ESG in the portfolio: Northzone and Matsmart
Making sustainable choices and reducing the cost of living are questions on the minds of many consumers. Amidst more demanding economic circumstances and a looming climate crisis, Matsmart believes its concept is one of the answers. From the get-go, they invited customers to make a deal and save the climate at once.
“Matsmart is one of the few commercial sustainable investments within food I have ever come across. The more the company grows, the better it is for the environment, and the better it goes for everyone involved with the company – from suppliers to customers to investors. It is a true win-win business model”, says Jessica Schultz, partner at the Nordic venture and growth investor Northzone.
Schultz was one of the founders of the meal kit delivery company HelloFresh, based in Germany. Compared to her home country Sweden, she experienced how educated Germans were about food waste. It soon became apparent to her how significant the food waste problem was and how difficult it was to solve. Schultz saw that politicians could introduce policies, but there were no commercial initiatives to solve the issue.
That was before she moved back to Stockholm to become a venture investor at Northzone when a young Swedish trio knocked on her door.
Saving food and making a deal
One-third of the trio was Erik Södergren, who ran an ICA grocery store in Sweden in the early 2010s. Södergren experienced how much food the store tossed that, in his eyes, should still have a shelf life.
“Why are customers pointing out that products like pasta are soon reaching their expiration date, and why are we throwing it in the bin when it hits this date?” he asked. Södergren’s solution was to set up a discount corner in the ICA store, with shelves full of seasonal goods and products with “bad” expiration dates.
Soon, something started to happen: Customers went wild for the discounted goods. They shopped as usual for the rest of the goods in the store, which made Södergren conclude that the arena was wrong. He got together with his two friends, Karl “Kalle” Andersson and Ulf Skagerström, and they decided to take the concept online.
“From the outset, the concept had three things going for it. First, we understood that the food waste problem was not local but global, and this insight fuelled the business. Second, everyone loves making a bargain. Third, food on the internet was getting traction”, says Andersson, the CEO of Matsmart today.
63%
of people struggle to separate “use by” and “best before” dates on food products (Respect Food)
When the guys launched in 2014, they wanted to reach the whole of Sweden from day one, from Norrbotten in the north to Skåne in the south. Hence, they focused on dry food products. Soon, customers started posting about their shopping experiences.
“Matsmart has always been about helping the climate and making a deal at the same time.”
Bringing investors in to grow
Not only were customers hooked on Matsmart. The suppliers were also keen on ridding themselves of expired products. Today, they pass on large semi-trailers with products ranging from Heinz ketchup and Italian pasta to the company.
What separated them from many others was their business acumen.
“It was a pocket where no one had seen the potential that a business idea could emerge. We are not food activists but businesspeople. Our goal was to scale up a food impact start-up and expand to new markets”, Andersson says.
To scale up the business, they had to bring in investors. They found the perfect person to pitch to when Dagens Industri ran a profile interview with Schultz about her HelloFresh career and her new job at Northzone.
“When they described the idea, I loved it instantly. The true genius about Matsmart is that it removes the embarrassment that some feel about buying from discount stores. They do this by inviting people to save the food and become a climate hero”, she says.
Schultz put the founders in contact with their first angel investors before Northzone made its first investment in 2015. Since then, the company has overperformed on its business plan at every level. The overwhelming response from customers caused a big learning curve for the founders. They had to learn to build a website, handle customer care, price the products, negotiate with suppliers, and create the company’s brand.
“Kalle is still the CEO, and he has been able to learn all this and grow with the company. He even took evening English courses to prepare better when meeting international investors. It is easy to see that he lives and breathes the Matsmart brand. You want guys like that to succeed”, she says.
“Matsmart is one of the few commercial sustainable investments within food I have ever come across.”
Entering Europe’s major food markets
When we speak with Andersson, he is on the train from London with his co-founders following a successful UK launch of Motatos, the name of the concept outside of Sweden. They are now situated in Europe’s two key markets.
“Germany, where we launched in 2021, and the UK are the largest and most competitive food markets in Europe. We thought that if we were to succeed anywhere, it had to be those two countries”, says CEO Andersson.
The conditions for a concept like Matsmart were excellent in these markets. In Germany, as Schultz already had experienced, the public was very educated about food waste. In both countries, increasing inflation and interest rates limit people’s purchasing power. Further on, climate change has become more apparent in Germany and the UK, exemplified by drought and heat waves this year.
€100m
Matsmart’s estimated revenues in 2022.
“In these markets, making sustainable choices and reducing the cost of living are questions on the minds of many consumers. Our concept is one of the answers to tougher economic circumstances and a looming climate crisis”, he adds.
But first and foremost, Matsmart is a business. One of the gems in Northzone’s portfolio, according to Schultz.
“When we invested, the revenue was around 1 million euros. Now, it is at around 100 million euros. The company is close to profitability in Sweden, and the margins look good in the other markets. Matsmart is one of the true darlings of the investor community”, she says.