Good morning, everybody. A very warm welcome also from my side, both to those of you joining via stream, but even more so to those of you who've made the pilgrimage to Berlin today. It's a nice, sunny, but cold winter day here, and hopefully there's a lot to learn over the next couple of hours. I think it's clear that we are at the moment in a period of change, change that we have started to enact over the course of last year, but which we will very forcefully drive over 2025 and 2026. I'm personally very excited about that phase of the company because I think we're doing the right thing for customers, and we're doing the right thing for long-term shareholders.
Today, we're going to talk about mainly three different things, and that's how we've structured the Capital Markets Day, which is, I'll start with contextualizing where we are in our journey and also what the long-term opportunity is. I'll then hand over to Christian, who's going to walk us in detail through the efficiency program that we've started last year, and that should see us realize savings of about EUR 300 million annually versus 2024. Finally, after the break, my colleague Patrick and I will share our product and marketing investment plans, both for Meal Kits as well as for RTE. Before, upon popular request, my colleague Conal will share some of our nutrition philosophy around Factor, which is a key part of the customer proposition that we have. Our mission is and has been since day one that we want to change the way people eat forever.
You'll probably hear me and other leaders reference that mission often, both internally and externally, because it's something that really describes the long-term opportunity that we're after and also allows us to look beyond just quarterly earnings and some short-term financial pressures. It's really the sort of like North Star that we have and which we then use to actually derive our business and corporate strategy over longer periods of time from. As of today, we're active in a number of large and resilient consumer categories. We've started the company in 2011, shipped our first order in 2012, hence we've been on the market for Meal Kits for now about 13 years. We've actually been on the meal kit market, or we've been a single product company with Meal Kits for the first eight years of our existence from 2012 to 2020.
Over that period, not only pioneered Meal Kits, but also became the clear market leader in every single geography that we've entered. We've then, by 2021, also went into Ready Meals as the second product group that we have. More recently, in 2024, given the many capabilities and given the success that we've seen in Ready Meals, also entered Pet Food and VMS, which stands for Vitamins, Minerals, and Supplements. While we're still really excited about the midterm opportunities for Meal Kits and Ready Meals, we think that a lot of the capabilities that we have developed, we can also bring into some of those newer consumer categories. The vision for us is that over the next couple of years, we actually develop into a digital native and technology-first FMCG group, targeting some of the fastest growing and highest margin consumer categories out there.
Food is really the largest consumer category out there, and given its essence to nutrition, well-being, it just being a basic need, it's very, very hard to see a world where the demand for food consumption collapses significantly from where we are today. If you look at the TAM for home cooking specifically, then that's about $600 billion in the U.S. and about $ 1 trillion in Europe. Both home cooking and Ready Meals, which is obviously still a significantly smaller market, but a market that came into existence also much, much later, are not winner-takes-all market, but are markets where consumers have the choice between many different formats, many different meal types, and many different business models.
Even today, across Meal Kits and Ready Meals, we only capture about 1% of the dinner occasions and even less than that in terms of meal occasions with the penetration that we have across those geographies. Pet Food and VMS offer some of the most attractive opportunities in consumer. The market for pet food is about $60 billion in the U.S., and its TAM is expected to grow by about 5% over the next five years annually. VMS is a market that is about $40 billion right now in the U.S. and is expected to grow by about 4% annually over the next five years. Both of those consumer categories are about half the size in Europe, but offering stronger growth momentum from a lower baseline. Over the last 20 years alone, a lot of food consumption habits have really changed a lot.
Most notably, some of the trends that we've observed, but also the broader food ecosystem has observed, is the trend towards increasingly convenient meals, much higher degree of personalization, as well as health and quality. We believe that those four trends will be the main trends also into the future, and we think that over a sufficiently long time horizon, the future of food will be much more convenient than it is today and much more personalized than it is today. Meaning customers will have access to the right meals at the right time and at the right price point. At the same time, in today's world, customers definitely face a lot of trade-offs. Trade-off between convenience and price, trade-off between health and convenience, trade-off between quality and price. A lot of different trade-offs that customers face.
We very much believe those companies who will be able to break through those trade-offs will be able to capture a much, much larger share of consumers' food budgets in the future. If you think about our two main business lines, Meal Kits and Ready Meals, then I think we have a lot to offer in the realm of convenience. Mental convenience and the convenience of planning and shopping in the case of Meal Kits, and then very clearly convenience and affordability advantages when it comes to Ready Meals versus grocers, other forms of shopping, but also food delivery platforms. The understanding that what you put into your body has a really, really big impact on your overall health and well-being is something that has gained a lot of momentum over the last couple of years.
I think a decade or two ago, this was really sort of like a niche proposition, but over the last couple of years, it has made its way into mainstream knowledge. Consumers care greatly about both health and the quality of what they eat, and I think we can provide strong proof points around our ability to serve those needs very, very well. Some of the most interesting trends that we see outside of the general benefits of home cooking, which is the absence of non-GMO foods, you know, very low added sugar, a very high degree of understanding food from farm to table and what the provenance of food is, or a low amount of seed oils or the absence of seed oils at all, those are some of the general trends of home cooking.
More specifically, the health trends that are really dominant as of today is really a very high concern about the amount of added sugar in your diet, making sure that consumers have enough protein intake with all of their meals, and then also a very low share of consumption of ultra-processed foods. I think to all of those trends, we play very well. If you compare the diet of HelloFresh meals or also of Factor meals versus the average diet of a U.S. or European consumer, then especially across those different dimensions of low added sugar, high protein intake, and a very, very small amount of ultra-processed foods, we do extremely well. If we think about the future of food, what does it take to actually build a big company and to win in those different consumer categories?
Traditional consumer categories, you had retailers as stage gatekeepers, meaning that the ability of a consumer brand's success was mostly determined by how well are they doing in getting into retail shelves, and then how good are they at top-of-mind awareness for consumers that are making a purchase decision in front of a retail shelf. That game really has changed a lot over the last 10 years, and I think the muscles that were needed to win in retail consumer categories are actually very, very different muscles to the one that you need to win in direct-to-consumer consumer categories. Some of the most important muscles that you need to win in direct-to-consumer are really making sure that you can understand customers' needs and make sure that you are on top of the direct customer relationship. It's also extremely important to run your supply chains efficiently.
We do that by our investments in technology and data, which allow us not only to run our supply chains efficiently, but also have a very different supply chain established than traditional consumer brands that go via retail. We've also made a number of very, very big investments into our physical infrastructure. We've spent about EUR 1 billion in CapEx over the last five years, which now obviously offers a very defensible moat against any existing and future competitors that we're competing against. Finally, I think we've seen when we've moved from one product group, Meal Kits, into our second product group, RTE, that a lot of the capabilities that we have around our growth engine, our advertising, and targeting came in very handy and allowed us to be successful in that second direct-to-consumer category that we've entered as well.
Of course, the most important thing for any successful consumer brand is actually to be able to understand consumer needs and to craft winning product propositions. No matter if you sell directly to customers or into retail, I think in the end, what customers spend their hard-earned money on is the product that you're giving them. There are many, many different reasons why consumers don't buy your product, why consumers don't repurchase your product, but there's one main reason why they do, and that is because you have a winning product proposition that satisfies the need of different customers. The big advantage that we have here is not only that we don't have a legacy portfolio, but that through those direct customer relationships that we have, we can actually craft those winning product propositions quickly and can react to trends very, very agile.
For the first eight years that we've been around, we pursued our mission to change the way people eat forever exclusively through our activities and first pioneering, then scaling, and eventually assuming market leadership in our to-date still largest meal kit product group. Meal Kits in 2024 did about EUR 5.5 billion in revenue, EBITDA margin a little bit under 10%, pretty much in line with the longer-term EBITDA target that we've given out before, which leads us to achieve a meal kit EBITDA margin of north of 10%. Food consumption actually comes in many different forms and shapes and many different formats.
Since 2021, we've also made big, big progress in scaling into our second product group, which is Ready Meals, which we scaled from EUR 100 million when we took over the business in late 2020 to about EUR 2 billion in 2024, while achieving EBITDA profitability and really building out and going through a massive, massive physical infrastructure build-out. In addition, we've also launched a number of promising new brands in some of the most attractive consumer categories out there. We have internally screened a lot of different consumer categories. I think we're acutely aware of competitive dynamics in those different categories, of the profit pools that are out there to capture and the target margin profiles that are there. We've identified specifically vitamins, minerals, and supplements, as well as pet food, as the two most attractive direct-to-consumer verticals.
While those are still comparably small, with about EUR 100 million in revenue combined in 2024, they've been growing very fast. If we look at the growth trajectory of those over the next couple of years, we think starting in 2027, 2028, those as a group can make a real difference to the growth trajectory of the company. They're still EBITDA consuming, so they're not profitable yet, but they will go through that type of J-curve where you're first building up your customer base and then over time start monetizing on a much, much bigger customer base, the different economies of scale that you actually capture at much, much higher volumes that you ship.
We are excited about the next couple of years where we will build HelloFresh from a single product company that we were for the first eight years into a company that has a much clearer and predictable growth trajectory that does not rest on one or two product groups, but where revenue growth comes in a very diversified fashion and hopefully with improving underlying economics that also allows us to actually show a very predictable margin expansion runway. To better understand the long-term opportunity and contextualize where we are in our journey, it makes also sense to look at a five-year trajectory. To be fair, five years is to entrepreneurs or builders like myself a very weird time because it is incredibly short in following your long-term mission, and at the same time, it is incredibly long in many, many other different aspects.
There is obviously a lot of change that happens in a five-year period. If you just look at some of our financial metrics, then revenue over that period has been up by over four times. EBITDA has been up by over nine times. I want to remind you that the EBITDA in 2024 was the low point during that period and will be the low point also for the future. We have also turned free cash flow positive over that period, while at the same time investing massively into building out our physical infrastructure and a lot of other capabilities, all self-financed through the strong operating cash flow that we produce in our mature business lines. At the same time, we have also drove an enormous amount of change along basically every single aspect of our value chain.
We've insourced the vast majority of our fulfillment and cooking operations, which we hadn't by 2019. We've grown a massive direct supplier network, and we now have close connection and relationships with over 1,700 direct suppliers. We've also launched our own last-mile logistics in 10 geographies worldwide. That's a massive win for customers, supplier network when it comes to freshness and provenance of ingredients, last mile when it comes to service levels that we're able to offer. Most importantly, we've already increased the recipe choice available to customers from on average 18 meals per week in 2019 to now about 60 meals in 2024, with a lot of plans to scale that further in 2025 and 2026. That point is really important because the TAM a business operates in is always determined by the product that you sell.
In Layman's terms, if you think about the product that we had in 2018 with 18 weekly options, with much fewer delivery days, then I think the total addressable market that we're going after was much, much lower than the total addressable market that we're going after today. The total addressable market that we will go after in the future will be multiple times bigger than it is today, given the product investments and the strategy that we're pursuing over the next couple of years. We expect that the next five years will also offer a lot of change, probably a similar amount of change than what we've seen in the last five years. By 2030, we want to be a business whose growth rests on many different legs, who has many different consumer brands under its umbrella.
With a TAM, even in our most mature product groups in Meal Kits and RTE, that is much bigger than the TAM that we're targeting today. Having said that, we're of course also painfully aware that the progress in the last five years has been anything but linear and that specifically the last two years were underwhelming. If you look at that chart, we entered 2020 with what we felt was a clear long-term strategy, which would have seen us grow our meal kit revenue by about a 25% CAGR from about EUR 1.5 billion to about EUR 5 billion by 2025. We all know that obviously with the pandemic coming and the demand shock that this pandemic brought, we actually achieved that growth not in five years, but in merely two years. A lot of timelines were compressed a lot.
At the same time, we captured that growth momentum at utilization levels that were far above what we should have had. That meant that we were over-earning on that massive revenue line in 2020 and 2021. Revenues scaled a lot, profits scaled a lot, not in a linear fashion as we had expected and outlined in our midterm plans, but really took a step change during that period. As a result, during that time, we've also accelerated a lot of different projects and projects that were meant to actually take five years to build. We've actually executed in two or three years. That involves building out our supply chain network, building out our organization, but also building out the customer proposition.
If you then look at the period of 2023 and 2024, this clearly was a period where we wrongly extrapolated some of the demand that we had seen in 2020 and 2021. With 2020 hindsight, spent too aggressively to actually make sure that we remain on the same demand trajectory. We underestimated the demand correction in the short term. Also, due to the build-up of our organization and the build-up of our supply chain network, we've actually seen profits over that period come down and erode. That is something that we now want to turn around. Starting in Q2 2024, we challenged a lot of our prior assumptions that we've articulated during 2021 and 2022 and 2023.
We started a plan to right-size our operations, to rebuild profits and cash flows, and to ultimately return to a more predictable, diversified, and sustainable growth profile for the group than at superior margins. We started executing on that plan at some point in Q3 and very forcefully over the course of Q4 already. We are now in the midst of that efficiency reset period. For 2025 specifically, we are laser-focused on two major objectives. Number one, to deliver on that efficiency program that Christian will walk you through in a minute. At the same time, to use the funds that we free up from that efficiency program to make a meaningful step to the customer proposition, both in Meal Kits as well as in RTE.
Even though Meal Kits and RTE are at very different stages of their growth trajectory and TAM penetration, we feel very strongly about the fact that we need to invest into improving the customer offering to continuously build out the TAM that we go after. That will be the unlock to eventually return to growth in Meal Kits and extend our runway in ready-to-eat a lot longer than the runway that we're currently on. Executing on that efficiency program is important both for short-term as well as for our long-term success. We've seen a painful decline of EBITDA, but even more so of free cash flow for three years in a row now. It's really important that in 2025, we turn that around by right-sizing our fixed costs, improving unit economics, and returning to a best-in-class financial profile.
This will really free up the funds required to self-finance the massive cycle of product improvements that we want to fund. The success of that efficiency program in 2025 is really important to free up the funds to massively improve the customer proposition and return to growth in a number of quarters. What the efficiency program entails is what Christian will share with you in the next couple of minutes.
