The pre-packaged meal startup Daily Harvest has seen its sales drop by more than half since May, according to data from Bloomberg Second Measure. The company, which is facing customer lawsuits over a high-profile food illness incident this summer, credited declines to a decision to reduce advertising spending.
(Bloomberg) — The pre-packaged meal startup Daily Harvest has seen its sales drop by more than half since May, according to data from Bloomberg Second Measure. The company, which is facing customer lawsuits over a high-profile food illness incident this summer, credited declines to a decision to reduce advertising spending.
Daily Harvest’s sales dropped by about 55% in September compared with May, and 36% compared to the prior year, according to the data, which is based on billions of anonymized credit card transactions. The company’s customer base also shrank from May to September, the data show.
Daily Harvest said that it anticipated a decline after it cut its marketing outlays by 75% in the May-to-September period, citing the rising cost of ads. “We knew this carefully considered spending reduction would result in a change in volume,” a spokesman wrote in an email, pointing to the company’s belief in efficient spending. The spokesman said that Daily Harvest is a “thriving business serving millions of consumers that generate hundreds of millions in annual revenue.”
The startup said there was no connection between its food illness episode and its decline in sales.
It’s been a rocky year for Daily Harvest. This summer, the company recalled a product called “French Lentil + Leek Crumbles,” and received hundreds of reports of illness or adverse reactions to the product. After an investigation that involved the Food and Drug Administration, the Centers for Disease Control and Prevention, toxicologists and labs, the startup said it had identified the cause of illness: tara flour, an ingredient Daily Harvest only used in that recalled product. Some customers’ illnesses were so severe that they underwent surgery to remove their gallbladders, according to lawsuits filed against the startup.
“Health and safety is our highest priority,” Daily Harvest said in a statement, noting that it initiated the recall of its lentil and leek crumbles voluntarily. “Quality, safety, and transparency are and always will be top priorities and what drove our swift approach.”
In recent months, the food delivery industry has been challenged as the pandemic recedes, and several delivery companies have pared back costs. Berlin-based HelloFresh recently notified California officials that it would close its facility in Richmond and lay off more than 600 employees. Instant delivery startup GoPuff has cut almost 2,000 workers. And in August, Daily Harvest laid off 15% of its staff. Daily Harvest told its staff the layoffs were planned before the crumbles issue, according to reports at the time.
In a statement, Daily Harvest said its “substantial customer base” means that the company can afford to reduce its spending on increasingly expensive advertising, “while we evolve our business for a changed dynamic.” Although the Second Measure data showed that the number of people ordering from the startup fell, the company said its customer retention rate had remained steady. Daily Harvest also vigorously defended the health of the business.
Daily Harvest could be more insulated from inflationary pressures than its some of its peers because its higher-income customer base is less likely to change eating habits based on economic factors, said Dana Peck, the co-founder and chief executive of food product development company Pilot R&D. She also said trust issues could potentially weigh on the company. “When there’s a contamination, there’s more uncertainty and less trust, and you see that in sales numbers,” Peck said. “This is part and parcel of the food industry. It’s not a dirty secret. It’s a reality of food that we all contend with.”
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