5/22/2018 CAN MEAL KITS BE SAVED? — The Sauce

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CAN MEAL KITS BE SAVED?MAY 21, 2018

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Meal kits promised to restoreenergy to the Americandinner table and reinventconsumers’ eveningmealtime experience. Theypledged to bring theconvenience and taste ofrestaurant-style dishes tohome-cooked meals,allowing the everydayconsumer to capitalize on hisor her Food Networkdaydreams in the comfort ofhis or her own kitchen. The�rst few years after the mealkit launch saw explosivegrowth; however, recentyears have seen theirpro�tability decline. Steadyinterest from consumers,combined with investmentfrom grocery stores and CPGcompanies, could prove to bethe category’s saving grace.

 

Blue Apron Presents: Any Night

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Starting a movement

Blue Apron pioneered the meal kitmarket by selling subscriptions forpre-portioned ingredients, pairedwith recipes for restaurant-stylemeals. The launch in 2012 instigateda meal kit delivery boom thatdelivered fresh ingredients tomillions of Americans’ doors. BlueApron con�rmed delivery of overeight million meals per month. After Blue Apron, the meal kitdelivery space quickly �lled up withother mail order players, likeHelloFresh, Plated and Green Chef.These companies competed on thebasis of fundamental elements, likeservice, ingredients and recipes. Themarket continued to expand over thenext �ve years, and the number ofoptions available hit triple digits.Companies aimed to remaincompetitive by designing mealsaround speci�c claims, and even themost generic versions o�er the

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capability to customize meals basedon preference.

Consumers can select a kit based ontheir dietary needs and beliefs.Companies like Purple Carrot o�ervegetarian and vegan meals, whileTerra’s Kitchen only sells meals thatmeet the standards of theMediterranean diet. One Potatomarkets itself as family-centric, andPeachDish is for those craving �avorsfound south of the Mason-Dixon line.Sustainability-minded and eco-friendly consumers can order SunBasket and remain assured thatthey’re eating a responsibly sourcedmeal.

If you have a dietary speci�cation,there’s a meal kit for it.  

 

Targeting consumers

Research demonstrates thatAmericans have an appetite for mealkits — some consumers more thanmost.

However, SmartBrief and theHartman Group data reveals thatmeal kits stand on shaky ground:Less than half (45%) of all consumersexpress a desire to try these services,and only one-quarter (25%) ofshoppers have acted on this interestand ordered a kit. These numbersfurther decrease among experienced

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cooks — only one-�fth (19%) ofadults who cook have used a meal kitor grocery delivery service, androughly one-third (28%) state aninterest in trying them.

Examining speci�c demographicgroups gives meal kit companiessome hope for their future. Youngmen with signi�cant amounts ofdisposable income represent thehypothetical sweet spot for thesecompanies. Men purchase kits attwice the rate of women, and almosthalf (44%) of male cookingenthusiasts see the quality of mealkits as equal to a home-cooked meal,with similar numbers (50%)considering them a good value forthe price.

Meal kits merge the gap betweeniGeneration and Millennials. Overhalf (52%) of this group aims to trymeal kits, compared to smallernumbers of older Millennials (37%),Generation X (38%) or Baby Boomers(24%).

The higher the household income,the higher the interest in meal kits:Those who make between $75,000and $99,999 demonstrate the mostsigni�cant interest (63%). The groupleast interested in meal kits consistsof those who make over $100,000 —individuals with developed taste andbrand preferences.

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The disparities between thesedemographic groups begins touncover the di�culties meal kits havein-market, demonstrating that,despite high interest, retainingconsumers presents a signi�cantproblem for these companies.

 

Stories from Real Customers -- Tre and Rich

Meal kit madness —misplaced mania?

The meal kit business model servesas a double-edged sword. Its tacticsdraw millions of interestedconsumers and initial revenue, whilefailing to retain them and wasting

5/22/2018 CAN MEAL KITS BE SAVED? — The Sauce

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signi�cant dollars in marketingspend.

Signing up is simple and attractive,due to extensive new customerpromotions; however, the overallexpense, absence of choice anddisincentive to continue purchasecreate systemic di�culties inretaining customers. Eighty-ninepercent of HelloFresh customersstopped using the service after oneyear, according to analytics �rmSecond Measure.