Okay. Thank you. As Dominik has just articulated, our plan to fundamentally reset our profitability and our free cash flow profile effectively rests on two pillars. One is the execution of the efficiency program. The second one is reinvesting meaningfully into our product. What I want to do now over the next 30 minutes is to take you through the first pillar, through our efficiency program. Both of these pillars are fully under our own control.
Just to remind yourself, the efficiency program is something that we have started to design mid-last year and then communicated it for the first time to the capital markets in August last year in our shareholder letter and then started to execute on the first steps of it actually quite swiftly. In terms of the scope, it comprises effectively all aspects of our value chain except for the physical product. Again, in the physical product, we want to reinvest. Everything else is touched by our efficiency program. It runs until 2026, and it comprises the following key pillars here. First, meaningful increase in our direct labor efficiency across both of our product groups, ready-to-eat as well as Meal Kits. Secondly, a rationalization of our production footprint in Meal Kits. Thirdly, it also entails meaningful overhead personnel expense savings. I'm going to go through that in a moment in more detail.
Fourth, as you know, we've reset the thresholds we apply to our marketing operations to increase our ROI. Fifth, it also includes indirect procurement savings. I'm going to go through that as well. It also includes CapEx savings down to below EUR 150 million by 2026 and a restructuring, i.e., downsizing of our share-based compensation program. When you look at these measures, one through five effectively directly pay into both our profitability increase as well as the increase of our free cash flows. Six and seven are important to deliver on our targets in terms of meaningfully boosting our free cash flow per share. What I'm going to do now in the next couple of minutes is going through each of these measures one by one. Starting with increases in our direct labor productivity.
Our ops teams have made good progress on their journey to meaningfully improve our production processes by applying lean production principles. What does that mean? It means effectively eliminating wasteful activities within our production. It means removing bottlenecks, reorganizing some of our production flow, effectively meaningfully increasing the throughput per hour that we achieve in our fulfillment centers and in our production sites. That was the biggest driver already of the contribution margin expansion you've seen from us sequentially in Q3 and Q4. Progress on these activities. Going forward, we plan to reap even more meaningful improvements in these areas. On the ready-to-eat side, we've set ourselves the target to decrease our direct labor costs per meal by another 20% between 2024 and 2026. On the Meal Kist side, we want to bring down our direct labor costs per order by another 10%.
Now, linked to these improvements is basically a further consolidation of our Meal Kits production footprint. As you know, we've taken certain steps in that direction in 2024 already. There's more that we are planning. We are planning to take out another 25% of capacity out of our Meal Kits production. For what we've done in 2024, plus what we are planning for this year, we've taken a non-cash impairment charge in our accounts last year already. We announced last year already the first sites that we will take offline. The savings that we derive from this are effectively twofold. One, we have less overhead personnel both inside as well as in our central teams here on the ops side. The second one is we save on ancillary costs.
Effectively, utilities, cleaning, maintenance, repair, workwear, consumables, local taxes, all of that goes away when we basically take a site offline. These are cost buckets we clip quasi-instantly when we retire a certain site. On top of that, we are working with our landlords to discuss with them early termination of the sites that are involved. Alternatively, I'm in the market with brokers to basically find subtenants for these sites, which means over time also our lease expenses will come down because of these activities. This is our ops side. Next, I want to talk about our overhead personnel expense rationalizations. What we're targeting is on a gross basis to take out EUR 140 million of our overhead personnel expense base.
That basically taking into account salary increases and comp increases over the next two years results in EUR 100 million net annual savings that we want to achieve by 2026. The program cuts effectively across all of our major functions, so across corks, fulfillment, marketing, our people operations, as well as finance. How do we get there to achieve that? Number one, through more prioritization internally, process harmonization, automation. We also reorganized ourselves quite a bit. We centralized a number of activities more here in our headquarters in Berlin. We are also using offshoring. In terms of the toolset to get to our target size, we are effectively working with all tools that we have available to us. This is natural churn. It also means that we continue to be very disciplined in terms of our performance management.
It also means that we're using forced reductions in certain parts of our organization. In terms of when these measures land, EUR 20 million worth of initiatives we effectively have implemented back end of last year already. There's another EUR 80 million that we are implementing this year and next year. The bulk of this is being done this year already. In terms of financial impact, there's a certain time lag involved, as you know. There are termination periods attached to it. There are obviously severance costs in certain parts. There's also the normal runway effect. In terms of seeing this in full force land in our P&L, you will see that in 2026. The real action has started to happen back end of last year already. The rest of the bulk is taking place this year. Okay.
Next topic that I would like to discuss with you is marketing. Before we go to that, let me just go through our equity-based compensation program as well. Effectively, the philosophy we had until 2024 was to be very broad in terms of our equity program. Why did we do this? We wanted to ensure maximum long-term goal alignment between our broad employee base and you, our shareholders. What we've learned is that effectively we didn't do either side justice. Shareholders were concerned about potential dilution, especially as the share price had come down over the last two years. Same our colleagues, especially on more junior career steps, complained that they effectively realized losses versus what the target comp was.
What we have done now is we meaningfully reduced the scope of our share-based compensation program, i.e., we exempt now more junior and mid-level career steps from that program, partly compensated by a raise in their base comp, but partly, so definitely not on a one-for-one basis. That means in total from having granted around about EUR 100 million worth of equity-based compensation last year, that will go down this year to around about EUR 70 million and come down further by 2026. From a P&L perspective, there is a bit of a time lag that you see this fully reflected in IFRS 2. We will also be below EUR 70 million by 2026 from a P&L perspective for equity-based compensation. With that, let's talk now about marketing. Mid-last year, we decided to meaningfully increase the threshold on our marketing ROI.
We communicated that clearly to the capital markets and then implemented it. Result of that, you've seen already, especially in Q4, is a meaningful reduction in overall marketing expenses for us. In Q4 alone, we reduced total marketing expenses as percentage of revenue by a full 310 basis points. Now, what happens when you reduce marketing quite drastically? Revenue comes down as well. This here shows you our Meal Kits operations, but it comes down for us meaningfully less than what we've taken out of our marketing spend. Again, this is Meal Kits. You've seen so gray line is effectively our year-on-year revenue trend coming out of the COVID period. We were trending already at a negative 5-7% baseline because of the normalization effects that were prevalent at that point in time.
From Q2 2024 onwards, we started to meaningfully take spend out of marketing based on these higher thresholds where we effectively said marketing spent out. On average, we want to attract higher value customers. You see that basically playing through the back part of 2024. Again, the impact on revenue reacted, and there is a certain time lag that you see that reflected in revenue, but the revenue impact is meaningfully less than what we have taken out of our marketing spend. The reason for that, why we achieved to do that, is basically our sizable, loyal, tenured customer base. What you see on this page, effectively, is orders we get every week for the last four years by our customers grouped by customer tenure.
The key thing to see here is that by now, two-thirds of our weekly orders come from customers who have ordered from us already 20 times plus, i.e., there's a clear product fit from these customers. That group of our customers does not necessarily care what we're doing on the performance marketing side. They're much more focused on what Dominik is going to discuss in the next section, i.e., how good is our ingredient quality? How much do I like the recipes? What's the variety that I'm being offered? What's the choice that I'm being offered? Am I, as a loyal customer, being rewarded for that loyalty that I showed to HelloFresh? This page, I want to show you exactly the same thing, but not as a share of revenue or share of orders, but effectively in terms of absolute orders. What do you see here?
Absolute numbers, not shares, grouped into the same buckets. If you focus on this piece here, our meaningful reduction in marketing expenses certainly had an impact on our new and recent customer activity. The top three layers that you see here, because we've reduced marketing quite a bit, have come down quite a lot in 2024. Now, what's important is what has not moved from 2023 to 2024 is basically the bottom two layers that you see here. Even though we've taken out north of 20% and then close to 30% of our marketing spend in Meal Kits, the number of orders that we get from our loyal customers has not decreased. It has stayed stable. It's actually higher than what we clipped from them at peak COVID in 2021 and 2022. Our strategy is working. We have reduced marketing spend in Meal Kits quite meaningfully.
We have increased our eye on our marketing spend. We're taking more orders from the customers that we care most about, so our most valuable customers, the ones who stand for disproportionate share of our profits. The total number of orders we get every week from these customers is not coming down. That means for this year, we will not just targeting to increase our EBITDA margin and EBIT margin in Meal Kits, but we're also targeting to increase absolute EBIT and EBITDA quite meaningfully within Meal Kits. I think now about top line for 2025. We're planning to take out further marketing spend, and that's quite meaningfully. We have done that already in Q1. Therefore, we see further action, i.e., downwards draft in these layers of our customer base. That's why we've guided to being down on Meal Kits this year by more than 10% this year.
Q1, even down by mid-teens. Towards the second half, we will still reduce marketing, but to a lesser degree than what we are actioning effectively. We have actioned Q4 last year and Q1 this year. If you fast forward then to 2026, we're not necessarily planning to then year-on-year reduce marketing spend again. What you should see in 2026, effectively the share that we clip from new customers to stabilize at a level that's lower than what we realized in 2024, but to have a stable revenue profile then from which we can grow the business again at then FMCG type or FMCG plus margins from EBIT and EBITDA perspective.
You can make up your mind what valuation you would put on that business, which basically still derived EUR 5.5 billion of revenues last year, and where 2/3 of the orders come from super loyal, super sticky customers. Okay. Let's go now into a territory that some of you will find a bit more mundane, but still important for us. We have gone through a comprehensive review of our indirect procurement spend. Indirect procurement for us is effectively everything that is not purchasing of our ingredients and not of our packaging material. So broad set, we've reviewed that for effectively all of our functions and are working through now through a long list of actions where we can effectively save.
On marketing, for example, there is a meaningful amount of contracts that we are renegotiating or retendering that cuts across many different buckets, things like printing of our direct mail drops, for example, or what direct sales agencies we work together. There are also certain activities that we used to use agencies for. Patrick and his function are effectively insourcing some of these activities now going forward. On the upside, there is quite an opportunity for us in terms of harmonizing the specs, what we are buying. Also, again, consolidating contracts and renegotiating these contracts with 3PLs, with some of our logistic partners, which is ongoing. In our U.S. operations, for example, I think the biggest business, we had quite some win in that area already.
On the tech side, probably any company you talk to, if they're honest to you, they will tell you they have some redundant third-party software internally. Where you have basically two tools who do kind of the same, but still you have certain parts in your organization who fight by it very religiously why they have to use that tool and the other tool. That is something that we put an end to now. We are effectively discontinuing quite a few of licenses which overlap. There are also certain pieces where our tech teams effectively can write code better, more efficiently, which we'll do and not rely on third-party tools. Some savings here as well.
On the G&A side as well, things like T&E fall into that bucket, budgets that we set to our individual teams to make sure that everyone understands these are hard budgets and not guidelines and then contract renegotiations again. These are relatively comprehensive sets that we're in full flow, I would say, to execute on those. If you take them all together, they add up to a meaningful double-digit million number. The price is big enough for us to also focus on this. Now, when you add up all of our efficiency program levers here together, we're targeting to effectively by 2026 on an annual basis realize EUR 300 million in 2026 already from that program. Of those EUR 300 million, roughly EUR 100 million, we want to put back into the product and provide a little bit for contingencies as well.
Effectively, support to our 2026 P&L adjusted EBIT is EUR 200 million out of this efficiency program. In terms of the economic impact of the levers that have gone through, direct labor productivity increases and optimization on our overhead personnel are the biggest single levers within that, but also the other ones that I just took you through again deliver meaningful double-digit savings for us. Again, we're targeting to have these savings realized in the 2026 P&L, i.e., the EUR 300 million are not a run rate, but what we're targeting to have there realized in that year already. Behind these levers are basically much more granular workstreams, each with clear responsibility, each with a project plan, each with clear deadline and milestones. There's reporting back to us on the management board, so there is a high level of focus on it.
The whole program is supervised by our former North America CEO, Uwe Voss, who acts as our Chief Transformation Officer. I'm super confident that we will deliver these savings in time and in full. Just quickly again from a timing perspective, by Q4 this year, we will have initiated roughly 70% of the underlying initiatives. Remaining 30% fall into 2026. Before we come to the outlook, let's quickly talk about CapEx. This is an area where we have made quite some progress over the last couple of years already. In 2022, we were still spending close to EUR 420 million on CapEx. We brought that down to EUR 300 million and then last year to EUR 166 million. Last year alone, we in year took out quite a bit incrementally out of our CapEx plans.
If you remember, initially we were targeting CapEx spend of EUR 100 million more than what we effectively then brought that number down to by 2024. For 2025, we spent roughly the same amount on CapEx. Key focus area there is our Ready-to-Eat product group. There is a mid-sized kitchen in Western Canada that we're setting up. Here in Germany, we are effectively building our central production site, which will then serve Germany, the Nordics countries, our Benelux countries out of one site. There are some bits and bobs within our North America Ready -to -Eat operation. This year, roughly stable to what you've seen last year from us. By 2026, we want to take another EUR 20 million out of CapEx. 2026 CapEx will be below EUR 150 million. Lastly, I want to come to our outlook.
We are accepting a temporary negative top line growth of mid-single digit in return to sustainably reset the baseline for our profitability as well as for our free cash flow. This is factored into our outlook. It is the same outlook effectively that we communicated last week, where I would say it is fair to say that I definitely got a frosty reaction from you to that outlook. Let me try it once more. Firstly, on revenue. We are targeting for the group a negative revenue growth of 3%-8% on a constant currency basis. For the first quarter, we will sit around the wide end of that range. If you then go down to our two individual product groups, Meal Kits, as we discussed a few minutes ago, we are targeting for the full year growth of worse than negative 10% for the full year in Q1.
