Direct-to-consumer meal kits are ailing; can supermarket meal kits save the concept?

The bloom may be off the rose for direct-to-consumer meal kits. Consumers like the idea of dinner or dinner ingredients shipped directly to them to cut down on shopping and food preparation, but not enough so to stick with the concept long-term.

Blue Apron, the largest provider of direct-to-consumer meal kits, is losing an estimated 70% of its customers within six months of signing up, according to a recent Wall Street Journal report quoting meal kit researcher and Emory University professor Daniel McCarthy.

Purchase analytics firm Cardlytics found similar customer retention issues, reporting that meal kit delivery services were only able to hang onto 29% of subscribers a year after they signed up for the service. Examining consumer signups from January 2016, Cardlytics found that consumer meal kit delivery services already lost 23% of subscribers within a month of signup.

Chasing customer acquisition

This explains why Blue Apron and companies like it are spending a fortune on marketing and consumer acquisition. According to one estimate, companies are spending up to $80 per customer, an astounding amount.

Blue Apron spent $34.5 million on marketing in the second quarter of 2017, equivalent to 14.5% of revenue. While that was down 43% relative to what it spent in the first quarter of 2017, this is still big money for a company that has seen its share price drop by nearly two-thirds since its June 2017 initial public offering.

Venture capital for direct-to-consumer meal kits is beginning to recede. According to a recent report in The Wall Street Journal, around $274 million was invested in 18 meal kit companies in 2017, per data provider PitchBook Data Inc. That is down from $308 million invested in 25 deals in 2015.

Instead of viewing supermarkets as potential competition, direct-to-consumer meal kit sellers now seem to be viewing supermarkets as a potential lifeline. In September 2017, the Plated meal kit brand happily announced that it was being acquired by Albertsons for $300 million, putting its brand into supermarket chains like Safeway. Since then, other direct-to-consumer meal kit brands have popped up in supermarkets, minus the subscription obligation.

Meal kit startup Chef’d is just beginning to appear in supermarkets. Southern California-based Gelson’s Markets added Chef’d packaged meal kits in the late summer of 2017. A dozen flavors of Chef’d “meal kits for two” debuted then, each selling for $24.99.

Chef’d meal kits also debuted in over 50 Tops supermarkets stores in upstate New York over the holidays. Claiming the meals are “available exclusively at Tops,” the supermarket chain proclaims the “fresh, simple, inspired” line is produced “in partnership with Smithfield.” Smithfield’s involvement indicates that top FMCG companies have an increasingly visible stake in the meal kit space.

Herb Crusted Flank Steak, Maple Glazed Pork Chops, and Chicken Pad Thai are three of five available varieties of the Tops’ version of Chef’d meal kits. Ads for the line proclaim “enjoy no measuring, no planning, and no subscription, all in one box!”

This marketing strapline for Chef’d neatly encapsulates the negatives of direct-to-consumer meal kits that that are torpedoing customer retention and may eventually kill the concept.

A lack of enthusiasm

Consumers like the meal kit concept, but are less enthusiastic about cooking as an activity. According to the Washington Post, less than 60% of dinners served at home were actually cooked at home in 2014. 30 years ago, nearly 75% of dinners were cooked at home. It is hard to see how meal kits would not be affected by this trend.

Direct-to-consumer meal kits can also be difficult to stop and start on short notice which is a problem when life intervenes. This inflexibility can make an already pricey meal kit prohibitively expensive if a last-minute change of plans renders a meal expendable.

Supermarkets seem to be in ‘waiting to pounce’ mode on meal kits, like a cat playing with a half-dead mouse, just waiting to move in for the kill.  Despite the growth of online shopping, just 2% of US consumers say they do most of their food shopping online, according to a GlobalData Q3 2016 survey.  94% say they do most of their food shopping in a supermarket or hypermarket.

According to an analysis of Cardlytics data reported by CNBC, American meal kit subscribers spend 28% more at the grocery store per trip than the average grocery store shopper. This is the case even though meal kit subscribers only spend about 32% of their food spending at traditional grocery stores, versus 43% for average food shoppers. Supermarkets can ill afford to lose this consumer and are unlikely to let direct-to-consumer meal companies just walk away with their most affluent customers.

Waiting to pounce may describe Walmart’s position as the retail giant recently began listing meal kits from third-party brands Takeout Kit and Home Chef on its website. This could be a prelude to a branded, packaged meal kit sold in-store.

As of January 11, 2018, the Walmart website lists 40 different meal kit options (combined) from Takeout Kit LLC and Home Chef, all with free shipping. Prices for the Takeout Kit offerings range from $32 to $35 for ‘dinner for four’ kits. Prices for Home Chef offerings range from $39.80 for a ‘serves two per meal’ twin pack (four meals total) to $79.60 for a two meal kit pack that serves four per meal (eight meals total).

These prices are a heavy lift for consumers that are new to the meal kit concept. Appearing to recognise this, Kroger priced its new two-serving Prep+Pared packaged meal kit line in the $14 to $20 range.

This ‘100% measured and prepped’ line debuted in nearly 200 Kroger stores across the country in December, and is currently rolling out in additional stores in 2018. According to Robert Clark, Kroger’s senior vice president of merchandising, “We will rapidly grow the footprint of Prep+Prepared Meal Kits in 2018.”

With skin in the game, supermarkets selling their own meal kits may accelerate a much anticipated shakeout in direct-to-consumer meal kits. Look for marketers of the latter to seek out brick-and-mortar dance partners to survive a looming shakeout.

Related links

https://www.globaldata.com/store/report/cs1707ts–trendsights-analysis-informed-shopping-meeting-the-needs-of-informed-and-critical-consumers/