Consumers perceive the kits asexpensive, and over half (56%)disagree with the statement thatmeal kit services are a�ordable. Thispresents a signi�cant barrier for apopulation that values money.Nielsen research discovered thatover half (60%) of meal kit buyers seemoney as “extremely important” andthat half (49%) �nd low-cost itemsimportant.

The rise and fall of Blue Apronexempli�es the trajectory of themarket and the successes andfailures of its competitors. Despite aprevious valuation of $2 billion andgrowth of 133 percent, Blue Apronlost $54.8 million dollars in 2016 (a16% greater loss than the previousyear) and only booked $795 million innet revenue. Blue Apron now losesmoney on more than two-thirds of itscustomers.

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While food, packaging and shippingcomprise the bulk of Blue Apron’sexpenses, marketing also weighs inheavily. The company poured $144million into marketing in 2016 and$60.6 million in the �rst quarter of2017 alone. It spends a ton of moneyon marketing and promotionaldiscounts to acquire subscribers —an estimated $84 per customer.

 

Online to in-store

Meal kit companies’ problems withpro�tability have led them to movebeyond their inaugural mail-orderformat and seek out partnershipswith grocery stores and CPGcompanies. In-store sales showpositive growth from within adeclining category. Nielsen datademonstrates that in 2017, in-storemeal kits generated $154.6 million insales, posting growth of more than26 percent year over year.

Multiple retailers have now launchedor purchased meal kit services.Several of the most recent andsigni�cant launches and acquisitionsinclude:

Amazon launched a meal kitservice for select AmazonFreshcustomers in July 2017.Albertsons bought Plated inSeptember 2017.

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Kroger launched its own servicein September 2017.Publix launched in-house mealkits in November 2017Walmart started selling kitsonline in December 2017.Costco started selling BlueApron meals in May 2018.

Partnership with CPG companieshelps meal kits overcome keybarriers to entry. Perceptions offreshness serve as the primarybarrier facing meal kit adoption.Concerns about freshness (60%) andoverall quality (52%) preventconsumers from transitioning toretailers’ online grocery services.Only a quarter (25%) of consumersfelt that online grocery serviceso�ered a good produce department,and even fewer (19%) believed thatthey had a good meat or seafooddepartment. These perceptionsidentify a critical problem consideringmeal kits’ key claim: fresh, qualitymeals.

Partnerships between the two grantCPG companies opportunities foradditional distribution. Chef’d willhelp with infrastructure anddistribution of meal solutionsthrough the Campbell’s Kitchen siteand hopes to leverage Smith�eld'snational distribution network andfacilities to expand its ability to serveconsumers with next-day deliveryservices.

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Meal kit companies aren’t the onlyones set to gain from these newpartnerships, with CPG companies,such as Nestlé, investing as much as$77 million (June 2017 – Freshly) invarious start-ups. CPG companiesgain distribution in untappedmarkets and access to valuableconsumer data — more critical thanever in the age of Amazon.

Campbell’s Soup and Smith�eldFoods investments in Chef’d highlightthe potential of this aspect of therelationship. Campbell’s plans tobene�t from Chef’d’s insights on e-commerce business models, accessto data analytics and insights onshopper behaviors. Smith�eldanticipates innovating and learningby using Chef'd's direct-to-consumermodel by tapping into real-timeconsumer insights and sales data.Both intend to increase their e-commerce capabilities.

Meal kits also allow CPG companiesto expand their products outside oftheir retail geography. This isespecially important for newproducts, where companies may lackdistribution but want to generatebuzz with consumers. Unilever’s $9.2million investment (May 2017) inmeal kit start-up Sun Basketexempli�es this bene�t. Thecompany hopes that the kits willprovide a direct pathway from itsdistribution centers to consumers’

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homes though promotional productsbased on consumer data. Chef’d alsohopes to leverage Smith�eld'sportfolio of brands for meal kitsolutions across a variety ofoccasions.

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This article was researched andwritten by quench. Find out moreabout us here.

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