This will be down mid-teens. As discussed in the second half, gradually getting better, somewhat linked to basically how our marketing trajectory is. The exit rate will then be somewhat better than what we start the year with. On the Ready -to -Eat side, we're targeting with low to mid-teens for this year. Q1 will be below 10%. We are planning for an acceleration in the second half of this year. Why do we plan with an acceleration in the second half of this year? For a number of reasons. One, quite a few of the product investments, features, improvements that Dominik is going to talk about will have landed by then. Secondly, in terms of our overall mix of marketing in Ready-to-Eat, we will shift back after Q1 more of that mix to our lower funnel performance channel.
Q1 for us was an important point in time to also dedicate quite a bit to brand-related campaigns where there's not a one-for-one conversion at the back end of this. Q2 will then be more business as usual. On top of that, we're obviously looking forward to reap those brand investments we've done over the coming quarters. Lastly, in that pace for 2025, the least into that in terms of absolute importance into that acceleration is effectively once the site here in Germany is up and running, we then definitely want to put the foot down on the gas pedal in terms of new customer acquisitions to Ready-to-Eat in our EU markets as well. Moderate impact from that in 2025, but definitely more important than 2026 onwards. Okay, this is top line contribution margin. I'm going to be relatively brief.
Biggest driver for that is really what I discussed before in terms of our direct labor productivity increases and our site rationalizations. Against that basically goes a deleveraging in terms of volume profile on the Meal Kits side, and then also importantly, quite some investment on the product side. On a net basis, we want to expand our contribution margin by 100 basis points year on year, and that applies to the full year and applies already to the first quarter. Marketing, you have effectively two opposing trends within our two product groups. Meal Kits, we went through that down meaningfully and especially in Q1. On the Ready-to-Eat side, we are building a brand, we are building our customer base, so there is more absolute and relative invest on the Ready-to-Eat side.
Taking both of that together, we're still planning to take out 50-100 basis points in terms of our marketing spend both for the full year as well as for Q1. G&A will be down. The key driver here is basically what I discussed on the overhead personnel headcount side. However, keep in mind, overhead personnel for us does not sit all in G&A. We are allocating quite a few of our colleagues above the line as well, so they will also sit in marketing in our ops line. Not all of it sits here. There are some one-off severance costs that will sit here as well for this year. That means for our bottom line, for EBIT, a quite meaningful improvement that we're targeting for this year from EUR 136 million last year to EUR 200 million-EUR 250 million.
At the midpoint, a growth of 61%, 65% in 2025. EBITDA, a similar uplift in absolute terms, to EUR 450 million-EUR 500 million by 2025 for this year. Free cash flow, effectively at least a doubling of the free cash flow number that we delivered in 2024. For the risk of sounding a little bit like your favorite Spotify song on auto-repeat, let me just summarize the same thing in quasi the same thing in another chart. EBITDA up by EUR 50 million-EUR 100 million, 12%-25%. That uplift, effectively we find on adjusted EBIT as well, plus a little bit more. Given that we're investing less, D&A will start to come down this year already from EUR 264 million last year to somewhere EUR 250 million-EUR 260 million this year. Absolute increase here, mildly higher than on the adjusted EBITDA side.
That means with a lower baseline, effectively that 45%-80% growth that we're targeting on the adjusted EBIT side. That one-for-one falls through to our free cash flow. In terms of other relevant free cash flow line items, taxes and net interest together are broadly stable this year versus 2024. Working capital should be more benign in terms of movement this year than what we've seen from us in 2024. There will be, or there is, an extra inflow from working capital year on year versus tailwind that we're seeing there versus 2024. That means we are targeting to more than double absolute free cash flow and then per diluted share. Given we're in the market with our share buyback program, diluted number of shares will also not go up this year. Okay, that's it.
Just to summarize, yes, we are effectively projecting for a negative top line growth this year, and we do not take that lightly. Yes, we are also targeting to very meaningfully improve adjusted EBIT and to more than double effectively our free cash flows this year. From our perspective, long-term growth in EBIT and free cash flow is what ultimately drives value for you, for our shareholders. We have tried to communicate that very clearly over the last couple of quarters that this is what we are focused on. That is how we manage the business, how we set our targets, and that is what our whole organization also works towards. I think we have got a break now. Thank you.
Okay. Nonetheless, let's get back to the presentation.
I hope you've had a refreshing break and are re-energized for the second or third part, where we're going to squarely focus on our product and marketing changes that we've started to enact, and that should really see us make some changes to the customer experience that, I think, are the biggest ones that we've driven in the last 10 years over the next 12 months. What does it take to actually return to growth for the group? With more visibility and more predictability, less volatility than we've actually seen over the last three, four years. Number one, it means we need to stabilize our meal kit revenues, albeit at a lower base than what we've seen in the last couple of years, but at higher margins.
Secondly, we need to make sure that we can find the right multi-year growth formula for our RTE business, again, with less volatility and more predictability. Finally, we want to invest first slowly, but then as we find product-market fit, more forcefully behind some of our new ventures. We're not going to talk in detail about some of our newer ventures today, mostly because I think the focus is squarely on 2025 and 2026. Over those years, whilst we have actually seen pretty good progress in those new consumer categories, they'll probably not make a big difference to overall revenue growth or overall profitability over this two-year period. I think if we are successful and if we're following our plans, then starting in 2027, 2028, those new businesses can become a much bigger part of our growth story for the group.
That's why we're investing in them today and will be investing into them into the future. Let's start with Meal Kits, which is our oldest, largest, and to date, most profitable product group. Meal Kits has, in the meantime, reached a scale and operational maturity where we can produce, I think, best-in-class attractive margins very close to what you find from the best FMCG companies out there. Last year, we already came quite close to our midterm EBITDA target of 10% EBITDA margins. I think with some of the stuff that we're going to target and address this year, there's further upside to our contribution margin and also to our cash flow profile. We are very confident that already in 2025, we'll grow EBITDA for Meal Kits to beyond 10%.
The biggest question you probably have is less about our relative margins, but what's the sort of like absolute profit pool that we're able to capture, given that we're coming or we are in the midst of a period where orders for Meal Kits have been declining? Obviously, we need to kind of like make sure that we don't see too much deleverage in our apps, in our fixed cost profile. In this section, I'm not going to talk so much about margins, for Meal Kits, but I'm going to focus a lot on what are we doing today to initiate growth into the future for Meal Kits. What are all the different things that we do today in terms of product and marketing investments that will have us return to growth in Meal Kits eventually?
Let me start by taking a look at the attributes of the best meal kit customers that we have out there. When I say best meal kit customers, those is usually like a lot, the vast majority of the group that Christian described before, those that have already placed 20 or more orders have for those 20 orders been with us for a number of years on average, and they share a number of attributes that are quite interesting to visualize because it then helps us to say like, what do we need to do to make the product even better for them? Also, why are there other customer segments that do not find the same value that those customers find currently in our product? They are on average kind of like belong to the first or second income quartile. They tend to lead a busy life.
That means they tend to have dual income households very often, often live in suburbs, often collides with having a certain weekly routine and really value the health benefits of home cooking as well as spending time together around the dinner table with their family or with their partner. At the same time, they're not overly restrictive in the type of foods that they eat. Yes, they really appreciate the health benefits of cooking from scratch and spending time with the family, but usually they're not health nuts or kind of like following a very restrictive dietary or culinary profile.
In the following minutes, what I'll try to do is describe some of the product investments, and I would love for you to keep in mind what our best customers are, what it does to their customer experience, and then again, kind of like how we can improve the customer experience for some audiences that do not find the same value in the product that we have right now, but hopefully will find some similar value in the product of tomorrow. Returning to growth for us will really start with refocusing our mission on our mission, which is changing the way people eat, our purpose, which is helping millions of customers to make better food choices and empowering them to master their busy schedules.
We're going to drive a strong cycle of product investments in the next 12 - 24 months, which go hand in hand with a significant change in our marketing strategy. That includes investing in better value for our most loyal customer, access to a much broader selection of meals on the weekly menu, increased personalization, which becomes especially important in a much larger menu, and rolling out strong service level improvements. We'll combine that with a marketing strategy that attracts a higher share of loyal customers. We'll nurture existing customer relationships and our existing customer base better, and we want to articulate the benefits and the changes in our product strategy in much more detail in our advertising. As a digital native food business, the biggest driver of long-term retention of our customer base is the quality of our meals and the size of our menu.
What that means is that we can only win in the long term if we're in a position to wow our customers week in, week out. There's tons of reasons why customers choose not to order again, but there's one very big reason why they do repurchase, which is because they like the meals, because they find a lot of value in our menu, and they have the feeling that they eat better when they eat with HelloFresh. With an increasing share of our revenues coming from tenured and loyal customers, which are generally more quality sensitive and less price sensitive, we'll seek to invest really into the value that we give with each plate of food.
Over the last three years, we've increased our prices a lot more slowly than overall inflation levels, and we fought hard to maintain or keep quality at the same level than we had before, but we haven't been able to really increase the quality of each meal or invest as much into better menu selection as we wanted. In the next phase, we now want to put a greater emphasis on noticeably leveling up the quality that we give in each plate of food, and that comes in the shape of higher veggie content in each meal, free access to some of the highest value ingredients, proteins, and meal types that we have in our offering, and the introduction of new cuisines that drive excitement for consumers. We're confident that the combination of those will make the product better for our loyal customers.
We'll really give them a lot of reasons to return to the service and actually increase order rates over time with us. Since 2021, we've already driven an ambitious roadmap in terms of menu selection size increase. If you look at our two examples that I brought, both from North America, Canada, and the U.S., you can see that we in Canada scaled from an average of 20 weekly options in 2021 to, by December 2024, more than 100 unique recipes that customers can choose from. In addition, we have given customers options to swap certain ingredients, proteins, or double up portions. That's part of our so-called modularity strategy, where we give customers a lot more option to customize certain meals. Very concretely, right now, if you have been a vegetarian customer, there were a lot of the meat dishes that obviously you were not interested in.
Right now, for a lot of the dishes that we have, we now start to offer some vegetarian alternatives to the protein cut that you have, which means rather than having 10 options in a 50-option menu, all of a sudden you have access to 40 meals that you can choose from. Really increasing the relevant choice for you as a customer. Similarly, in the U.S., we offered about 25 recipes in 2021 per week to our customers, and we've increased that recently to around 70 core recipes that we have on top of that additional modular options.
Now, for 2025, given operational feasibility that we tested in Canada and also some of the customer response that we've seen, higher order rates, larger baskets that you tend to see in the presence of a larger menu, we're going to roll out menu improvements and selection improvement to our North America customers, specifically in the U.S., more forcefully in the second half of the year. Given that we're investing a lot into a bigger menu size, it begs the question, I guess, like, why is a larger menu so important? I hinted towards it with my example of a vegetarian customer, but I think the broader point is customer needs are really diverse.
At the moment, with our menu of 50-60 meals on average that we feature in most of our markets, I think we do a good job in catering to mass market taste, giving customers that do not have a lot of dietary restrictions or do not have a lot of culinary guidelines that they follow, like a good choice of meals within our current menu. Given that customer needs are so diverse in a limited menu, you always face a lot of trade-offs. It is really sort of like within the company that our menu teams fight over who gets to feature what type of meals in the menu, which is always some type of optimization question.
Where we want to go toward is a vision where we're not constrained by the number of meals that we can put on the menu, but rather by the type of culinary preferences, cuisines, et cetera, that we want to offer to customers. Let me maybe give you one kind of like other very concrete example, which I often recommend our colleagues internally to do to really understand the customer experience. Right now, as a customer, you have access to about 50-60 meal options. If you actually use the filter and sort function and you say, you know what, I'm a customer who is looking for convenience meals, meals that I can do in 20 minutes or less, and I don't eat pork, then all of a sudden out of those 50 options, you only have six options left.
Maybe six options is enough, but then if you also have like a high degree of rotation because you want to feature meals that customers like a lot, then actually you get pretty quickly into a situation where long-term customers actually feel like the meals are too much the same over time and we can't drive enough excitement to them. With a larger menu, we want to move beyond having those trade-offs in our weekly menu, and that's why we're going to invest into this ambitious selection roadmap into the future, but very concretely in 2025, where you will see double-digit increase in the number of meals that we offer in almost every single geography that we're in.
What a larger menu also gives us is more opportunities in advertising to bring that to life, to actually talk about the chef collaborations that you have, the organic proteins that you're featuring, the new Italian dishes or Asian dishes that you're having. Like it gives a lot of more reasons to talk about the product and move away from, let's say, financial incentives or monetary incentives, much more into a content strategy to talk about that. Parts of our larger menu will also be dedicated to featuring more ready meals in our HelloFresh core menu. Customers have always been asking ever since we started the business for speedier and more convenient options, and over the last 18 months, our focus has been for Meal Kits in building out a range of really convenient options that you can cook in 15 - 20 minutes.
I think we do a good job at that in Meal Kits currently. If you don't want to cook at all, then I think it's better for you as a customer to go to Factor directly and get access to a wide range of ready meals that we have available. A reality for many customers is that they want to eat two, three times per week together around the dinner table with the family, but then also kind of like consume certain meals by themselves individually.
Those meals very often, I think we can do a good job in making sure they have access to a subset of some of the best ready meals on the market that we produce in Factor and that we feature either under the HelloFresh ready-made or under our Factor brand within the core menu as we expand the menu to more meals that customers can choose from. Now, in the presence of a much larger menu, obviously the discoverability of those meals, which are the right ones for you, becomes increasingly important. We've, over the last few years, started to build up a quite interesting first-party data graph where we understand from customers their meal picking behavior through some of their revealed or stated preferences when we ask them, what are your dietary preferences? What are your favorite proteins?
Meals that they have hearted within the app, some meal recommend, sorry, sorry, some behavior of similar customers, lookalike customers. We use all of that to build up like a pretty rich customer data set and customer attribute profile on the back end, which in a much larger menu than what we have today, we can use to put those meals on top and recommend those meals which we think customers will be most likely to buy. Even on the small menu or comparably small menu that we have today, some of those meal recommendation and personalization engines are actually quite powerful.
