Home Chef Founder and CEO Pat Vihtelic brought modest expectations into his first meeting with Kroger Co.
“It was about selling our meal kits in their grocery stores,” Vihtelic says. “We got to know their team and they got to know our team, and we wound up being given the opportunity to take the lead on the direction of their meal solutions business.”
Home Chef closed a deal in June 2018 to manage Kroger’s meal solutions portfolio. The initial transaction price was $200 million, with future earnout payments of up to $500 million over five years, contingent on achieving milestones such as significant growth of in-store and online meal kit sales. The deal came on the heels of Home Chef's 150 percent growth in 2017, with $250 million in revenue and two profitable quarters.
“From the beginning, we had the opportunity to build a strong relationship together and recognized the strengths we each bring to the table, which always makes partnering a more obvious decision to make,” he says.
In this Dealmakers feature, Vihtelic shares the roots of Home Chef, the steps that led to a deal with the $121 billion grocery chain and his thoughts on the future of the business.
Plan for success
Vihtelic was 12 years old when he launched his first business, a lemonade and golf ball stand on a golf course near his family’s home. As he moved into adulthood and got married, he and his wife each took jobs that required long hours. It led to moments of frustration at the dinner table, but Vihtelic was already thinking about an entrepreneurial solution.
“Even though we have always loved to cook and love being around food, we found ourselves struggling to make dinner every night,” he says. “It was hard to find the time to go to the grocery store with demanding jobs. I have always been an entrepreneur at heart. We knew that there were others like us who would appreciate the convenience of a meal kit service that offers high-quality, proportioned ingredients in exactly the amount you need to get dinner on the table in under an hour.”
Vihtelic spent several years working in technology investment banking in San Francisco, helping high-growth companies navigate M&A and capital raising. The knowledge he gained through these experiences proved to be invaluable.
“I had the opportunity to work on a number of transactions that gave me a front-row seat to understanding some of the complicated dynamics that can either drive or factor into a deal,” he says. “Every situation is different, but it is key for your board to align on what the desired (and reasonable) outcome is, along with the milestones and timeline associated with reaching that goal.”
Keep an open mind
Today Home Chef has more than 1,800 employees and delivers 3.5 million meals per month.
“Our merger with Kroger has given us the opportunity to accelerate availability of meal kits and position the company in such a way that we can really revolutionize how families and individuals cook, shop for and prepare their meals,” Vihtelic says. “We are very enthusiastic about the initial success of our retail partnership with Kroger.”
As the relationship with Kroger continues to bear fruit, Vihtelic is looking to expand to new stores, introduce new products and provide additional meal solutions to hungry customers on the go.
From a dealmaker’s perspective, he says it’s important to keep an open mind and stay close to what’s happening in your business.
“Having a strong understanding of your momentum and business outlook can be just as important as the market dynamics driven by competition or potential partners to make a decision,” Vihtelic says. “With that, knowing what your options are undoubtedly makes reaching a decision to partner easier — whether that is knowing the broader buyer universe or considering alternative directions such as raising capital.”
Perhaps the most important piece, however, as you develop a growth strategy for your business is the people around you.
“In the beginning, I wanted to make dinnertime easier and better for people like me who had busy lives but craved the satisfaction and comfort of a home-cooked meal,” he says. “But I couldn't do it alone. I always say that our secret sauce is the team that we have focused on making Home Chef better every single day.”