Meal kit players adapt to changing market

Robust growth in the meal kit delivery market will come as the main players continually fine-tune their offerings to consumer preferences, according to a study by Packaged Facts.

The Rockville, Md.-based research firm said the U.S. meal kit market tallied sales of $2.6 billion last year and stands to reach $3.1 billion by the end of 2018, marking growth of nearly 22%. Double-digit sales gains are expected over the next several years but will decline to single-digit growth by 2023.

Meal kits made their U.S. market debut more than five years ago (after first emerging in Sweden in 2007) and have become a fast-expanding, multibillion-dollar business, Packaged Facts explained in its “Meal Kits: Trend and Opportunities in the U.S.” report. More recently, however, growth expectations for subscription meal kits have been wavered as the market evolves.

Blue Apron has suspended its pilot program with Costco but plans other partnerships.

For example, Packaged Facts expects other methods of meal kit sales to become available and even preferred by consumers, such as one-time online orders from a meal kit website or app, online orders from a supermarket website or app and in-store sales. Although this will help fuel rapid growth in the meal kit space, it will require industry leaders to keep “pivoting and adjusting” their business models to hold onto current customers and attract new ones, the researcher noted.

"The meal kit market is highly dynamic and prone to fluctuations, with the top meal kit providers falling in and out of favor since their introduction in the past few years," David Sprinkle, research director for Packaged Facts, said in a statement.

Over the longer term, as more grocery stores offer meal kits as a product instead of as a service, the market will stabilize and become similar to other convenience grocery items that sell for a premium, such as precut, ready-to-eat fresh produce, according to Packaged Facts.

This is evidenced, in part, by retailer acquisitions and in-store/online sales of meal kit delivery brands, including Albertsons Cos. (Plated), The Kroger Co. (Home Chef), Costco Wholesale Corp. (Blue Apron), Ahold Delhaize USA (HelloFresh) and Walmart (Gobble).

"Market expansion is expected to be much more reliant on alternative purchase venues than the traditional subscription delivery model, due in part to the convenience and flexibility of online shopping,” Sprinkle explained.

Continuing to drive growth in the meal kit delivery arena are the qualities that made them popular in the first place, including time savings in meal preparation, access to a wide variety of food choices, healthier eating, the chance to improve cooking skills and limiting food waste, Packaged Facts said. Still, subscription meal kit providers must contend with a conflicting dynamic spurred by the rise in online grocery shopping and consumers’ increased demand for convenience and near-instant gratification, the research firm pointed out.

Most meal kit delivery services often clash with the on-demand mentality of potential customers, who want to be able to buy the products they want when they want, Packaged Facts said. What’s more, subscriptions attempt to generate more purchases and, even when flexible, can nudge customers to buy more meal kits than they want at a given time to avoid higher fees. The result, the researcher explained, is that customers who feel pressured may decide to cancel their subscriptions, and other consumers may never become customers because they don’t like the idea of being "locked in" by a subscription.

"It is unsurprising that many meal kit companies have been struggling to attract new customers and maintain existing ones under the subscription model. Paired with the retention problem is the struggle with attaining profitability due to the high costs of shipping fresh ingredients directly to consumers," Sprinkle commented.

"These challenges demand that meal kit companies tweak their business models and find alternative ways to reach customers, as the potential market for meal kits as a product is much larger than the interest in meal kit delivery services as they currently exist,” he added.

Blue Apron, for instance, announced earlier this month that it plans to restructure its business and cut its workforce by 4% as the company looks to concentrate on its direct-to-consumer business while exploring opportunities to extend its brand via partnerships and other strategies. With the refocus, Blue Apron has suspended its pilot program with Costco, but the meal kit provider also plans to sell its wares through Walmart’s Jet.com and Weight Watchers.

And over the summer, Chef’d abruptly shut down its meal kit business due to financial constraints but saw its assets quickly acquired by True Food Innovations, which said it will focus on the retail store channel to reinvigorate the Chef’d brand.