demand for the delivery to home services, specifically HungryRoot services?

BEN MCKEAN: Sure, thank you so much for having me on. We're seeing tremendous demand right now. HungryRoot, we just released 35% year over year growth, despite a lot of macro headwinds that a lot of our competitors are experiencing. And we attribute that to the fact that the experience that you can get on HungryRoot is something you can't get offline or with any of the other online grocers.

And that experience is one in which we do all the work for the customer. We actually fill their cart with groceries and recipes that our technology is used to understand what they're going to enjoy eating, what's aligned with their objectives of their food. And we do the work for them.

And in many cases, that means we're actually able to help them accomplish their food objectives better than they could on their own. And that might be losing weight. It might be lowering sodium. It might be saving time in the kitchen. But the service is designed for people who want to save time, one less thing to worry about in their busy days, and also eat healthy and enjoy their food.

ALEXANDRA CANAL: And Ben, I'm curious what you're seeing with inflation right now, because I know even with me, trying to order food delivery, I am going to the locations because I don't want to pay those added delivery fees. So how do you convince people that this is still a good thing to do right now with prices already so high?

BEN MCKEAN: Sure, so we have very much focused on pricing our service competitively. And there's a couple of aspects that allow us to do so, the first of which is customers are using HungryRoot as their primary grocery store, which means that we're shipping them their groceries for the week, a significant amount of food. The average order value on HungryRoot is over $120, compared to the industry average of closer to $60. The reason that's important is, it's much more economical to ship $160 worth of food than it is to ship $60 worth of food. And so that allows us to price the service competitively.

Secondly is the fact that all of the groceries that we're choosing for the customer are intentionally paired together to create delicious recipes. And what that means is, our customers minimize food waste. 20% to 30% of the food that's purchased at grocery stores is thrown out in the customer's home. And the reason for that is because the customer either over purchased or doesn't have something to use that grocery item for by the time it spoils. HungryRoot solves that for our customers.

And lastly, related to the savings around lower food waste is, our customers are actually eating out less as a result of HungryRoot. Our customers are such that they want to have a healthy, home-cooked meal. They don't want to spend the time to grocery shop or to figure out what to make and how to make it. And HungryRoot solves that for them. So it gives them the ability to eat really interesting, exciting, new recipes. And that means that they're ordering out less, which is comparatively more expensive.

ALEXANDRA CANAL: And I want to pick up on that point about how you-- a lot of people throw out food. I think because of that, we're seeing a rise in frozen food purchases. How have you seen that play out? And what other behavioral shifts are happening now with shoppers?

BEN MCKEAN: Sure, it's a great question. Frozen food has historically really provided two benefits. One is, as you mentioned, shelf life. You know, frozen, you can keep in your refrigerator for a very extended period of time. And the second is ease of cooking. Typically, frozen foods are-- many of them are microwave. And if they're not microwave, they're typically very easy to cook.

HungryRoot supplies both of those benefits with fresh food. And so, the vast majority of the recipes that HungryRoot offers are less than 10 minutes to cook. And because the service is designed to maximize the utilization of the food we're sending, food waste is not really an issue. So as a result, we're able to offer the benefits of frozen, but in a fresh format, which is much preferred by our customers.

BRIAN CHEUNG: And then, Ben, lastly here, I want to ask just about the inflationary story. This is something that a lot of Americans are experiencing when they go to the grocery store, trying to get the ingredients to cook together a meal. First of all, are you finding the same supply chain issues that everyone else is finding? How does that force you to maybe make changes to the types of products that you're offering to people that are subscribers to HungryRoot? And then, secondly, are you seeing the price pressures actually leading people towards or away from these types of services?

BEN MCKEAN: Sure, so inflation is very real. It's the highest it's been since 1981 in the food industry. That being said, one of the interesting aspects of the HungryRoot business model is 70% of the groceries that are purchased on HungryRoot are chosen by our algorithm, not by the customer. That's part of the value proposition that we offer, is, our system gets to know our customers and therefore gets to be very effective at choosing their groceries for them.

What that means is, we're able to take into account price sensitivity, and we're able to take into account price increases in ways that traditional grocers cannot. If you're typically walking into your grocery store, and you have your set of items in mind, and all of a sudden, they're more expensive, you're left on your own to either just take that cost, which is what most consumers do, or to try to figure out what's the alternative that I can swap in. HungryRoot solves that for you.

So the inflation impact that we've seen has actually been much lower than the industry as a whole. We believe that's going to continue. And we believe that we're actually going to perform very well in an inflationary environment.

BRIAN CHEUNG: All right, HungryRoot founder and CEO Ben McKean, as well as Yahoo Finance's Alexandra Canal, thanks so much. Appreciate it.

BEN MCKEAN: Thank you.

BRIAN CHEUNG: Coming up, why Delta is letting its travelers change flight--