Are we all too busy for the grocery store? A number of food delivery-based companies and their investors are certainly hoping we are. Moving past the old stand-by of greasy pizza delivery, the new meal kit subscription model has lit a fire under the culinary world, and doesn’t show signs of fading.
Each company has its own special mix of box components, but in general terms, a meal kit is a selection of pre-measured ingredients and accompanying recipe, delivered directly to a customer’s home, where they assemble the elements into a complete meal. The kits remove the need to plan, grocery shop, or even think about your meal before you open the refrigerated box to start cooking. Farm-to-kitchen-to-box-to-table, so to speak. While not an entirely new phenomenon, the US has embraced the model in recent years (Food Navigator-USA attributes 40% of the global market to the US). Today there are dozens of meal kit companies in the market (reportedly more than 150), some more successful than others, and all fighting for their piece of the food industry pie.
One company, Blue Apron, has made quite a splash with a 2015 valuation of $2 billion (TechCrunch, “Blue Apron Eats Up $135M At A $2B Valuation”), and Fast Company reports that the meal kit market itself is projected to hit the $5 billion mark over the next 10 years. Still, some fear that low overall penetration and high prices, among other obstacles, will impede the success of such companies. Investors have opened their wallets–will consumers be as eager?
First, let’s take a look at the many factors from which meal kits have drawn early success:
- The target market is a coming-of-age (and coming-into-money) demographic. High levels of discretionary income paired with limited free time and cooking skills make young, childless millennials a fitting and captivated consumer group. They’re drawn to the convenience of meal kits as well as mental and physical liberation from the effort of cooking (home-delivery doesn’t hurt, either). Yet, the process is engaging enough to remove the guilt induced by a microwave dinner.
- Food waste has reached an exorbitant level across the globe, especially in America where as much as 31% of post-harvest food is discarded by grocery stores, restaurants, and consumers (USDA, “Food Loss—Questions About the Amount and Causes Still Remain”). Compared to their more traditional counterparts, meal kit services are better able to calculate precise food needs of customers and claim to limit food waste to as little as 2%. Not only does this save the companies money, it’s a great selling point for environmentally-conscious consumers.
- Proliferation of foodie culture and interest in healthier meal options with more unique ingredients means consumers are looking for alternatives to fast food, but still crave the convenience of quick prep. Meal kits fill this void and remove the hassle of developing healthy recipes on your own.
- Fresh, gourmet meals are social media catnip. Picture-perfect-plates with a DIY twist are ideal to push via social influencers who readily market to a captivated audience of potential customers. Bonus: it feels organic (quite literally).
- Grocery woes are growing. 2015 produced physical grocer’s lowest customer satisfaction scores in a decade. As customers grow more frustrated with traditional grocery stores, they may be more willing to give online food purchase a try. What’s more, even with happy customers, in-aisle profits have a tight margin. If handled correctly, kits’ prepped ingredients can pull a premium price and a larger markup.
However, lest we forget our physics lessons, positive momentum is always accompanied by a negative counterpart. Meal kits are no exception:
- Profitability is a fickle beast. Despite premium pricing, meal kit companies have the added burdens of high operating and distribution costs. These will only increase as customer bases expand and become more spread out.
- Meal kits have become notorious for their excessive packaging. For now, it seems as though wasteful packing materials are the price we must pay for fresh ingredients. For companies this means added expenses with a side of negative customer perception (and widespread criticism). However, it’s also an area of opportunity. Research shows that millennials are willing to pay more to a company that uses eco-friendly packaging. Once companies can find a way to create packaging that’s effective and good for the environment (as many are actively pursuing), they may be able to satisfy environmentally-minded customers while charging even higher prices.
- The market is oversaturated, with more than 100 competitors and counting. These “disruptors” need to disrupt their own category in order to stand out. Apart from direct competitors, online grocery is a growing threat as well–it’s predicted to be a $100 billion business by 2018 (Fast Company, “The $5 Billion Battle for the American Dinner Plate”).
- Affordability is an issue for most Americans. Although marketed as less expensive than restaurants, the cost per 4-person meal for one of these kits (Fast Company reports Blue Apron charges $34.96, for example) is far higher than the average American family pays for an entire day’s worth of food ($21).
- Early adopters (single city dwellers) comprise a limited market–other customer groups may not flock to this model as quickly, if at all.
- Moving beyond city limits:
- People are more spread out which means additional dollars devoted to delivery and logistical challenges
- Consumers are more likely to have cars and easy access to grocery stores–less dependence on food delivery
- Daily costs of food are lower than those in the city, so prices for the same meal kits appear more expensive
- Focusing on urban populations:
- In a recent survey by Trulia and FiveThirtyEight, only 26% of Americans classify their neighborhoods as “urban.” This isn’t a precise representation of the nation’s population, but it puts into perspective the limited size of urban markets, especially when you consider that many residents in these urban areas can’t afford meal kit services.
- Moving beyond city limits:
- Too many cooks in the kitchen. As meal kits introduce more and more “non-cooking” customers to culinary experiences, they risk creating curious home chefs who are ready to move beyond meal kits and take greater control over their kitchens. In effect, teaching themselves out of a sale.
Meal kits are new and exciting, but eventually the novelty will wear off. Have they found a recipe for success, or will this trend fade away like so many fad diets?
We’d love to hear your opinions on the future of the industry, and if you’ve tried one of these services before, let us know your thoughts.