June 20, 2017 / 5:14 AM / 2 months ago

Nestle buys stake in U.S. ready meals group Freshly

A Nestle company logo is pictured on a bar of Milky Bar chocolate in Manchester, Britain April 25, 2017.Phil Noble

ZURICH (Reuters) - Nestle (NESN.S) has acquired a minority stake in U.S. healthy ready meals group Freshly, as the Swiss food giant seeks to hone its distribution network in a rapidly changing U.S. market.

Nestle said on Tuesday it was lead investor in a $77 million round of new funding for Freshly, helping it gain access to the $10 billion market for prepared meals in the United States, which it expected to grow at "very attractive rates".

Nestle did not disclose its exact investment, which it said would help Freshly build a new East Coast kitchen and distribution center in 2018 as it prepares to expand its U.S. service nationwide.

Nestle USA's Food Division President Jeff Hamilton would join Freshly's board of directors.

Nestle shares rose 0.8 percent by 0920 GMT.

The world's largest packaged foods maker is becoming more health and nutrition-focused as a new generation of savvy consumers demand fresher and healthier foods. It said last week it could exit its U.S. confectionary business.

The deal comes just days after Amazon.com Inc (AMZN.O) said it would buy Whole Foods Market Inc (WFM.O) for $13.7 billion, in a deal that could turn the high-end natural and organic supermarket chain into a mass-market retailer.

Freshly is headquartered in New York with operations in the western state of Arizona. Founded in 2015 and with 400 staff, its subscription-based model offers various meal plans to consumers via a rotating menu on its website.

Nestle USA Chairman and CEO Paul Grimwood said consumers still bought most food in supermarkets but were increasingly turning to direct-to-consumer options.

"Acquiring a position in Freshly not only gives us access to this growth market, but it also brings reciprocal benefits for both companies. Nestle will gain visibility into Freshly's advanced analytics and its highly effective distribution network and Freshly will benefit from our R&D, nutrition and sourcing expertise," he said in a statement.

Its Phoenix facility lets Freshly ship to around 40 percent of consumers. Nestle estimated a new plant in Maryland should let Freshly serve about 93 percent of the U.S. population with prepared meals that can be heated in two to three minutes.

"This investment and close partnership will allow Freshly to continue to expand and rapidly scale our reach in order to achieve our goal of being in every household in America," Freshly CEO Michael Wystrach said.

Nestle its trying to capitalize on the growth of the market for delivered food, which range from HelloFresh and Blue Apron to Delivery Hero, which on Monday said it aims to raise around 927 million euros ($1.03 billion) through a stock market listing that could value it at up to 4.4 billion euros.

German meal kit company HelloFresh is also preparing a stock market flotation which could come this year.

Market research group Euromonitor International said Nestle is market leader for ready meals globally and in the United States, with 8.2 percent and 17.4 percent shares respectively, although its U.S. market share slipped from 18 percent in 2011.

Reporting by Michael Shields; Editing by Susan Fenton and Louise Heavens

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