EDITOR's BLOG: Meal kits deliver disruption
Sept. 27, 2016
by Keith Nunes
KANSAS CITY, Mo. – Food delivery, once largely the narrow purview of nearby restaurants, is morphing into a dynamic marketplace. Much already has been written about retailer’s efforts to develop effective e-commerce models, but another aspect of the category is meal kit delivery, an emerging segment that has captured the attention of food companies, startups and retailers.
The strategy behind many meal kit ventures is simple: to deliver a box of pre-measured fresh ingredients so consumers may prepare their own home-cooked meals following a step-by-step recipe that is included. The goal of such ventures is to provide consumers with a premium experience that answers the question of “what’s for dinner?” in a format that is perceived as adventurous and convenient.
The market currently features a diverse range of competitors, including Amazon, Blue Apron and Hello Fresh. Business models vary, with some meal kit delivery businesses using a subscription-based model and others using an order-based model.
Food companies showing interest in the market include Tyson Foods and the Hershey Co. Earlier this year Tyson Foods introduced Tyson Tastemakers, a line of dinner kits that may be made fresh at home. During an investor conference in March, Donnie Smith, president and CEO of Tyson, said the platform, which is part of a partnership with Amazon Fresh, will educate the home chef by addressing “questions they have around knowledge, preparation and exploration.” Varieties in the line include tandoori chicken thighs, Thai basil boneless chicken breast and Korean steak tacos.
The Hershey Co. is partnering with the Los Angeles-based Chef’d to deliver dessert kits. The kits feature recipes from Hershey’s Kitchens and Scharffen Berger. Options include s’mores cookies, red velvet cream cheese squares, flourless chocolate raspberry torte and fudge brownies, among others. Prices range from $2 to $4 per serving.
The category’s national leader is New York-based Blue Apron, Inc., which generates $1 billion in annual sales. On its web site, Blue Apron promises “farm-fresh specialty ingredients that are fresher than the supermarket.” Blue Apron is capitalizing on the transparency trend by sourcing its ingredients from family-run businesses, which it showcases on its web site along with its recipes that feature those business’s products.
The emergence of the meal kit delivery market is attracting the attention of retail and food service operators, according to the financial services firm Rabobank. In its report Food Delivery 2.0, Rabobank suggests the practice of browsing supermarket aisles is increasingly obsolete when compared to the convenience of selecting and ordering food with a few clicks on a cell phone.
Retailers have taken notice of the trend and are formulating their own meal kit ventures. This past July Whole Foods Market said it is considering launching a program. In June, Kroger Co. said something similar, noting the retailer would be open to creating its own program or working with a partner.
While the trend is still emerging, it is clear that the ubiquity of the smartphone and the rise of the on-demand economy will have a powerful impact on the food industry. Rabobank rightly notes that the success of the meal kit delivery model will be a focus on the food and not just the technology used to place an order.
Logistics will play a critical role in the category’s future success. It is this notion that will give food companies an edge, because there are few entities outside of food manufacturing that understand logistics and the investment and effort it takes to deliver foodstuffs in a fresh and wholesome manner.
While it remains to be seen whether meal kit delivery efforts will expand beyond a niche category, the segment still offers food companies several opportunities. Most notably, they will allow companies to capitalize on investments made in developing brand awareness, and they will allow companies to participate in a premium category with the potential for wider margins than in other categories.