If you easily can find, discover, and have the right meals recommended to you, then on average, it's more likely that you go from a pause state into an unpause state or that you take that additional order, if it doesn't take a lot of time for you to navigate and browse through the whole menu. What you can see on that page is just a very concrete example of that. All of those three different customer archetypes, someone who is a vegetarian, someone who is looking for high protein, healthy meals, and then someone who is looking for more family meals will have access to the same overall large menu. The type of meals that are recommended to you when we ask you to make meal choice, when we ask you to pick your meals, et cetera, will be very different.
A lot of those results have proven quite successful for us, which is why we want to crystallize that value by rolling out more and more of our meal recommendation and personalization engines to all of the different geographies. Finally, outside of our product investments, we also want to upgrade the service levels that we have. Those service levels come mostly in two different areas. Number one, the response times and accuracy of our customer service. Secondly, the lead times for delivery. The time between you placing an order and actually having your order in front of your house and being able to start cooking.
The more you reduce that lead time, the better usually conversion rate because customers are excited when they buy, when they actually see that, oh, I can only get my first delivery in five days or in seven days, then you'll actually tend to see a pretty big drop-off at the final stages of a customer making up their mind whether they should convert and start an order with us or not. Last year, we piloted Next Day Delivery in the U.K. If you, as a customer, place your order before 12:00 P.M. on a day, you'll have the box with you on the next day. We've seen pretty successful results from that. We've seen a much higher conversion rate on our checkout page, which lowered our CACs. We've also seen like a pretty good Net Promoter Scores, so customers raving about it.
If you actually know that you're going to get your order the next day, you're also more likely to put more items in your order because you have much better visibility of what you're going to do the next three to five days in advance rather than what you're going to do one week from now and two weeks from now, which is basically the reality that many customers still face. Our strategy here in a first step, we're dialing up the volume of new customers that have access to that. Over the course of the year, we're going to tackle more and more geographies where we want to offer one or two-day shipping rather than what we currently have, which is five to seven days between placing the order and actually receiving the order on your doorstep and being ready to cook.
All in all, I think this is one of the most exciting product investment and upgrade to the customer experience cycles that we've ever driven, all of that self-financed through pushing through on our efficiency program. I'm pretty convinced that 12 - 24 months from now, the customer proposition is vastly different than it is today and allows us to go after a lot larger TAM than what we currently do with the customer proposition that we have. All of this will be accompanied by a change in our marketing strategy, which my colleague Patrick is going to talk about right now.
Thank you, Dominik. Thank you also for the introduction. Maybe because I am a somewhat new entity to this audience, just very briefly, my name is Patrick. I'm your throat to choke on anything marketing related.
If you ever see one of our campaigns out in the wild and you have an opinion, feel free to reach out to me. I joined the business towards the end of 2023 or just about before Christian's chart started to move south on the marketing investment side. It has been a very exciting time and I'm very happy to share some of the upcoming initiatives, but particularly some of the strategy changes that are coming up with you today. I'm very excited to be here and after spending the last decade running marketing in high-growth, high-performance businesses like Uber, N26, and other fintechs, what I've found here is an impressive degree of real-time data that is actionable for the teams. I found an incredible bias to action and a very focused focus on North Star metrics with a team that really gels together to execute on that.
It gives me a lot of confidence that the changes that we are putting forward as a leadership team together with the teams will be acted on effectively. I'm also particularly excited about Meal Kits because despite what we might be talking about and some of the perceptions out in the market, this is a massive opportunity category. Christian mentioned it before, but I know that we've done an excellent job competing with other meal kit providers. However, we today only provide, despite the billion meals we delivered last year, about only 1% of the dinner category within the markets that we operate in. We have a significant room for growth with Meal Kits.
If I couple that with customer insights, large-scale research from last year in our seven largest markets has told us that 70% or so of our addressable audience wants to spend more time, wants to cook more meals at home, and knows that there is huge value to them and their families in that, but only 20% of them feel that the meals that they cook are actually rewarding to themselves to make and rewarding to their families to eat. What have we? We have a large category that we are still under-penetrated in, and we have a significant target audience fact and insight that tells us they need to have a better solution for their options. Many of them have yet to discover the value of Meal Kits for them and their households, and we're going to make sure that we get our way into that.
To do so, though, we do need to shift our engines and our capabilities and our muscles, and I'll talk a little bit about that now. Dominik just introduced the single biggest investment to the customer experience, the core product value proposition that this business has ever made in its history. To couple that and to really make sure that it lands with customers in exciting ways, we need to accelerate what we're doing on the marketing side in ways that I'll share now. Fundamentally, we need to move away from what has been a very effective growth engine, but slightly more on the discounter tactic side, maximizing growth at very low ROI thresholds, prioritizing market share consideration within a very small addressable market focus, looking at first-time buyers that are already within the category.
Trust me, today, if you show interest in the Meal Kits category in any market you live in, I will find you. Our engines are very effective, and I am likely to convert you, but that's not enough anymore. We do that primarily through discounter tactics and monetary incentives that I'll showcase on the next couple of pages. Instead, we have to pivot. We have to pivot towards a place where we optimize marketing ROI to drive revenue growth and profit growth for the business overall in time and in turn to finance some of the incredible investments that we're looking to make to the core customer value proposition. We need to prioritize penetrating core target audiences for whom this is a very strong product-market fit and with whom we know that we can have a longer-term value exchanging relationship.
We need to improve brand consideration and strength of the entire customer base, not just prospects entering the category, but also, very importantly, those customers that have shown loyalty to us in the past. We are going to pivot to using more and more interesting, innovative product incentives to drive usage and tenure rather than just the financial and monetary ones that we have had to our disposal in the past. To do so, we're going to become stricter with ourselves. You've seen some of the strictness in the financial parameters that Christian shared, but we're also doing that in the tactics, in the pipeline, in the product experiences, and in our marketing communication. A good example of that is becoming tighter on repeat voucher usage. I don't think it's a big secret that people have gamified their ability to shop us on a discount. That will stop.
We will still leverage financial incentives to drive trial for those customers that are on the verge of making that decision, but we will not allow for unattractive, ROI-negative repeat voucher usage behavior. We will, however, take investment into channels that really drive long-term brand recognition and create the demand that we can farm, we can convert in the next six, nine, 12, 18 months going forward. Very, very importantly, we are going to reserve a lot of the capital that we free up as we move from some of the discounter tactics to reinvesting into the core product experience and particularly reinvesting with some of our higher value, higher tenure audiences.
In a nutshell, we're going to shift away from messages around a massive volume of free meals or deeply discounted meals and repeat discounts and always on discounts and always shop us on a discount into incentives that are more meaningful, allow us to pull back on the discount elasticity, which is meaningful in the category, introduce new innovations there, work with means to create stronger and more relevant midterm and long-term demand. We have started to do so several quarters ago. The first evidence that we are seeing from this is promising. This is achievable. This is doable. I think if you look at the proportion of discounts as a proportion of gross revenue in the U.S. meal kits segments, you can see clear evidence of how we've been able to drive that down already. It's just the beginning, though.
Though we speak quite a bit about financial discounts, we do need to still incentivize people potentially on the wall to try our products and become loyal customers. What I'd like to share is just one example of how we drive innovation within the marketing engine and then are able to playbook that effectively across regions. This is still an effective global portfolio of markets, businesses, and categories. I think part of the strength that we have as a business is our ability to do something in one market and then playbook it across other markets. An example here was at the beginning of last year, an innovation around incentivization where we promised free breakfast items for the life tenure of a customer coming into us. It allowed us to move financial and monetary discount pressure and was very successful and has been repeated since.
We have, however, since then refined that process and incentive mechanism, rolled it out to other geographies, whether that was desserts in France, smoothies and school snacks in the Netherlands, free breakfast items elsewhere, and even been able to accelerate and expand the incentive mechanization to core strategic partners like the partnership with Caraway Pans for acquiring new customers in North America, which was highly successful. We are open to more partnerships along the way. As we do this, I think a very important vector underlying all this is the de-averaging of what we do in marketing. It does not mean that we will have the same message to everybody going forward. It does not mean that we will target everybody on the same channel nationally going forward. It does mean we are going to get closer to our target audiences.
We will be obsessed about getting the messages right for them, and we will also be obsessed about understanding the differences in potential value customers have and the value exchange that they have and the product-market fit that they have with our meal k it businesses. As we do so, we are excited about first data points that we're seeing on success in moving down that avenue of, yes, investing potentially slightly less absolute value in marketing spend, doing so with a closer focus on customer and generating better returns for the business. On the right here, you're seeing data on evidence that we've seen and the H2 2024 cohorts coming into our business, which after 10 weeks have shown a 6% increase in net revenue, gross revenue per conversion versus a year before. After 20 weeks, we're seeing 8.4% higher revenue per conversion come into the mix.
It's a start, but it is a very promising start of the journey that we're going into. Along with that, and I think very important to mention here, that there is a risk. If we were just to go into the marketing engines and reduce the spend, we are very likely to move ourselves into a cost-cutting spiral. That is not the intention. That is not the strategy, but we are finding efficiencies and we are doing a better job at what I think we should be doing around really focusing on the right audiences at the right time and the right value capture.
What we've done in 2024 across our geographies is actually repurpose a significant amount of the savings that we're finding in efficiency in middle and lower funnel and driving them into more attention-grabbing mid and upper funnel investments to drive the brand awareness, to drive category consideration, and to really bring new audiences into the mix. We also believe this is having a meaningful effect on the behavior of active customers, but I owe you a data point on that as we become more mature also in our data models to prove out that efficiency along the way. By the way, you will find that generative AI has had a little hand in creating the creatives here as we also develop more and more engines to become more efficient in how we create the assets that we prepare for our customer base.
Long-term demand generation, I think, is a key focus for us going forward. I'm very pleased with the efficiency of our demand conversion engines, but we need to build the muscle to grow the category and in doing so, create the muscle to create that demand going forward. What you're also seeing alongside ROI improvements and alongside total value reduction in spend, you are seeing a proportional increase in the amount of the capital that we spend in marketing on those mid and long-term demand-generating channels. We're pleased with that trajectory and we're pleased about the fact that this is an end-to-end conversation for us and not yet a trade-off conversation in how we operationalize. It is very deeply, though, for us, not only a spend and category of spend conversation. It is fundamentally a capabilities-building conversation.
We have a business and marketing engine that is very good at driving conversion within the category. We are very good at discounting mechanisms. We have cracked how to drive promotion in the category. We are effective, scaled, efficient globally at performance marketing and all the way down to the direct customer interactions around direct sales, for example. I could expand this list in terms of aspects of our engine where we have real defendable muscles. What we need for the future is to maintain, hone, and continue to calibrate that muscle, but we need to add to it the skill sets and the capabilities to drive real category growth for Meal Kits. That means long and midterm demand generation. That means understanding and removing barriers to entry for specific target audiences.
The menu expansion that you were talking about means that we're creating more and more microfunnels with people with specific culinary, taste, flavor, and dietary preferences within Meal Kits. That's removing barriers, understanding better how convenience plays in a household, where the cognitive load is decreased, and understanding how we can help with that, ensuring that every week and every day that they cook with us is a real win. That's about removing barriers. It's also to a degree about myth-busting for rejectors. We've done elaborate research in the last year on people that are rejecting the category. Audiences, you might know people that say, "Oh, Meal Kits, I've heard about that, but it's not for me." We really wanted to understand those dynamics and now have strong and firm data-driven insights on things that they believe about Meal Kits that are fundamentally not true.
One of the surprising ones to us was that there is a significant volume of people that reject the category because they believe they do not have a choice in what they are going to eat that week. There is still a category-building and education job to be done about Meal Kits itself and the fundamentals of how to choose within the category. All of that will allow us to really drive TAM expansion, and we will continue to focus with product and physical product expansion and investment, with investments into the digital ecosystem on the entire experience design. What does it mean to be a meal kit customer with HelloFresh, and how does that come to life for a tenured, retained customer? One key initiative is our loyalty program.
Our loyalty program has been piloting in key markets for the last quarter or two, and it really is a direct answer to a demand of our customers. Last year, we surveyed active customers, and 35% of our active customer base said that the biggest pain point they have with HelloFresh Meal Kits is the lack of a loyalty program. They were telling us, "I'm an active customer, but what do I get back in return?" Our loyalty program and our rewards program is a direct answer to that. It provides premium meal upgrades, free shipping opportunities, marketplace preferential recipes, and potential price lock-in.
Fundamentally, what I really like about it, it also gives us a mechanism not just to reward active customers and retain them in better ways, but also to educate them about marketplace, about ways that they can expand their offering with us, ideally for me, also expanding my way into their household share of wallet and share of basket. Initial results from the program are very promising. We've done this as a beta pilot, and we've seen 40% of initial opt-in rate, which isn't too far from the 35% I was mentioning from research before. We're seeing that it's driving the right types of behaviors in higher projected order rates through lower pause rates and much lower cancel rates. We have yet to roll this out at scale, but we're seeing very promising data.
What I find particularly pleasing is that the satisfaction of people that are in this program with the overall brand and meal kit experience has been driven up quite significantly. Promising first views of what can be and what will be when we roll this out. All of this is accompanied, as we said before, with a significant, I would say almost once-in-a-generation for this business upgrade to the physical and product experience. You see a new box design over there, which was just launched in the U.K., moving from our old boxes to completely refresh the external curbside appeal of our boxes, but also the potential layout of the box internally.
Ingredient packaging that does a better job of helping you construct the meal in an easy fashion, does a better job of telling you the provenance of the produce, does a better job of making you feel good about the choice that you've made and the choice that you're about to make to feed that meal to your family, and rehashing the entire digital experience to make sure that there's more engagement with the product itself, more stickiness with that engagement, and really ensuring, this is my hope, that should you ever make the mistake of canceling your subscription, you feel like you're missing out on something. I want this to be that good. Take it together. Over the next 12 months, we are seeing a massive upgrade to the customer experience.
