11%+ Sales Growth in the $27Bn Prepared Food Segment (of the 2% Growth, $1.5Tr Food Industry)

Of the $1.5 trillion U.S. food market, restaurant sales total ~$800 billion⁽¹⁾ and are growing at +2.8% annually; grocery store sales total ~$669 billion⁽²⁾ and are growing at +1.4% annually. Fresh prepared foods market sales total only $26 billion but are growing at 11.6% annually.⁽³⁾

A breakdown of the composition of the $26.8 Bn fresh prepared food market is as follows:

Deli Departments in Grocery Stores $14.0 billion

Meal Kits $4.0 billion

Home deliveries from restaurants $8.0 billion

Dedicated "take home " prepared food retailers $ 0.8 billion

Packaged entrees, appetizers and desserts, O2O's sweet spot, have the most rapid growth in fresh packaged food sales.

The following table reflects the growth in dollar sales for the 12 months ended May 5, 2018 in a representative grouping of deli departments (the largest part of the market currently):

Read to Eat Stew +40.6% Meal Kits +26.8%

Meatballs +18.4% Main Course Chicken +18.0%

Ready to Eat Soup +16.5% Main Course Pork +14.5%

Flavored Mac & Cheese +14.1% Heat & Eat Pasta +12.5%

Source: Nielsen

In contrast, dollar sales for traditional deli offerings that are not entree/appetizer dinner items for the same 12 month period have declined, e.g.:

Bean Salads -17.6% Pork Sandwiches -14.4%

Tuna Sandwiches -7.5% Fruit Salad -7.3%

Egg Salad -5.0% Cold Cut Sandwiches -4.4%

Source: Nielsen

40%+ Growth in Home Delivered

Home delivery of fresh prepared foods is increasingly important. Sales of food delivered by third party providers reached $8.0 billion in 2017 and have grown by more than 40% annually for the past three years.

The key advantage in home delivery that prepared food retailers, i.e. O2O Gourmet, enjoy over restaurant companies, is that prepared food production, refrigeration and delivery can, like grocery deliveries, be made at any agreed time the customer is at home.

With that in mind, prepared food retailers do not inexorably have to pay 15-30% of sales to third party delivery services. The fact that delivery of prepared foods can be scheduled throughout the day means that prepared foods retailers can build their own delivery teams very efficiently, with much thinner staffing and without overly damaging margins from delivering incremental sales. This can become another major competitive advantage for O2O as home deliveries grow.

Competitors

There are no sizable independent competitors per se in O2Os dedicated fresh prepared foods sector. The largest is Freshly with less than $100MM in sales. Most of fresh prepared food sales are made by captive deli departments of grocery chains, all of whom are under general competitive margin and sales pressure from Amazon; the balance is primarily from restaurants making home deliveries primarily using third party providers. Meal kit providers are hemmorhaging customers and sales, and suffering massive financial losses, as their product is perceived as expensive, too complicated and proscriptive, and too time consuming to prepare. O2O Gourmet has none of these defects.

Sources: