What is a meal kit anyway?


When meal kit providers burst on the food retailing scene five years ago, the digital hype cycle kicked in. The concept of home delivery of pre-portioned ingredients to create specific meals was new and interesting and quickly hailed as a major disruptor to the food retail industry. There seemed to be no end to the benefits consumers could realize with meal kits — less waste, simplified preparation of great food, convenience and even a way to spend quality time with the family. Then there was the key benefit — the one that start-ups in the retail space so often tout — avoiding a trip to the store.

“The physical grocery store experience, while not horrible, is time-consuming. And it’s a consistently time-consuming task,” said Mike McDevitt, CEO of meal kit provider Terra’s Kitchen. “Consumers take an average of eight trips to the store per month, and spend an average of 10 hours grocery shopping. If people can just get those hours down to four, they will do it. Meal kits have taken off because of the simplicity of ordering meals online. The simplicity of the user experience. You are not shopping for all of these individual ingredients, which can be cumbersome online. You’re getting to the end game quickly.”

McDevitt is correct that meal kits have taken off, especially in terms of the proliferation of offerings which are segmented by type of food, speed of preparation, pricing and delivery options. For example, Terra’s Kitchen is focused on Mediterranean, paleo, vegan and gluten free recipes and it provides a week’s worth of meals at one time in a returnable cooler.

“Our meals are delivered in a reusable shipping vessel that stays the same temperature up to three days. No oxidation of vegetables or spoilage occurs. We ship the vessel and we pick it up the next day,” McDevitt said.

Terra’s Kitchen, founded in 2015, is one of the newer entrants in the meal kit world that saw dramatic changes during the back half of 2017. Even more change is expected in 2018 as pure play companies attempt to become profitable, while established retailers hone their offerings and a share of stomach battle unfolds among retailers and food service operators.

The coming year promises to be challenging for pure play meal kit providers who aren’t the next big thing anymore. Companies such as Blue Apron, Hellofresh, Plated, Purple Carrot, Sun Basket, Gobble and others have enjoyed tremendous media exposure from the countless news organizations who touted their offerings and conducted comparisons of the services. All the publicity helped generate trial, but repeat purchase was harder to come by without huge investments in marketing and customer subsidies. Blue Apron showed how dependent it was on marketing after it cut spending during its third quarter ended Sept. 30. Marketing expense was reduced 31% to $34.2 million, or 16.3% of sales, in the third quarter, compared to $49.6 million, or 24.2% of sales the prior year. As a result, sales increased a meager 3% to $211.

“Growth this quarter was largely impacted by the planned decrease in marketing spend of more than 30% year-over-year, that resulted in fewer new customers as we focused on the operational challenges that arose during the transition of volumes to our Linden (N.J. distribution) facility,” CFO Brad Dickerson said during a Nov. 2 conference call.

It’s not unheard of for a retailer to cut back on marketing while it gets its operational house in order, but Blue Apron’s move raises serious doubts about the viability of the meal kit model and its grand aspiration that implied a huge addressable market: to make incredible home cooking accessible to everyone. The company claims it is reimagining the way that food is produced, distributed, and consumed, and as a result, building a better food system that benefits consumers, food producers, and the planet.

Those ambitions have been derailed for the time being and perhaps permanently as a standalone company. The reduction in marketing spend, much of which goes to subsidized trial use, caused Blue Apron’s customer count to decline 6% while total sales increased 3% as average order size help offset the overall customer decline. The company also laid off 6% of its work force, reported a net loss of $87.2 million, delayed the opening of a new fulfilment center in California. A planned reduction in fourth quarter marketing means Blue Apron’s customer count is likely to decline further while it attempts to increase sales to its best customers.

While Blue Apron is reeling from operational challenges, its rival Hellofresh spent an even larger percentage of its revenues on marketing in the run up to its early November IPO in Germany. Hellofresh revealed in its prospectus filed with Germany regulators that it spent 28.3% of its total revenues of $500 million on marketing during the six months ended June 30.

The investment in marketing, which includes subsidized offers to generate trial, paid off in the U.S. where the number of active customers (those who received an order during the past three months) doubled to 796,000 from 383,000 during the same period the prior year. The company’s U.S. sales increased to $300.5 million, roughly double the six month period the prior year. While that is less than Blue Apron’s sales of $482.9 million during the comparable period, Hellofresh has an equally lofty vision of becoming a global lifestyle brand that stands for delicious, fresh and inspiring meals.

“We believe that we are at the forefront of disrupting the highly fragmented and large food industry that is only at the very beginning of its online transition,” is how Hellofresh describes its market opportunity.


There is widespread agreement in the food retailing industry that the coming years will see a larger percentage of food sales migrate online. The debate is around how much, how fast and what does “online” even mean any more with digitally enabled sales now fulfilled by physical stores. Meal kits are one option, but building the scale to achieve profitability, let alone an attractive level of profitability, is questionable. For example, while Hellofresh doubled its U.S. sales during the first half of the year, it is more dependent on marketing than Blue Apron which suggests it too would see a loss of momentum if it were to reign in spending.

