Kroger bites into meal kits with Home Chef acquisition

In a move reflecting how many busy Americans now look at mealtime, The Kroger Co. plans to acquire private meal kit company Home Chef in a deal valued at up to $700 million.

The agreement, announced late Wednesday, will bring to Kroger one of the nation’s largest meal kit providers in Home Chef, which delivers more than 3 million meals a month from its distribution centers in Chicago, Atlanta and San Bernardino, Calif. Home Chef's DCs reach 98% of all continental U.S. households within a two-day delivery window.

Plans call for Chicago-based Home Chef to become a Kroger subsidiary, continue to operate its offices and facilities, and maintain its online business on HomeChef.com. In addition, Home Chef will oversee Kroger's meal solutions portfolio, with Home Chef meal kits being made available to Kroger shoppers in stores and online. The companies said Home Chef's offerings will complement Kroger's Prep Pared meal kits now sold in more than 525 stores.

"Customers want convenience, simplicity and a personalized food experience. Bringing Home Chef's innovative and exciting products and services to Kroger's customers will help make meal planning even easier and mealtime more delicious," Kroger Chief Digital Officer Yael Cosset said in a statement. "This merger will introduce Kroger's 60 million shoppers to Home Chef, enhance our ship-to-home and subscription capabilities and contribute to Restock Kroger." Restock Kroger is the Cincinnati-based company’s strategic plan to redefine the food and grocery customer experience.

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Under the acquisition agreement, Kroger is slated to pay an initial price of $200 million plus future earnout payments of up to $500 million over five years based on the achievement of certain milestones, “including significant growth of in-store and online meal kit sales,” the companies said. Home Chef, founded in 2013, saw 150% growth last year to reach $250 million in revenue, including two profitable quarters.

"We've long believed that the future of our industry is omnichannel and bigger than just meal kits sold online. We want to be where our customers are and want to help make cooking at home easier, more accessible and even more enjoyable," said Home Chef founder and CEO Pat Vihtelic. "We're thrilled that we will be part of the Kroger family and plan to maintain our relentless focus on innovation that meets customers' evolving food needs. Kroger's expansive retail footprint will allow us to serve millions of more customers across the country with simple, convenient and enjoyable meal solutions."

Related:Kroger opens Culinary Innovation Center

Home Chef’s meal kits are designed for anyone to be able to cook. Delivered weekly, the kits feature fresh, pre-portioned ingredients with easy-to-follow recipes no matter what level of cooking experience. They also cater to a wide range of tastes. The companies noted that Home Chef leads the meal kit sector in terms of variety, going beyond a one-size-fits-all model with such options as 5 Minute Lunches, Flexible Servings, and new meals requiring minimal prep time.

"As one of the fastest-growing meal kit companies in the country, Home Chef is poised for even more explosive growth," Cosset said. "Home Chef's combination of culinary expertise and a customer data-driven decision-making process is right in line with Kroger's vision to serve America through food inspiration and uplift by providing meal solutions for every lifestyle."

Kroger and Home Chef expect the transaction to close in the second quarter, pending regulatory approval and customary closing conditions.

Though new meal kit providers continue to pop up, and meal kits are increasingly appearing in supermarkets, the space is seen as a big, untapped consumer market. Nine percent of Americans have bought a meal kit in the last six months (10.5 million households), and 25% would consider trying one in the next six months (over 30 million households), according to research by Nielsen.

Of the 9% of Americans who have tried a meal kit, 6% purchased it online, where meal kit companies are seeing robust growth, Nielsen noted. However, in-store meal kits last year generated $154.6 million in sales, up more than 26% year over year.

For Kroger, the largest U.S. supermarket company, the acquisition of Home Chef continues its efforts to adapt to new ways that today’s time-pressed consumers shop for and consume food.

Last week, Kroger unveiled an exclusive partnership with British online supermarket Ocado to develop a seamless omnichannel shopping experience in the United States. The companies aim to build three automated warehouses this year and identify up to 20 potential sites for the facilities over the first three years of their agreement. Under the deal, Kroger is hiking its current investment in Ocado by 5, bringing its stake in the U.K. company to more than 6%.