What excites me is, again, that we've surveyed customers and we see that there's this big opportunity for growth within the category. There are so many households for whom Meal Kits can be a better experience, and then there will be so many households that have tried Meal Kits three years, two years, one year ago to whom this will be novelty that we can go back to them and also ask them to retrial the product. The customer offering itself is expanding with over 300 menu choices. The integration of ready-to-eat meals when you have that moment where you just, you know, it's Friday night, the voice, your family sitting around the TV, it's a guilty pleasure, and that great, well-produced ready-to-eat meal might just be the expansion that we have for another night in your household.
Meal value upgrades, the core ingredient, the quality of the proteins, the variety of the proteins in these Meal Kits can be elevated still, and again, we know leads to better customer tenure and better behavior. The digital experience with an expanded loyalty program, improved design and digital experience, and personalization that allows you to eventually navigate an offering of a much bigger menu choice in a more intuitive way, reducing that cognitive load it takes to decide what to eat next week and get that to your household proportioned, easy to prepare, and ready for your family to consume in a healthy manner.
A brand that cuts through the clutter, expands the category, is an elevated experience and really comes to life across the customer journey, not just looking for new people to join the brand, but really making everybody feel better about the brand, especially those that are an active customer, to continue to provide that retention halo effect. The new box and packaging design really providing better curb appeal and better friend appeal. I want to be in a place that if your friend is standing next to you during the kitchen when you're preparing one of our meals, they go, "What is that? I want it.
Tell me more. Service level last, but certainly not least, you've talked about next-day delivery and some of the experience that we're seeing there, flexible box sizes, addressing every household composition and making sure that you can get that box as quickly as possible, leaving as little as possible room for buyer's regret in that process. With that, I hope you have a sense of the type of investment that we're making into the product experience, into the marketing engine and strategy that we're deploying and that we're excited about that prospect. I'll hand it back to Dominik to talk a little bit more about Factor.
Thanks, Patrick.
Beyond Meal Kits, we obviously also have a lot of plans in store for how we want to continue to drive up the customer experience in Factor and how we want to transition our growth in RTE and Factor specifically to a more predictable multi-year growth formula. As of today, the RTE players' aggregate revenue in the wider food delivery space is still quite small. If you compare RTE to Meal Kits, RTE right now is at about half the number of weekly orders that you actually see for the entire meal kit space. In that sense, still lots of room to grow. Meal Kits and RTE together make up a lot less than 20% of the overall food delivery volume that you'll see.
I think we've benchmarked here the U.S. data for you, obviously one of the most developed food delivery markets. I think that's specifically true for ready meals, the healthy ready meals that we're offering is a really new category. Not really a category that has been there before, but really a category that we and some other smaller players developed in the last couple of years. It's one of the first times that consumers actually break through the trade-offs that they usually have between convenience, price, quality, and health objectives. The rapid development of the market overall, but then also of Factor as the market leader, I think you can see in search volume trends. This year is for Factor meals. I think the same for healthy ready meals.
You can see that over the last four or five years, that category has seen a lot of demand growth and some spikes that you see here, which point back to some massive brand-building investments that we've done for RTE in the first quarter this year. What's also true is that cooking operations and RTE operations are really hard. I think I've just had a conversation during the break, and somebody asked me, like, "Is it still fun for you?
Are you still learning something new?" I think this is one of the examples where over the last couple of years, there was tons to learn, both for me personally as well as for us as an organization, because while there are a lot of things that are similar to Meal Kits, everything around the technology, a lot about how you win over customers, a lot about logistics, customer service, et cetera, subscription management, so many different parts, lots of learnings and capabilities that we felt really good bringing from Meal Kits into RTE. Everything that is around food manufacturing and cooking operations, we had to learn. We have invested a lot into that.
We generally also like hard businesses because if done right, hard businesses actually give you a lot of defensible moats, and it's much, much harder for any potential new entrants into the category to actually get some traction. Just some of the ones that I wanted to mention here is that aside from building and now efficiently operating two of the three largest commercial kitchens in the U.S., we've also invested a lot into food science for optimal and consistent taste. Just as an example, it makes a massive difference if you grill a chicken breast for two minutes or two and a half minutes to then how you actually ship that from one part of your manufacturing process to the other part of your manufacturing process in terms of the juiciness, the tenderness, the grill strips that it has.
That's basically true for every single component in that food manufacturing process. We've also invested a lot into nutrition science, and my colleague Conal is going to talk about that a little bit later to explain our nutrition philosophy. Shelf life testing and all the different shelf life requirements as you ship those ready meals in different temperature zones into different states are regulated by different agencies, et cetera. Definitely lots of things for us to learn and muscles and capabilities that we've built that we now want to capitalize on more that we've successfully migrated in our two buildings, set up those teams, and started to build those capabilities. I think to a degree that I would probably claim no other ready meal company has in that same setup that we have mastered those at the moment.
A lot of the last two years was really first scaling customers massively in Q1 last year after moving into our second large facility, making sure that we get to certain volume thresholds quickly so that we do not suffer from severe underutilization of those big buildings that we actually moved into and was then followed by strong productivity improvements that Christian mentioned from Q2 to Q4. With that behind us, I think what is now our clear objective is to transition to creating a much more predictable and less volatile multi-year growth formula for Factor, one that rests on many different legs and channels and that is not subject to as much volatility as what you have seen from us because I think also a lot of our supply chain build-out is now behind us and a lot of the CapEx, especially in North America, has been spent.
We really want to avoid some of the mistakes that we've did in Meal Kits, which was chasing growth too hard without improving the product in lockstep, without improving our supply chain capabilities in lockstep, and not investing as much into the brand for long-term brand desirability and a much more predictable growth path. Going forward, our goal is to invest behind an always improving customer proposition and always improving supply chain network and building a brand which brand strength you can harvest over many, many quarters to come, which will give you a much more diversified and clearly predictable growth path.
Before we dive into each of those different legs of that growth strategy, let me, similarly to Meal Kits, remind you of the customer archetype that we currently serve with Factor because once again, it'll make you understand why we actually do make some of the investments into our loyal customer base, but at the same time also what we need to do so that new audiences find similar value in our menus like our best customers do today. Factor, a lot more of our customers are either individuals or living in partnership. The share of families is actually quite low. Most of the meals are consumed individually rather than around the dinner table or around the lunch table, and a lot of our customers are very health conscious.
Of course, that's a lot driven by the brand positioning that we've had up to date, but compared to Meal Kits, a lot of them follow pretty restrictive diets, and we're in the market of actually making sure that they have a shortcut to following those diets without having to understand all of the science behind it. They're also very interested in nutrition and in ingredient provenance, very often making that one of the key components of whether they actually choose you over some competitor or over some alternative meals. Now, for 2025 specifically, our plans for RTE are number one, to double the menu size that we offer. Number two, to invest beyond those health preferences that we've been active in in the market for the last three years, which is basically keto, high protein, and low carb.
One of the ones that we are most excited about here is the launch of our GLP-1 preference. We are also going to invest into a much wider range of Factor-branded products, first sold in our Factor marketplace, but with a view to also sell them across different channels going forward. Finally, to close the feature gap that we still have compared to the Meal Kits business, those are digital features, but also service-level features such as delivery days. All of these four strategies should very much pay into improving AOVs, improving AORs, and allow us to capture new customers and penetrate the market more deeply. We see pretty great potential in scaling the number of meals that we are going to offer to customers.
Like I just mentioned, for the last three years and basically since we've acquired Factor, we've been focused on three main health preferences: high protein, keto, and low carb. Keto, I think, has definitely come down from the height of its popularity and has been replaced by high protein and lower carb diets as the dominant health trends in the industry. With a larger menu, we now want to offer the same depth of selection to other preferences that we already have today, such as vegetarian, flexitarian, or low-calorie meals, but also really invest into some new preferences which we haven't offered before. One that we're particularly excited about is our GLP-1 range.
It's a range that we launched on a limited scale in December, and I think by month four, so in our current months, we have about 10% of customers coming to Factor, which choose to eat primarily GLP-1 meals. The GLP-1 preference right now only has five meals per week. This is a small pilot that we've done, but we're actually quite excited about the results that we've been seeing. Given that we feel there's clear customer demand and clear product-market fit, what we're going to do over the next six months is build out our recipe database much more deeply so that we can actually have enough and deep selection for customers on the drug or post-GLP-1 usage that are looking for meals that are a shortcut to still nutriting the body healthy and in line with recommendations while using or post-usage of the drug.
We do think that GLP-1s were one of the biggest disruptions to the overall food ecosystem, and we actually feel that right now there's a strong window of opportunity to build a trusted brand. A lot of GLP-1 users don't want to go into the details of the science and really understand how do I still, with less appetite, make sure that I get enough protein intake, that I don't eat too many sugars, that I have enough fiber-filled nutrition in my diet. All of those things, I think, are big, big wants from big, big desires from customers on the drug, but there's very few trusted brands right now that give you access to trusted meals.
This is something that we want to invest in first by focusing on the food manufacturing part because given our two large commercial kitchens, given all of the other things that are really hard about food manufacturing that we have figured out, we think that is something where very few others can compete with us. We are also open to partnering with others around supplements, around nutrition advice, and it is something where we definitely feel there is a strong window of opportunity right now to establish yourself as one of the hopefully few brands that emerge as winners in that GLP-1 category. Those are some of the product plans that we have. Next up, I am giving the microphone back to Patrick to walk us through some of the plans in terms of brand building and internationalization.
Great. Thank you, Dominik. It is amazing to hear the focus on dietary preference.
They're also really yummy. You're going to have an opportunity to trial some of the products, I believe, over lunch, and Conal is going to tell you a bit more about that. Personally, I have an on-and-off Factor subscription for office lunch, so if I'm here for the full week, that's what my Factor subscription does for me. What I find particularly interesting around Factor, notably in North America, where it is already a multi-billion or billion-plus revenue-scaled business, and remember, we have a fundamental marketing growth engine that has already scaled to billion-plus revenue businesses globally, is that this business still has a lot of runway. It is in a category that is scaling, and if you just compare it from a data perspective, the visibility, the awareness that this brand right now has versus our mature HelloFresh business, it's less than half in aided brand awareness.
In Q1 of this year, the North America team has put out an amazing campaign to really introduce Factor to a broader audience and to build the mid and long-term awareness, consideration, and demand that our existing engines can then go and convert and bring customers into this process. That campaign has had a meaningful effect on the brand awareness of Factor, driving it up over 12 percentage points in the first quarter of this year so far. We are seeing promising results there, and I think it's a start into a really interesting foray. It is not just about the campaigning. Factor is a brand that we believe really has a lot of runway. It has runway also from an expansion perspective, from a share of wallet perspective, basket size perspective, and from a brand stretch perspective.
We have and will be launching attractive branded ranges to accompany the core meal portfolio there. Juices and smoothies are already live as a part of our product offering in a number of the markets that Factor is active in as an upsell item. High protein desserts, so if you're digging for that little snack or the ice cream in the middle of the day, this is a choice that you can make without trade-offs. I think that continues to be a red thread throughout this brand. You can have the choice that you want without a trade-off. You can have an amazing ready-to-eat meal that's ready in minutes, that is fresh, has great ingredients, tastes amazingly, and is nutritious. All right? No trade-offs here.
Yet, in a very controlled environment, you could potentially get a fresh meal through takeout or some dark kitchen, but the variability in your nutritional intake, the variability of the flavor profile of those meals will not, by a long shot, be as consistent as what you will experience on Factor with these products. Protein shakes, but also healthy snacks, again, without trade-offs as additions into this product portfolio, either already launched or coming very soon. As we look to expansion of the Factor business, it's not just about expanding the range of Factor-branded products. It's also about its international expansion profile.
You've seen our ready-to-eat revenue scale successfully in the last years, first with an acquisition in Australia with the Youfoodz business, the launch of Factor into Canada, very close to Conal and his story in a second there, and since 2023, launching into our international European markets, with the last of those launches being Germany right at the end of 2025. North America is still the biggest ready-to-eat growth and profit contributor for us in the midterm, and it's naturally we're replacing some of our biggest scaled investments. However, the other businesses are running at pace, and we're excited about the traction that we're seeing there. Particularly, we're seeing that both Australia and Canada are starting to scale nicely after insourcing of the cooking experiences and the learnings that Dominik also mentioned before.
As we continue to expand in Europe, we had seen a 10 times revenue, sorry, order increase from 2023 to 2024, and we're going to double that in 2025. We're doing that with still a very restricted menu. We're doing that in close partnership with co-manufacturing sites, and we are limiting our degree of pace here to make sure we get it right. I think if you look for a red thread across some of the businesses that we've built and scaled, I think we've proven out that we take our time to understand product-market fit. We take our time to playbook how to bring a brand and a business into a new market, find the right way to make sure that it is scalable and that we can continuously and consistently deliver on the product and experience quality, and then we go.
We are right in the middle of that phase for the European markets. We have validated the product-market fit. We are working on the investments to make sure that we can produce these ourselves alongside co-manufacturing sites to really capitalize on the larger long-term opportunity. Besides range extension and market extension, we also believe that there are really exciting opportunities in expanding new sales channels new to us. This is a new territory that we have not engaged in on the meal kit side. One of these is ready-to-eat for work. We know that in-office meals are a big deal and that this is a perfect product-market fit in geographies where that is largely a warm meal experience. We are looking to understand what the traction is that we can get for benefit and remote-first employees as well as in-office employees.
We're looking at non-traditional retail partnerships like universities, gyms selling Factor meals as an opportunity, and there are thousands of these decentralized sales opportunities. We're also engaging in food as medicine programs and have first traction there in the Australian market with the ready-to-eat opportunity to make sure that people that are being supported in government schemes have access to freshly cooked, highly nutritious meals, again, that are very consistently produced at an incredibly high-quality level. We're excited about this, one, because of the brand extension and brand introduction into new channels, but also because of the stickiness of revenue and profit that this gives us alongside the ready-to-eat and direct-to-consumer businesses. I mentioned the distributed non-traditional sales locations, so we are making forays into non-traditional retail locations and one-off sales locations with Factor as a brand.
