Where will meal kits find future growth?
- Business consulting firm Technomic predicts that meal kit subscription revenue will reach $10 billion by 2020, according to Grocery Headquarters.
- There are several different avenues emerging in this market. These include meal kits launched by grocery stores (like Kroger's line of Prep + Pared kits) and those bought by grocery stores (like Albertsons' acquisition of Plated), plus direct-to-consumer ready meals backed by food manufacturers (like Nestle's investment in Freshly).
- “I think meal kits have a place in the future, but they will be largely supermarket-based and there are reasons for that. People don’t want to order two or three days ahead and figure out what meals are, and one of the biggest problems we’ve heard from consumers through our consumer panel is that they hate the waste factor, with all of the shipping materials,” Phil Lempert, food and consumer trend analyst and editor of supermarketguru.com, told Grocery Headquarters.
Consumer interest in meal kits is holding strong. Shoppers are seeking kits online, from subscription-based services or from brick-and-mortar retailers. Demand for these products isn't surprising, considering consumer appetites for convenience and premium dining experiences. For a relatively reasonable cost, shoppers can get a high-quality meal designed for their dietary preferences, and all they have to do is assemble and cook it.
The question today is how consumers will prefer to access these meal kits going forward, and what the most successful and sustainable model will turn out to be. It's a challenging market to be in — the overhead costs of purchasing, processing and shipping pre-portioned meals and ingredients can be high, and there is a glut of companies big and small scrambling to outpace one another.
Providers like HelloFresh may be confident in their ability to ride the momentum of consumer demand — the company recently told investors it will soon overtake rival Blue Apron — but most meal kits are struggling to reach profitability. Blue Apron, for example, has struggled against high marketing costs and declining consumer spending, and its stock dropped nearly 50% after its IPO this summer.
But these signs aren't dissuading companies from entering the meal kit game. Amazon is currently testing its own meal kits, and Albertsons — which recently bought meal kit company Plated for an estimated $200 million — is ramping up its supply. Major retailers like Kroger and Publix have also gotten into the game. These new players are crowding the space, putting even more pressure on companies to deliver revenue and customer satisfaction. So where should meal kit makers be looking for growth opportunities? Can they reform their models or find another path to profitability?
The way forward is unclear. Though some analysts agree with Lempert that supermarkets may soon dominate the meal kit market, others argue that diverse consumer needs and shopping preferences could sustain multiple meal kit business types.
Given the erratic nature of today's meal kit sector, it may be best for companies to wait and see how and where consumers buy their meal kit. When the shakeout is over, they could make a more calculated move. If the trend has staying power, this strategy might work better than getting in and then exiting too early.
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