It helps explain why a company like Plated was willing to be acquired by Albertons in September for a reported $200 million. The deal was rooted in an omnichannel vision of meal kits future and for Plated’s venture capital owners a deal with Albertsons represented an attractive and timely exit strategy. Between the 2,300 stores Albertsons operates under a variety of banners and Plated’s customer database, the companies expect to be better able to serve shoppers wherever and however they choose. Albertsons will enable Plated to expand beyond its existing subscription model by offering Plated meal kits at stores and while Plated’s customer acquisition efforts benefit from exposure to the 35 million shoppers who visit Albertsons stores each week.

It sounds like a winning combination and speaks to the likelihood that the meal kits space will be incredibly active in 2018 with traditional food retailers playing a central role and everyone concerned about what happens next with Amazon and Whole Foods. To be sure, after ceding the meal kit opportunity to the start up world, traditional retailers have awoken to their potential to dominate the space (finally) by leveraging their infrastructure, sourcing capabilities, brand equity and proximity to customers. Nearly half of U.S. consumers say they would be more likely to purchase a meal kit if it were less expensive and 36% would like to be able to buy kits in their local grocery store, according to recent Nielsen research.

One of the way leading operators are offering that capability is by partnering with eMeals, a company that began more than a decade ago as a meal planning service. Users of the eMeals service can choose from 100 new weekly recipes and send their shopping list to AmazonFresh, Walmart or Kroger with one click. Shoppers then have the option of delivery via Instacart or curbside pickup the same day.

“We listened to our customers and they are all time-starved and demanding that next level of convenience. By combining our recipe planning technology with retailers we have cut the wait time, we have reduced the risk of food spoilage in transit, and we have also given the customer the chance to look at the head of lettuce before they buy it and cook with it,” said Forrest Collier, CEO of Birmingham, Ala.-based eMeals. “Our service is actually expediting online grocery adoption. If a customer can click on a picture of a recipe and those 10 ingredients drop into a shopping list and online cart, the customer is a lot more likely to give online grocery a try.”

Shoppers are doing more than “trying” online grocery, judging from the rapid expansion of click and collect capabilities Walmart and Kroger locations. Walmart offer pick up service at 1,000 location in 2017 and will add another 1,000 in 2018. Picking up an online order at a physical location rather than venturing inside the store fits many shoppers definition of convenience. Now retailer offer more convenience by providing easy to prepare meal kits.

“Once U.S. consumers get a taste of online grocery and how convenient it is, they won’t go back to the store. What will happen is that eventually most U.S. consumers will be choosing between doorstep delivery and curbside pickup,” Collier said.


Predictions about the next big things seldom materialize and the meal kit phenomenon is no exception. A home delivered meal kit that requires preparation is a digital extension of the home meal replacement (HMR) trend that swept through the food retail industry in the mid-90s. What’s changed from the customers’ perspective is how they calculate convenience; purchase a meal at a physical store that is table ready after heating or have ingredients home delivered that require preparation.

“A grocery store’s innovation has to come from more than just putting a meal kit in a refrigerated case,” said Terra’s Kitchen CEO McDevitt. “Food retailers have a lot to gain from learning from the e-commerce business. There’s a lot they can learn about user experience and personalization that retailers have been able to ignore for years. They haven’t had to be better. This new world of e-commerce and grocery having to learn from each other is good, because it’s going to lead to a better experience for the consumer.”

A better experience for the consumer requires retailers to think differently about the problem meal kits solve; hungry customers who want food that is good, fast, simple, affordable. Meal kit marketing has also touted the rewarding aspect of preparation and time with family, but that feel good sheen wears off quickly, according to research from Cardlytics. More than half of meal kit subscribers cancel their subscriptions within the first six months, according to the purchase analytics firm. In fact, nearly three-quarters of new subscribers gave up the services within a year. Why are consumers not sticking with some meal kits? Because many of these consumers want even faster fulfillment and prep time. And many don’t want to deal with packaging or un-appetizing recipes.

That’s why the definition of “meal kit” for millions of Americans is defined as food delivered from a restaurant. While companies such as Blue Apron, Hellofresh and others have burned through millions to produce unprofitable sales, crowdsourced delivery platforms such as Uber Eats and Grubhub are helping restaurants grow share of stomach. Both services help restaurants leverage their fixed costs by increasing the productivity of their physical locations and create a competitive challenge for traditional retailers attempting to raise the quality of prepared food offerings.

Grubhub has been rolling up the restaurant delivery business since going public in 2014 and in the third quarter it acquired three more companies. It also generates real profits from a proven business model, albeit one that is dependent on crowdsourced labor to execute deliveries. Matthew Maloney, president and CEO of Grubhub, founded the company which generated revenues of $478 million and profits of $45.5 million during the first nine months of the year. Grubhub makes money by earning commissions from the restaurant sales its platform facilitates. Grubhub delivered more than $2.6 billion worth of food to 10 million customers in 80 markets during the first nine months of 2017. Uber Eats is available in 89 markets.

“With a network of 75,000 restaurants and growing, we have the industry’s largest online delivery marketplace, and we will continue to aggressively expand and deepen our reach, increasing our value to both diners and restaurant partners as we grow,” Maloney said following the release of third quarter results.

The growth of restaurant delivery represents a new front in the food retailing industry’s escalating battle for share of stomach where meal kits, once viewed as a threat, have morphed into an opportunity. Meanwhile, the timeless question of “what’s for dinner,” remains the same. However, the big shift going forward is that consumers options for satisfying that need have changed dramatically and there is no longer a clear distinction between food at home and food away from home. RL