We're looking at higher education and universities, hospitality locations, high-rise residential properties, self-operated gyms, and so forth and so forth. We have uncovered the requirements and have started to build the supply chain to do this. We are starting to go through our first sales cycle's learnings and opportunities, and once again, are seeing a lot of light at the end of that tunnel as we're making the infrastructure investments to do this right. From a marketing and brand perspective, I'm excited because it gives what would otherwise be a largely digital experience brand alongside the physical product a real physical touchpoint. Factor is a brand that before long you'll be able to come across and experience in more and more parts of your customer experience and ecosystem and the world that you live and operate in.
As a one-off product, it's a great solution for somebody that's already on a Factor subscription to get a meal if they didn't remember to bring one or they find themselves in a location where they don't have access to a meal, but it's obviously also a great way to introduce new shoppers into this brand on a one-by-one meal scenario to then eventually bring them into a steady subscription state. With all of this going on with the Factor brand, we're continuing to scale, we're continuing to invest, we're seeing great traction on both the upper end of the funnel and investing into the brand, as well as now making sure that distribution is more widely distributed and that the product portfolio stretches the brand into new adjacent categories as well.
With that, I'll hand it back to Dominik to talk about some of the specific programs and bundles that we're building to better service those customer demands.
Exactly. As we're building up the Factor branded ranges, we want to make sure that we can bundle some of the products that we're creating together to actually be in a position to offer full meal plans and full diet support to different customers. Food as a medicine is one of the biggest trends, I think, at the core of it, basically saying like, hey, it has a really big impact how you feed your body for a lot of different chronic conditions, but also just if you want to build muscle or lose weight, and weight management itself as one of the biggest health contributors to your overall health.
Hence, what we're in the process of launching in the second half of the year is that we want to build initially two programs, one for building muscle, the other one for losing weight. What we do there is ask you a number of different questions around your health goals, how many times per week you want to eat with us, how many other meal occasions you want to be supported, and help you track your progress against your macronutrients, micronutrients, and overall caloric intake. On the example here for building muscle, we would recommend to you those are the highest protein meals that we have in our assortment. Do you also want whey protein under the Factor Form brand?
Can we give you some additional high-protein snacks, some high-protein overnight oats for breakfast, et cetera, and basically put that all together and help you track the progress against those stated health objectives? Similarly, the same thing for weight management, where we want to support you in choosing, number one, for a range of days throughout the week, those meals which are lowest in calories and lowest in carbs. We want to recommend that you replace some of your meals with some of the whey protein shakes and some of the other snacks that we actually have in our assortment rather than skipping that meal entirely, and once again, helping you to track your progress against your overall health goal in a number of years, so in a number of weeks, sorry.
Why we feel good about that is we've done a bunch of investment into the technology and into coming up with all of those different products, and now it's about on the front end, making sure that customers can access those products in one subscription and within one meal plan and actually keep track of how they're doing against their stated health goals. This, alongside going to RTE for work, going to non-traditional retail, is like a third pillar how we will actually expand the TAM and also better monetize customers through offering them bigger bundles to consume with Factor going forward. Before I hand over to Conal, just very quickly, the one-minute summary and bringing all of the different elements together.
We're going to transition Factor into a more predictable multi-year growth path that doesn't rest on just scaling direct to consumer and chasing conversions, but making sure that we build in lockstep our capabilities in the supply chain, the brand that we have, and also the products, which will grow a lot already this year. The growth strategy hence rests on TAM expansion through internationalization, going into new channels, TAM penetration through bigger menu size, new meal occasion and brand building, and monetization by extending our Factor branded portfolio. All of these taken together should provide us with a long growth runway that we're aiming to capture not only over the next couple of quarters, but over the next couple of years and over the course of the year.
We want to get into that very repeatable and predictable growth pattern that you can then expect from us to extend over many, many quarters. Before we go into the Q&A, I want to hand it over to Conal, who is going to talk about the nutrition philosophy, one of the key pillars of our Factor brand, and something that in customer research, a lot of people reference, that this is really one of the key reasons why they trust Factor as a brand.
Thanks, Dominik. Thank all of you for being here today. I'm Conal, and I've been at HelloFresh for nine years now. In my last role at HelloFresh, I led the launch and then the scale-up of the Factor business in Canada, and now I support the expansion and development of Factor here in Europe.
Today, I want to talk a bit about what makes Factor Factor, and that's our commitment to nutrition. This commitment extends throughout all corners of our business, from our brand identity to our organizational structure to our product development process and a lot of our manufacturing practices. We'll highlight a few of those aspects today. First, a quick recap on how it all works from a customer perspective. Every week, we release a new menu for customers to choose from. Our chefs then cook those meals to order. We then deliver those fresh meals directly to our customer's doorstep, and they heat and eat in just a couple of minutes, no prep, no mess. There's a lot to be excited about on that menu.
In the U.S., we currently have over 40 meals available every week, rotating every week, and we also have a very large selection of other products across breakfast, beverages, snacks, and desserts so that customers can get a healthy, nutritious, trustworthy option from us for any time of day. Obviously, we're much earlier in our journey here in Europe, so it's a smaller menu that's available here today, but this gives a pretty good idea of our product roadmap and what's to come. Underpinning everything on that menu, all the recipes, all the add-ons, is our nutrition philosophy. Factor is about helping people live better. We believe that living well starts with nutrition and that nutrition starts with balance. Our approach is rooted in using high-quality ingredients and evidence-based nutrition principles to support balanced lifestyles.
It is by balancing these nutrition principles with our focus on making delicious-tasting meals that we empower our customers to make healthier choices effortlessly. This focus on nutrition is not new. Factor's origin story is rooted in health and wellness. The original name, Factor 75, references the idea that 75% of how you feel and perform is based on what you eat. Although we have since rebranded, that nutrition focus is still at the core of every product decision we make. Our customers feel strongly about our approach. The importance of whole, minimally processed foods in their day-to-day diet is something that continues to resonate in customer research. This is an example from a recent study where topics like no refined sugars or refined oils rose to the top of a long list of desirable meal attributes.
I'd love to talk a little bit more about the nutrition philosophy that we've developed and that shows up in our product. There are three pillars: nutritious, well-balanced meals, ingredients with integrity, and designed by dieticians. Every meal is designed with nutrition at the forefront. Every meal is nutritionally complete with a balance of proteins, fiber, and healthy fats perfectly portioned and satiating. In a recipe development process, we ensure that every meal is formulated with specific macronutrient targets that support a specific dietary preference or goal. It's through these targets that we ensure that every meal is designed to improve the health and well-being of our customers and designed to manage and prevent nutrition-related chronic disease, all supported by scientific research. Importantly, we're not prescriptive about a single diet or a single way to eat healthfully.
We offer a wide range of plans to support a variety of different goals and preferences. Each of those plans is filled with meals that fit our nutritional philosophy, a balanced macronutrient profile, and clean, healthy, minimally processed ingredients. That brings us to pillar number two: ingredients with integrity. We are relentless on our ingredient standards. We have an incredibly high bar. Every meal customers can trust from Factor reduces or minimizes the use of refined sugars and carbohydrates, minimizes inflammatory oils, avoids filler ingredients and additives, and prioritizes ingredients that have proven research-backed health benefits. On the right, you can see the actual ingredients list from one of our most popular meals, our pesto salmon with green beans and tomato butter. This is all you're getting when you order this meal: clean, whole food ingredients, no junk.
Our ingredient research process is robust and requires multiple levels of approval. In particular, ingredients must fulfill four criteria in order to be used in a Factor meal. There must be a clear purpose for the ingredient. There must be a clear metabolic pathway for the ingredient. There must be no research demonstrating potential negative side effects. We must be aware of and comfortable with how the ingredient is publicly perceived. When the research is unclear, our stance is to lean to the side of caution. It can be hard deciding which ingredients to say no to. As you can imagine, it complicates our recipe development and manufacturing processes. We are deeply committed to our ingredient standards, and we want to continue evolving them with the ever-changing dietary landscape. To date, over 130 ingredients have been banned for use in Factor products by our team's research process.
We are only able to conduct all of this research because of our third pillar, which is that every meal at Factor is designed by a dietician. Our internal team of dieticians sets and maintains our ingredient and nutrition guidelines, and they continue reevaluating them with emerging research. Every Factor recipe is brought to life through a collaborative and iterative process between our in-house culinary chefs and our in-house dieticians. At every step of the development cycle, we have different checks and balances to ensure that we are not only delivering meals that fit our nutrition philosophy, but we're developing meals that taste great and continue to excite our customers. This starts with the recipe briefing process, where we ask questions like, "What new dietary trends are emerging and show clear benefits in scientific research?
What new culinary concepts will bring more variety and more excitement to our menu? We have several stage gates where we must pass both culinary and nutrition approval in order for a recipe to proceed. This often requires several iterations going back and forth to ensure that we are fulfilling both sets of criteria. This tension between taste and nutrition is at the core of the product development process at Factor. Of course, none of this matters if we cannot ensure that every meal is consistent in production from meal to meal. That is where our commercialization process comes in. Here we have a dedicated team that focuses on ensuring every single one of our nutritional and culinary promises translates from the test kitchen to large-scale production. This is where we really put our recipes through the paces.
A recipe cannot be marked ready for production until it has passed a series of scaling tests, process refinements, culinary tastings, and shelf-life testing. It takes a cross-functional team of food scientists, health and safety experts, trained chefs, and dieticians to oversee this stage. The result is a meal that our customers can trust. They can trust the nutritional accuracy. They can trust the quality. They can trust the consistency that their favorite meals will taste the same each time they order them. They can trust that each meal will taste just as good, whether on the first day of its shelf life or near the end. We are not done there. We look at every customer comment and piece of feedback on every meal that we ship, and we do it through both a culinary and a nutritional lens.
We want to ensure that we are consistently beating our customers' expectations on taste, but also that we're genuinely supporting them in pursuit of their goals. When it comes to meal selection, we really want customers to feel confident in their choices. That is why we offer a free 20-minute consultation with one of our dieticians. Anyone can sign up for a nutrition coaching session. Our dieticians help customers by answering questions about the ingredient and nutrition profile of our products or by making recommendations about which meals might be a best fit for them based on their goals and empowering them to feel confident in their future selections. They might help by setting fitness-related goals or supporting other lifestyle changes. They also bust common nutrition myths. We're passionate about nutrition, and we think that this is a great way for us to help our customers live better.
That's our philosophy. Of course, it's ultimately the meals that matter. We've had some Factor meals delivered from this week's production run. After the Q&A, I'm excited to let you experience firsthand how our nutrition philosophy comes to life. Thank you.
Thank you, Conal. Thank you, everyone. We're ready to take your questions. If you've connected via the live stream, please email your questions to ir@hellofresh.com if you haven't done so already, although we have a few already on our email. Anyone wants to kick it off with the first question, please? Nizla? Okay.
Thank you, everyone. Fair presentations. It was a great and informative day, as always. My first question is for Dominik. I think people are curious to understand in terms of valuing the TAM for Meal Kits, because you're doing EUR 5 billion of revenue already. How big do you think the underlying global market is? In that context, what is your market share right now? Could this expand going forward with all of the initiatives that you've discussed? That's question one. Question two, I think there's a lot of curiosity on the customer habits in ready-to-eat versus meal kits. Is the retention better in one category over the other? Does it make sense to drive one business more over the other? Some color there would be great on the two. Thank you.
With regard to your first question, it's always hard to basically put a number on the overall TAM. I think what I showed in the presentation was the TAM for home cooking is obviously really, really massive. I think what's super important is to understand that the TAM that you can service, so the serviceable market, is always very much dependent on the product that you actually have. I think one of the references I made, I think with the product that we had in 2019, we would be way, way smaller than we are today. I also think that if we are not continuing to build our product, then certainly with the product that we've had last year that we have this year, if we're not going to invest into that product, then I think we are very highly penetrated in that space.
In order to actually return to growth, I'm convinced that we need to invest into the menu selection, that we need to not only cater to those customers which already find big value in the menu as we have it right now, but also to customers that have other dietary preferences, that have other culinary taste, that want to see other cuisines, et cetera. If we can offer that paired with better service levels, then personally, I think mid-term the market is going to be bigger than it is today. In the short term, very clearly, we want to focus on the core of our loyal customers. I think you've seen that shape of the revenue that we're going through right now with pulling back in marketing.
Long term, if you just think about the opportunity, then my core belief is it's always a function of the product that you have. In my view, if our product is much better in two years than it is today, then we're also going to be a bigger business by then.
Thank you. The customer habits between the two categories?
The biggest driver of long-term retention for customers is always the quality and the size of the menu. Once again, it has to do a lot with the customer proposition. At the moment, I think for RTE customers that are following a keto diet, a high-protein diet, et cetera, I think we have a really good offering. That's why for those customers, we also see very high retention. There are others, for example, vegetarian, flexitarian, et cetera, where I think our offering is okay, but I'm not particularly proud of the depth of selection, et cetera, that we have in there. I clearly think that if we build that out further, then we'll also get the benefits of better retention there.
Right now, if you just look at sort of average of all customers that we have between meal kits and RTE, there are not tons of big differences if you look at an average customer. Obviously, with the shift to more loyal customers and meal kits, we would expect that our retention there for the average customer should increase. The same thing, as we build out a deeper menu with more selection for some of the customers in RTE that we're not serving that well as well, I think that should kind of move in turn. In the end, it's all things that we own. It's a derivative of how good is your customer proposition.
Thank you.
Yeah, hi. It's Marcus Diebel from JP Morgan. Two questions. The first one also on meal kits. Thanks for the slides. I think they are the best in the capital markets day that I've seen. On retention, I ask every time. Thanks for this. If you can go a bit deeper, I mean, you could obviously be cynical and say if you don't acquire new customers, of course, then the share of loyal customers goes up. If you can just elaborate a little bit more about this loyal customer base, because there's a lot of focus on this. I think, Christian, you mentioned that they continue to see very long-lasting order patterns.
If you can tell me maybe or give me a bit more information in terms of their order patterns longer term that I can really sort of underwrite that at some point this starts to stabilize. That's the first question. I have another question on financials.
