What is a meal kit? A meal kit lets people actively make a meal without having to first assemble all the fixings, and answers the question, “How can I serve a meal quickly and conveniently, yet still feel involved in the process?”
The fresh ingredients, from flesh proteins to veggies, pasta, and spices, are usually raw and require no, or minimal, chopping or other preparation before cooking. The typical meal kit model comes as a subscription delivery service. You sign up online to receive regular deliveries, usually once per week, choosing the number and types of meals you want included in advance.
According to company data, meal kits appeal most to households earning $100,000 per year or more, whose adults are juggling busy work and personal lives. These well-to-do folks value the culinary experience as much as convenience, so the menus are often designed by famous chefs. Meal kit companies also tout freshness equal to or better than what shoppers will find in their local grocery stores. Prices range from about $10 to $16 per serving, with price breaks for multiples. Delivery is typically free as long as you sign up for a subscription.
At the moment, there are dozens of meal kit companies scrambling for traction, with the greatest concentration of services offered in densely populated urban markets. Acquiring meal kit customers is also expensive, between $30 and $80 each, according to estimates by Morningstar investment advisers. Blue Apron, the largest meal kit company, made an initial public stock offering (IPO) at the end of June with an asking price of $10 per share, which has drifted down to the $5-per-share range as of the end of October.
Investors appear to be concerned about Blue Apron’s costs and customer retention rates. There was a 6% decline in customers served compared to the year-ago third quarter, and a 9% drop off from the just-ended second quarter, to about 4 million, something the company attributed to reduced marketing spending. Overall, the company lost about $87.2 million in the quarter, up from a $37.4 million loss in the year-ago third quarter, and increased its estimate for total-year losses by $10 million, to a range of $131 to $138 million, a result in part due to layoffs.
Are meal kits a trend or a fad? Ten years ago, meal assembly kitchens came on the scene to much fanfare. Consumers go to a central commercial kitchen where all the ingredients and recipes are prearranged. Customers first cook, then freeze typically a week’s worth of meals to thaw during the following seven days. While still in existence, this method of solving the problem of what’s for dinner does not appear to have mass appeal.
The meal kit business is already larger than the assembly kitchen concept, likely because it moves the cooking process into the home, saving the customer travel time. But the inflexibility of the subscription model, the fairly high average per-meal cost, and the overabundance of packing materials waste combine to create significant headwinds to mass adoption.
Should you dive in?Customers of your meal kit service will assume they can order online from you—convenience being as important as quality. While you could offer meal kits solely in-store, or order-by-phone, you may be forfeiting the “buzz” factor of high-tech online ordering. Before you decide to move forward, why not become a customer yourself? Take a look at Blue Apron and Hello Fresh offerings online, (www.blueapron.com, www.hellofresh.com), then decide. JJ
Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a holistic consumer marketing service designed especially for independent natural products retailers. With 40 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. Jay can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.
Published in WholeFoods Magazine December 2017
