The Freshly supply chain

The market for freshly-prepared, ready-to-eat meals was one of the hottest segments for growth and startups even before COVID. Since COVID, it has exploded, both in interest from consumers but also from the investment community.

Take Freshly. Founded in 2012 to deliver freshly-prepared, refrigerated food on a subscription basis, the New York-based company was delivering about 600,000 meals a week in 2019. When I spoke late last fall to Richard Stoecklein, the senior vice president of operations, the company was delivering “north of 1 million meals a week, every single week,” Stoecklein said. He pointed that the nearly 70% growth was organic, and not the result of acquisitions. Reflecting the interest of the investment community, Freshly was acquired in 2020 by Nestle for about $1.5 billion.

I spoke to Stoecklein to learn a little more about what it takes to prepare and deliver more than 1 million meals a week, while maintaining the freshness and variety that Freshly’s customers expect. Although Stoecklein has been with Freshly for just under 4 years, he has been in the food industry for 43 years, with stints at Fortune 500 firms like Campbell’s, Pepperidge Farm and Pillsbury. In his current role, he is responsible for manufacturing, operations and supply chain management.

First, a little about how Freshly works. The company offers 4 meal plans, ranging from 4 to 12 meals per week, with prices ranging from $11.49 to $8.49 per meal, depending on the plan. Each meal is designed to be one serving. Typically, Freshly offers 38 meals at any given time, and the meals rotate. There are about 10 culinary processes used to make the meals, from sauteing to grilling to baking, all with fresh ingredients. The order to delivery cycle time is 7 days “from the time the order is received until the consumer gets the product,” Stoecklein said.

To pull that altogether, Freshly was operating a handful of facilities in the Northeast that ranged from cooking and meal assembly, to just cooking or just assembly. The company also had one DC that only distributed meals. At the time of our conversation, new facilities were scheduled to open in Los Angeles and Atlanta to increase capacity and keep up with growth. Facilities vary in size from a 40,000 square foot assembly facility to 170,000 square feet for facilities doing more processes.

From a supply chain perspective, Stoecklein said the company’s biggest challenge is maintaining freshness. “Since the bulk of our raw materials are fresh, we have to do some sort of management across all the temperature zones, ambient, refrigerated and freezer,” he said. “And, we have very tight timetables we have to meet once the product is cooked as to when it’s assembled and packaged, when it leaves our dock for a sortation center and last mile delivery.” He added that to do all of that at scale, the raw components that go into meals are sequenced in a way that takes into consideration different cooking times so that they arrive at the assembly area at the right time.

As an example, once the components for meals have been cooked, there’s a mandatory chill-down process, where the food has to meet a specified temperature in a specified time. Once meal components have been chilled, they’re staged for assembly into trays. Freshly uses modified atmosphere packaging, where oxygen is evacuated before the tray is sealed and placed in the sleeve that is presented to the consumer. Then, trays are staged for the order assembly process. A barcode scan tells the packers what items are supposed to go into the insulated box. Once packed, 93% of orders are delivered in one day, with the remainder delivered in two days.

While we’re in an automation boom, Freshly’s processes are still hands on. “We are looking at automation for order assembly, since it’s pick and pack, but the rest of our processes just don’t lend themselves to automation,” he said.

As you might expect, all of those systems were put to the test when COVID hit, and demand spiked. At the time, Stoecklein said, Freshly was “operating at the high end of our utilization. We did not have a lot of excess capacity.” Add to it that the challenges of operating in COVID and the stresses placed on Freshly’s suppliers. “It was a cross-functional, all-hands-on-deck effort to anticipate demands,” he said. To make that happen, they focused on several key areas.

One was employee safety. According to Stoecklein, as a manufacturer of ready-to-eat meals, the company already had to meet stringent standards. “Our people were already required to wash their hands, put on PPE like smocks and special boots and we have sanitization processes in place,” he said. Breakrooms and offices were already getting a deep cleaning once a day; that was increased to two times a day. Early in March, as word of a virus was spreading, Freshly had set up a screening process for employees entering a facility, and protocols around testing. Employees who experienced symptoms or were exposed were quarantined. “We mobilized very quickly to open channels to source temporary employees to keep up with demand,” he said. “Even today, we are providing limited access to the facilities by outsiders, including our own corporate group.” Between temps and over-time, Freshly increased capacity by 20%.

Perhaps the bigger challenge was potential supplier disruptions. Think back, for instance, when meat was suddenly in short supply at the grocery store. “We did not have a pandemic playbook,” Stoecklein recalled. “But over the normal course of business, we did ‘what ifs’ associated with key ingredients, such as: What if a supplier goes out of business?” To secure the supply chain, the procurement team identified key ingredients and began to ask suppliers how they were being affected and to identify and onboard backups where needed.

They also did a deep assessment of available storage capacity, both internal and external, in the event they could purchase additional ingredients as a backstop or take early deliveries to prevent shortages. “We also looked at freezer capacity and asked the question: If fresh isn’t available, what materials could we freeze,” Stoecklein said.
 
Having learned to operate during a pandemic, Stoecklein said some changes are permanent. Increased screening and sanitation are now part of the standard operating procedures and not just for an emergency. And, while the company did not have a pandemic playbook, it is memorializing the lessons learned from COVID. “This has caused us to take risk mitigation quite seriously,” he said. “No one has a crystal ball, but we have to assume that something will come next that threatens operations. We want to be ready.”