You want to take it?
Yeah. I'd love to. Marcus, that's why I tried to show you both, not the share. It's clear if we acquire fewer new customers, then the share of existing customers should go up, but also the absolute numbers. To your point, if you want to take a super conservative view, even if we were to run down, which we don't plan forever, our marketing spend, where's kind of a bottom? Two-thirds of our orders, which means more than two-thirds in terms of our revenue, are created by these long-term loyal sticky customers. In absolute orders, so not just their share, but the absolute number of orders has not moved from them from 2023 to 2024. Even so, we've taken out more than 20% in Q3, close to 30% of marketing spend for that category.
Okay, perfect.
On the financial questions, the revenue growth in 2027, is that largely driven by mix effect coming through, growing business taking a higher share in the mix? Or do you also expect meal kits themselves to grow in that year? That's the first question. The second question here, the EUR 200 million net cost savings, is that pretty much the number that we should add to the up to EUR 250 million EBIT that we get in 2025 into 2026? Just a simple math or if I forgot anything in terms of reinvestments.
Your baseline is 20, maybe I can start with the cost and efficiency side. Your baseline is 2024. Our program started middle of 2024. The EUR 200 million net extra against that baseline of EUR 136 million EBIT in 2024. Yes, to mentally say, okay, there's a EUR 200 million tailwind from all the cost measures that Christian and the company are pushing through, that's a good base assumption with respect to 2026.
You mentioned that 70% of these savings come in 2025, and you guided EBIT for 2025 already. We just take the majority of these savings this year and then another, I don't know, EUR 80 million or so next year.
I implemented. Thanks for clarifying. I implemented in 2025. Implementation means from then on we start to clip savings. When you look at the individual measures, obviously not all of them land on the 1st of January, but they land throughout the year of 2025. Some have initial costs attached to it as well. The full run rate of those 70% we will see in 2026 already, plus basically the remaining 30% of measures by value that we're taking in 2026. Those two will add up to an in-year 2026 saving of EUR 300 million gross to EUR 100 million net.
Lastly, and I'll shut up, revenue growth is also driven by meal kits growth in 2027 or just mixed effect?
We're targeting for stabilization sometime during 2026. Then based on product enhancement, everything that we discussed, we see a path to positive growth, also the meal kit side, beyond that.
Hi, you're making a big investment in the offering this year, doubling the menu size and improving the delivery service and so on. Once these improvements are implemented, do you think it would make sense to dial back into more performance marketing than this year, perhaps in 2026? Has this improvement, I mean, are you waiting for that improvement? Does this affect at all your decision on the marketing side or not? The shift is just structural, you want to stay there for the coming years? Specifically on the next-day delivery rollout, first of all, what is the experience in the U.K. from that offering? At what pace are you planning to roll it out? Thanks.
Do you want me to take the marketing piece maybe? On the marketing side, I think the mental model there is if those improvements, and they will, deliver incremental customer value and also attract a broader range of high-value customers, that gives us a cycle of positive investment on the marketing side. We are not pulling, we are not stopping our performance marketing investments today. We are bringing them back to levels that we think are adequate for the customer values that we are seeing and targeting less of the quick dip and discounter customer base and more of the people that will trickle down into the healthy long-term tenured customer base. That is a focus question.
If we see through these improvements, and again, that is the supposition, that is the hypothesis and the investment, when customer value will increase and addressable TAM will increase, we are going to increase our marketing spend along those lines to continue to maintain the ROI levels, but in absolute volume start to find more customers that fit the mix. That is at the very core of that strategy.
Next-day delivery, Dominik?
On next-day delivery, I think you need to look at number one, our first-time buyers for whom fast delivery speed is absolutely crucial. You have our more tenured customer base who usually have a certain schedule when in the week they actually get their delivery. For them, kind of like getting it a day earlier or later, they usually have found the weekday that works best for them. When we talk about investing into next-day delivery, it's mostly to think about the new customers that you have, which when you bring them to your site, when all of the brand building that you've done before and you're about to harvest that demand, that they actually remain excited as they click the purchase order button and can be sure that the next day after they click that button, they can actually start cooking.
If you talk to new customers and potential rejector reasons, then definitely one thing that you hear is people saying, "Oh, you know what? I was so excited about that product. I felt that finally sort of like this is a good time to start it, but now I have to wait seven days. I actually don't know am I going to be in town or not in town next week, et cetera." Very clearly, this is something that is a big benefit to new customers and means that for about 10-20% of our customer base, we need to find ways how we can give them access much, much faster from the time of order to the time of delivery. That is really sort of where that is visible in conversion rates on your side and in more potential customers actually becoming actual customers.
Thank you, Giles Thorne from Jefferies. First question was on that long-tenured customer that's been referenced a few times today. It'd be useful to get a sense of how sensitive to pricing they are. Over the recent past, as I understand it, they've been able to get more and more value as you've kept meal prices below levels of food price inflation. Are they still there because of that, or could you push them harder on price? That is absent all the product upgrades you're going to do. Second thing is just looking into the U.S. and looking at Blue Apron being sold for the first time on a non-subscription basis by new parent Wonder, is that an innovation that you'd ever think about? Lastly, what's your ambitions, Christian, for costs after 2026?
I already forgot the first question.
Maybe I can.
Can you charge your long-tenured customers much more without them evaporating?
On pricing, Dominik had that, or price sensitivity, Dominik had that as one of the attributes on that slide. That customer group is typically much less price sensitive. For them, when we query them basically what are the key important things for you, then it is ingredient quality, variety so that they do not get bored given that they are so long-term customers for us, the choice that we give to them, the consistency of the service level. The last point is they also want to be rewarded for their loyalty. We give them now some things through a loyalty program they find is fair, but they are not really sensitive to the headline price. I.e. there is quite some pricing power on our side.
Are you under-monetizing them?
Are we what?
Under-monetizing them?
I think first step is to make sure that we provide them with really great value, and then we can see if there are ways to better monetize that willingness to pay.
I also think the statement that you made that we're not passing potential ingredient inflation onto customers and keeping those prices steady is not fundamentally accurate across the portfolio of markets. We do know what those elasticities are. We do have a regular cadence of price increases to those audiences as well as new customers. Feel pretty good about the insight and the knowledge that we have around the ability to do so and balancing off to your point volume versus margin debates in that process.
The final question on Blue Apron and selling on a non-subscription basis. Oh, and also costs, yeah.
I think we've had over the years a number of competitors that tried to move to non-subscription models. I think there is certainly a small group of customers that appreciates the flexibility of not having to flexibly subscribe to a service. If you think about the benefits and the power of the business model and also the routine schedule that many, many consumers have, I think for the vast majority of people interested in home-cooked meals, a subscription works well, gives us much better visibility, predictability, lower waste, et cetera, in that made-to-order model. I don't see it as a big threat. I'm sure that there are some customers who appreciate that, but I think it's actually a small part of the customer group interested in meal kits.
On a cost set beyond 2026, that's quite some time, obviously. Let us first deliver on everything that I've shown you today. Our mid-term margin targets for both product groups stands. We want to be north of 10% EBITDA margin on both of our product groups. Meal kits, we were quite there last year already. This year we push beyond that and we'll further grow from there. On the ready-to-eat side, we've got at least this good unit economics. We're expanding quite a lot the contribution margin right now. At some point, we will also take down the marketing spend on a relative basis. The key driver then in terms of further margin expansion beyond 2026 will be on the ready-to-eat side where we get to that long-term margin target and potentially beyond at some point.
Hi, thanks for taking my question. I want to know how do you think about the threat from tariffs and what can be done to make the business more anti-fragile to that?
Yeah, thanks for that. There are some direct impacts. I would say a couple of things. One is obviously the vast majority of our business and ingredient purchasing is in market. There is a certain degree of natural hedge that we have in the business. Beyond that, taking our U.S. business, for example, there are certain vegetables that we source from Mexico, for example. If there is a tariff coming in place, April going forward, there would be some impact, which we can mitigate to a certain extent. We'll never single source on any ingredient and so forth, but there would be some residual impact. It would hit us less than the big grocers in the U.S., which rely on the same supply chain, just have a lower gross margin compared to us, i.e.
There is probably a scenario where they would then move on to pass these prices onto the consumer, which would then create opportunity for us to effectively make us whole as well. There is some risk, and that's why we also highlighted that in the annual report that we published last week.
Knowing what you already know, is it in any way possible to quantify this risk?
It is, but it's something that we haven't put out, but it would be a lower double-digit EUR million number in unmitigated fashion.
Understood. Thank you.
Hi, Sam from BIT Capital. If I could ask a sort of flip of the previous question. I mean, in the past, you've been somewhat exposed to a sort of weaker consumer. Now that you are more focused on, I guess, your more higher income, longer tenured customers, do you think that you'll be somewhat less exposed in a potential U.S. recessionary environment? Is there anything you can sort of point to in terms of previous cycles on how the newer customers reacted versus your longer, more loyal customers?
I think we've seen in different geographies that we've been operating in over the past 12 years, obviously very different economic environments over that time. You're absolutely right that you usually tend to see the biggest impact on potential new customers who think twice about starting a new routine or starting something new. Usually, for those customers who have found good product value fit, who have actually seen the benefits of the product, they're usually much less elastic in saying like, "Hey, this is something I don't want to spend on at all." I want to make it clear that our strategy to prioritize profits over volume growth this year is a very deliberate strategy. If there is a weaker U.S. customer, et cetera, that certainly doesn't help, but this is not the core driver of the strategy. We want to own that strategy.
It's a very deliberate strategy to push the efficiency program, invest into product investments, and then return to growth at better margins and with a better product. That is really sort of like the bulk of also what we've guided towards with some obviously risk as to what is the U.S. consumer or other consumers doing in a time of uncertainty.
Maybe one more. You spoke about obviously this brand performance split. Could you maybe just give a bit more detail on, I guess, the benefits of that? There is this sort of perception that brand is just inefficient spend, and I'm assuming that actually the reality is that there's some sort of trickle-down effect and there's a reasoning you want to do this. Maybe you could just sort of highlight what you're seeing so far and what's pushing you to make that change.
Definitely the right question for you, Patrick.
I'm challenging him all the time.
This is like talking to Dominik on a weekly basis, but thanks for the question. I think for those that assume their brand spend doesn't have a value impact on the business, they are not investing sufficiently in their measurement models. That's not to say that we are 100% there on everything, but I think if you really focus on understanding the long-term impact of your brand or upper funnel demand generation investment on those mid and lower funnel channels, and therefore eventually on their efficiency and how well they're able to convert that demand, and you look at the complete picture over a longer-term time period, you should be able to measure out those effects and the ROI of those investments with a pretty high degree of certainty.
Never perfect because some of these are harder to measure than others, but we will be able to do that. The next question would be, what's the ideal mix we're aiming towards? Because I think that's always kind of a hotly debated topic. People will throw numbers out there and say it's a 60/40, 50/50, 30/70. I think a lot of that debate is flawed, and I think we will find what's right for us for every individual brand and market within the portfolio. Depending on the competitive dynamics of those markets, depending on the pricing dynamics of those markets, depending on the strength of the customer value proposition of that market, the mix will fluctuate. I think where the mix fluctuates most intensely is actually the maturity of the category in a specific market.
Where the category is novel, where there's a lot of category building efforts from multiple players, where there's a novelty around the product market fit, performance marketing engines perform very, very well. We should deliberately continue to build the brand while that's happening, but not do so inefficiently. When that starts to pivot, you need to start investing in the brand building efforts with the product and everything else ahead of that decline in the natural demand in the category. That's what we're looking to attempt to do with these engines. It's a bit of a long-winded answer, but it's a fascinating space, and it's one that a lot of advertisers struggle around getting right. I think measurement is number one, and then testing your way into the specifically right mix for longer-term demand generation.
Yeah, that makes sense. Just finally, one squeeze in. What would you want to see to start investing more marketing on a sort of year-over-year basis, again, into meal kits? I mean, you pointed today to a couple of figures which suggest that maybe CACs are increasing, you're seeing better retention. Maybe you could just sort of dive a bit into the contributors so far and what's really pushing you to reduce marketing and what you want to see for that to actually start recovering again.
Take it first. In terms of the reduction, I think it's around really identifying inefficient spend at the channel by channel, campaign by campaign level, customer by customer level, making sure that the data infrastructure is correct to be able to do that, to identify a campaign spend, a trajectory a customer has gone through, the value of that individual customer, and making sure that if it's subpar, you don't acquire more of those low-value customers. There are natural savings to be found as a business moves through that trajectory. That's been exciting with the teams to really dig that deep and identify the inefficiencies. Reinvestment has happened to some of the mid-term high confidence and longer-term demand generating campaign and sort of more of the ATL spend.
I think an area I'm personally excited about is actually taking a proportion of the capital and starting to get deeper and back into the community and some of the non-scalable tactics that a scaled business sometimes leaves behind. Once we now know who these customers are, how do we get much closer into those core communities and how do we get that word of mouth and the virality engines to kick back up for these more mature meal kit markets?
Hi, Jan Beckers here also from BIT Capital. Dominik, could you talk a little bit more about the growth opportunity you see in pet food and in vitamins? What's the playbook at the moment? What's future margin potential? Yeah, how could this unfold?
100%. Great question. As you know, as I referenced, we've really been screening over the last couple of years, almost all direct-to-consumer categories out there in terms of TAM size, in terms of growth, but also in terms of profit pools and margin opportunity. We felt those two are the most attractive ones. We thought long and hard whether the right way to enter that category is via an acquisition or building it from the ground up, from scratch up. For both categories, we have decided to actually build from scratch, which takes longer until it gets to a meaningful size, but obviously should come in terms of cash consumption at a much, much cheaper price. I think for us, to show a meaningful contribution to the group would have been easier to take on some business similar to what we did with Factor.
