When the topic of meal kits came up, the general consensus was that it was still too early in the game to really tell what was going to happen.
A year later, the picture is a little clearer. Meal kits are a force to be reckoned with. Market research firm Packaged Facts has pegged the meal kit market at $5 billion. And that figure has reached into the supermarket world. Seemingly every week since last year’s NRA show, another retailer has announced a meal kit initiative in one form or another, whether it’s a meal kit line of their own or the outright purchase of a meal kit service.
“What we’re seeing now is that everybody is aware that there’s an opportunity here,” says Michael Uetz, managing principle at industry consulting firm Midan Marketing. “Everybody seems to be stepping up to the challenge. I’ve been really impressed that almost every day I read about another retailer who has made an investment of some form in trying to create alternatives for their customers that are going to save them time and help them in their meal preparation.”
Late to the party
The triumvirate of meal kit companies – HelloFresh, Blue Apron and Plated – entered the U.S. market somewhat contemporaneously in 2012. According to an Inc Magazine report from 2017, there are now more than 150 meal kit companies in the United States.
What’s the advantage for retailers to just now make a strong push? Simply, they’ve been able to watch the game and take notes.
“Companies like HelloFresh and Blue Apron, they were real innovators and pioneers in this category, but the general population of retailers out there were sort of late to the party and these e-commerce companies got a kickstart,” Uetz says.
The retail industry has been able to learn from the mistakes of the e-commerce company, watching and taking notes as reports surface of meal kit subscription services struggling to retain customers once introductory offers end. In fact, Blue Apron reported a 13 percent net revenue decrease in the fourth quarter of 2017.
“The industry continues to learn from the challenges that some of these e-commerce companies have had,” Uetz says. “I think those companies had an uphill climb when they entered the marketplace because they were starting from scratch and building databases, understanding consumer needs, understanding where to get to consumers in their purchasing path where they could engage them at the right time.”
That knowledge and data likely played a huge role in the Albertsons Companies decision to acquired Plated for $200 million in September.
“With Plated, we’ve found a partner who shares our commitment to delicious, affordable food; superior technology and innovation; and world class customer service,” Albertsons chairman and CEO Bob Miller said at the time. “Plated knows its customers better than anyone, and together we will accelerate our ability to serve them.”
With the deal, Plated has the ability access and even display in a retail environment through Albertsons locations across the country. Albertsons, in turn, has access to that valuable technology, database, systems and culinary experts who put the Plated platform together.
“That’s going to create an interesting dynamic,” Uetz says. “It’s been interesting to watch the dynamics of the different ways the retail community has been stepping into this program.”
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According to Nielsen, instore meal kit sales reached more than $80 million last year, up nearly 7 percent from the previous year. Of the 25 percent of Americans who say they’ve tried a meal kit in the past year, 17 percent say they purchased one in a supermarket.
“It’s fair to expect that the rate of future acquisitions of players in the meal kit space could accelerate, particularly as retailers intensify their focus on expanding online offerings in the wake of the Amazon acquisition of Whole Foods,” says Erik Thoresen, Technomic principal, in a recent analysis of the meal kit business.
Retailers from coast to coast have introduced meal kit solutions or partnerships, from Kroger’s Prep+Pared line to Supervalu’s Quick & Easy chef-inspired kits. “Originally, a grocery store only needed to have the components to make the meal,” said Anne Dament, senior vice-president of retail, merchandising and marketing for Supervalu, at the time of the line expansion. “Now, we need to have the full solution available to time-starved customers at our stores or delivered to their homes, whether it’s ready to eat, heat and eat, or prepare at home.”
Other grocery players currently on the fence are being urged to get in the business. Karen Short, an analyst with Barclays, wrote to investors earlier this fall that Kroger should consider buying a delivery company or finding another way to tap into consumer interest in kits.
“Food retail is becoming increasingly competitive and fluid, partially a result of new competitors entering the space and consumers changing their consumption patterns,” Short wrote.
So why are so many retailers getting into the game when some of the big meal kit companies are struggling? The built-in customer base enjoyed by supermarkets is a huge advantage.
“With retailers taking note of (e-commerce meal kit companies struggling), they can step in a little bit easier due to the fact that they have a built-in customer base,” Uetz says. “Customers are already coming into their store. The customer is already there and purchasing and willing to listen and looking for new and interesting opportunities. I think that gives retailers a leg up in this whole realm as we move into the future.”
That said, Uetz points out that an innate knowledge of a retailer’s customer base is necessary to identify which shoppers are likely candidates for meal kits and how to best deliver something that will be attractive to those specific customers. “This is not the type of program that you’re going to be able to put out here and have every one of your customers attracted to it,” he says. “It takes some study and creativity and there is a tremendous amount of creativity and innovation going on with retailers and how they’re stepping into this arena and making it a viable business alternative for themselves.”