If you actually think about the ROI on what you want to spend on, then I think it's much, much cheaper over longer horizons of time if you build that from scratch. Right now, we're about one and a half years, one and a half, almost two years into the journey of building Pets Table, our pet food business. That business, I think as a standalone business, is doing pretty well. We've just launched outside of direct-to-consumer also our retail products. We're now listed with Chewy, Walmart, and will be listed on Amazon, which we're going to do to kind of drive multi-category and multi-channel growth for those.
After that initial phase where we were really focused on making sure that we have great product market fit, we're now getting into territory where we feel really good about that, where we feel good enough about that, that we put it actually in retail shelves, and also that we put more and more advertising spend behind it. In my view, over the next two years, we should see pet food growing from sort of the small but great customer proposition that it is today into a business line that can then also become meaningful for overall group growth. The reason why we didn't talk about it today is that probably for 2025 and 2026, it's more of a rounding error to the overall portfolio, but I think starting 2027, 2028, it definitely can become a much, much bigger growth driver for the group.
Similar story for VMS, I think similarly attractive market, even higher target margins because obviously the ingredients in that market are not particularly expensive. A lot of companies there with 80%-90% gross margins and selling vitamins and supplements, a lot of muscles that we see working similar to what we do see in meal kits, but we're much earlier. We only launched that six months ago. Right now, we're squarely in the phase of trying to really hit product market fit. I think out there on YouTube, a lot of influencers, et cetera, I think the product tastes really good. I think there is a lot of stuff that looks quite promising. For the next six months, we want to build that range further and then slowly start investing behind that in advertising.
For us, the first 6 - 12 months are always about nailing the product and making sure that we have a winning proposition that we can then scale in a profitable fashion.
Okay. Lastly for me, on a mid-year horizon as a D2C brand, how do you think you might leverage in the end the customer communication channel with maybe generative AI and all these upcoming opportunities? Let's say we look to three to five years from now.
It is very hard to look at any specific time horizon, but I definitely do feel that over time, if we enable right now a much broader menu that we can produce in our manufacturing network, that we can then, and at the same time, we capture all of the data points and actually build that first-party taste and customer data graph that we have, that I think then in the future, it might become much, much easier for you as a customer to actually let us know whether that is via an agent or via other entry forms, what type of meal plan, what type of meals you want to consume, you want to follow.
For us on the back end to put together the right meal plans and meal recommendations to every single time give you exactly the meal that you want at the right price at the right time. I think AI agents can play a big role in that. I also do think that there is potentially, and I have no idea whether that's over three years or five years or fifteen years, a lot of application cases in our supply chain for generative AI, for robotics, et cetera. Nothing that I can invest behind right now or that I can say like, hey, that's going to actually decrease my cost base by X. I think a lot of those developments are hugely interesting if you think about the business on a 5– 10-year time frame.
Hello. I have one question here. I have one question on the nutrition of RTE. And apologies in advance. I know you are managers and not nutrition experts, but is there any additive or any nutrition inside the RTE meals that make them more durable, that increase the shelf life? The reason I'm asking is because when I order the Factor meals, and like probably everyone here, we have tried them and they are good, but there is a certain time span until they are cooked and then they arrive at our home. And then there's another time span until the date until we can't eat it anymore. So we're talking about a time span of, I don't know, 10 days, I guess.
If I would cook those meals on my own and then try to warm it up 10 days later, it would be a different taste than the RTE meals.
You want to take that, Conal?
Yep, happily. My mic on.
The primary technology that we use to ensure meals taste great all the way through their shelf life is called modified atmosphere packaging. This is not any kind of chemical preservative or anything like this. What we do is at the last stage before we seal the meals shut, we remove the oxygen and replace it with inert gases like nitrogen, like carbon dioxide, which basically prevents the food from oxidizing and breaking down over the next few days. It is a totally clean and healthy and quite normal actually way to preserve the integrity of those meals and get that extra shelf life.
We have a very rigorous internal shelf life testing process that we go through for every single meal and every single market before we bring it to life to make sure that, as an example, internally, when our culinary team is evaluating new meals that are ready to go on the menu, we taste them 14 days after we cook them to make sure on that last day they still achieve the expectations that we have of that meal from a texture, from a flavor, from an aroma perspective.
I'm so happy you're here, Conal. I would have not been able to answer that question to the same degree.
Many thanks for taking my question. Just a thing. Thanks a lot for giving all the details on your investment in the product portfolio. It makes sense to understand that you are the own master of your TAM and you have to develop in the product to develop your TAM on the long term. Now it feels as if you are increasing the manufacturing complexity quite a lot, but at the same time, you're cutting 25% of your manufacturing platform and meal kits, and you're keeping CapEx at EUR 150 million or around EUR 150 million. Is there any risk in 2026, 2027 that you see all the investments and the increase in complexity might bring you to strongly increase CapEx from now on? Is there a hawkish income or are you comfortable that EUR 150 million in the next two years is a good base for all your plans that you have?
Okay.
Can you take that?
Yeah. T the short answer is that we will keep it around about the EUR 150 million level on a sustainable basis that I feel confident about. Could there be spikes in a certain year where we go a bit above or under? Yes, beyond 2026, but to keep it around that level for the foreseeable future and beyond, I feel confident about. The key driver behind that is what I tried to allude on the first ops slide is quite a couple of fundamental changes and tweaks and improvements that our ops teams are doing to our production process, which effectively yield us both. An expansion of our contribution margin, but at the same time, removing some of those restrictions we had before in terms of the flexibility how we can produce.
Hi, this is Andreas from RV Capital. With all the health focus of Factor, I was wondering if there is any chance to leverage endocrinologists in the marketing of the meals or health insurers in the financing of the meals? Thank you.
Great question. I know that number one, there's a number of clinical studies that we've actually done putting people on a Factor diet and actually understanding how some of their chronic disease, how some of their chronic conditions, et cetera, develop. More and more of those claims and more of that muscle to actually come up with clinical studies and use that in our advertising more and more will be used by us. The other point that you mentioned around health providers, this is something that is, I'd say, politically a quite dynamic space. What I mean by that is that every administration has sort of other rules around what falls under certain health insurance schemes or not. There was definitely over the last two years a big drive.
There is also right now, I think, in the new U.S. administration, the kind of understanding that food as medicine is something that should be prioritized more. In the past, kind of you could not have your health insurance cover food, et cetera. Right now, I know there is some debate whether there are certain services, et cetera, that should be covered under health insurance plans. I'd say we're observing that situation closely. There are certainly some opportunities for that, but I would never bet on some policies changing or having a big political tailwind or something like that. It's definitely something that is interesting.
I think this general notion, food as a medicine, that the big impact that actually has on you and that it should be increasingly covered by certain health plans and insurance plans as well, certainly that could be a big opportunity for us.
Thank you, James Reid from Broad Peak. I have two questions, please. The first one is, it appears that in the U.S., in the Ready-to-Eat segment, you're coming up against a competitor called Cook Unity, who seem to have a slightly different operating model that's more decentralized. I think they have over 100 different cooking teams that sort of batch that up separately. Can you share your thoughts on the strengths and weaknesses of that model versus Factor? Are there any learnings from Cook Unity's model and the success they seem to be having today that you would look to implement?
I think generally, you're not going to hear any bad words from me about competitors. I think they're generally in the right space. I think they generally have a good customer proposition. I think we feel much better about a lot of the food manufacturing capabilities that we have developed with a highly centralized model, with a model that is all about quality control, consistent quality, consistent nutrition, our health positioning. We think that is something that the customers that we're going after really, really appreciate. I think just on the outset, there's certainly one thing that we can learn. I think through a different operating model, they're offering a much larger number of meals at the moment. This is, I think, one thing that I'm a little jealous of.
I would love to be in the situation already today to also be able to offer 200+ meals to our customers. We are going to get there. I think we have a very ambitious roadmap to getting there. With the operating model that we chose, I think it is a lot safer, a lot more quality control, et cetera, but also takes longer to build that up.
Thanks. The second one, if I can, is on capital allocation. If I step back, the value of HelloFresh today, it would seem that the market is placing a high degree of skepticism on the future earnings and cash flows, the destination free cash flows of the business. We have heard today reasons why the management firmly believe earnings and free cash flow are structurally, materially rising from here. If that is true, every dollar spent purchasing your shares today will generate a very attractive ROI for shareholders. Why is management not actually desperate to be spending all of your free cash flow on share repurchases today, EUR 150 million-EUR 200 million, rather than the EUR 75 million we have authorized?
We are obviously in the market with a buyback program. I think for us, it makes sense to first produce the cash, then spend the cash. I think every time that we produce cash, actually make a decision, where do we feel the best IRR is coming from? Is that coming from reinvesting into the business? Is that coming from share buybacks? Is that coming through potential acquisitions or anything like that? For sure, we are in the market and we feel that right now is a good opportunity to buy back our own shares.
I think we'll take one question online, which is about the loyalty scheme. Why aren't we rolling that out more forcefully or quicker? What would you be looking at getting in terms of metrics before you take that decision?
Let me maybe start and then Patrick, you feel free to add if I forget anything. Right now, what do you want from a loyalty program? I think the most important thing is that you drive positive behavior among the customers that you want to impact and affect. That's something that we're very clearly seeing. We see our most loyal customers having lower pause rates as a result, having much lower cancellation rates, and generally having high satisfaction scores. Obviously, if you start giving benefits to your customers, then those benefits also accumulate for a long period of time. A very bad decision is to give certain benefits and rewards to your customers and then take them away again. Something called loss aversion, that is something that is pretty bad and that is much worse than not giving it to them in the first place.
Right now, I think a lot of the order rate impacts, a lot of the impacts from lower pauses and lower cancellation rate will materialize over the coming quarters. It is an investment in the beginning. The longer that we are in the market and in understanding how much that drives behavior, to what degree, and how we can, over a certain timeline, give customers those rewards, impact those behavioral metrics positively, but still have an ROI on that, the longer we have them in the market, the more confidence we have on that. For us, it is more of a risk posture. How quickly do we want to dial it up? I think we feel pretty good about our initial results.
Once you dial it up to the whole customer base, you're obviously also locking yourself in and you're not in a position to massively change some of the reward mechanisms, et cetera. We believe that before we roll that out to the whole customer base, we want to have a very high degree of confidence that we're not only impacting behavior positively, but so positively that we're actually making a good ROI on our investment and not just giving stuff away for free to customers, which obviously customers like, but we're not in the business of doing that.
Thank you. Maybe final question from Chat, and then we can break for lunch.
Hey, guys. Chat from Tenzing. Thank you for the presentation today. Really helpful. First question is about synergies across the portfolio between meal kits, RTE, and pet food or VMS. Can you just talk about synergies in customer acquisition, loyalty, CapEx, et cetera?
I think the best place to start is to think about along the value chain for each of those brands, what are the things where you need to be really, really good at? If I were to compare meal kits and RTE, then there are many domains where it requires the same muscles and there are some domains where you need very different muscles. We talked about food manufacturing. That whole space around food manufacturing is not really relevant for meal kits. That's why we only built that muscle over the last two, three years. If you think about pet food, for example, a lot of it is about building a great brand. Supply chain, customer acquisition, et cetera, is obviously really, really important, but a lot of it is around building a really, really good brand.
Wherever we feel that we have developed certain muscles, we usually try to get good operating leverage on those different muscles that we've developed. We don't need sort of its own finance team and people team and customer acquisition team and logistics team, whether you ship pet food or you ship a ready meal or you ship meal kits. When it actually comes to what are the muscles that are only important for that brand or primarily important for that brand, we usually try to set up and focus brand-specific teams on those muscles that you need to win in that category.
Can you expand loyalty to across the portfolio versus just focused on Meal Kits or Ready -to -Eat?
The long-term vision, I would say on many dimensions, is that we build different consumer brands, first really being focused on can we offer winning propositions? Do we actually have brands and products in the market that resonate with customers? And then on a longer-term timeline to see how can you make it more intuitive and easier for your consumers to interact with one account, to interact ideally with one loyalty program, et cetera. Right now, we're in the stage where we have two mature business lines and we have a number of newer business lines. The more mature that whole portfolio gets, the more powerful is anything that we do to combine those offerings because you just basically have the same amount of work that you put in, but at a much higher order of volume line.
I'd say on a long enough time horizon, I think a lot of that stuff is in our plans for 2025 and 2026. Outside of the integration of a subset of ready meals in our meal kit offering, we're not going to, it's not one of the priorities for investment.
Got it. One more numbers-focused question. You've obviously guided to substantial improvement in profits over the next two years. How confident are you that once we get past the next couple of years and look to grow meal kits again in a meaningful way, that profits won't degrade from that level on an absolute dollar basis?
Because of the size of our existing customer base. Yes, if we were to crank it up on the new customer acquisition side in that quarter, you would see our marketing expenses rise. That is subject to economic law like everyone else. To maintain margins above that 10% level, we feel quite good about.
Thank you. Before I pass it back to Dominik for some closing remarks, we have lunch being served at the potluck. On top of sandwiches and salads, you'll have the opportunity to try a few of our Factor meals. I think we have four recipes in total. There are microwaves there for you to use. If you do indeed use the microwaves, please poke some holes in the meal and then be careful. There are also some meals that we've already cooked for you. If you want to choose that option, that's also available for you. Also, as a reminder, we have examples of our Factor Form samples there for you to take home. Please, Dominik, take it away for closing remarks.
Not much to say in addition from my side. I think we really wanted to share our thoughts around three things. Where are we on the longer-term journey and what's the long-term opportunity? Hopefully, we shared a sufficient amount of detail around our cost efficiency program. We also gave you a sneak peek into a lot of the product investments that are coming over the next two to three years that should massively enlarge the TAM that we're going after and which we feel is really the foundation that we need to have to then eventually return to growth for the group. Make sure you enjoy lunch. Make sure you also get some of the Factor Form products. I think generally those products are a small range right now, but there's more of those products to come.
In future iterations, we're also happy to share more of those products then. I'm sure a lot of you are going to corner me during lunch. Feel free to ask any questions that you didn't have the opportunity to ask in this round. Thanks a lot for your attendance.
Thank you.