WHY THE MEAL KIT IS WHAT’S FOR DINNER
Emerging market trying to appeal to masses of loyal consumer palates
Celebrities such as Beyoncé, Oprah Winfrey, and NSync’s Lance Bass are now in the meal kit business, and for some that’s a sure sign the online subscription-based food startup phenomenon has hit its peak.
Scores of the new e-commerce meal companies have popped up in Canada and the U.S. in the past couple of years, and subscribers have been joining the services in droves.
While the biggest player in the space, New York-based Blue Apron, does not operate in this country, a number of meal kit services are available locally and nationally for Canadians seeking a quick meal fix: Chef ’s Plate, Goodfood, MissFresh, The Jolly Table, Cook It, Kuisto, Fresh City Farms, One Kitchen, Dinnerlicious, Fresh Prep and Germany’s Hello Fresh, to name a few.
There’s even a subscriptionbased startup for breakfasts, Montreal-based Oatbox, which delivers granolas, “overnight” oats and granola bars to customers.
The convenience factor is undeniable. For about $10 to $13 per meal, customers receive a box of chilled, portioned food and recipes for an easy meal assembly.
Home chefs are able to cook dishes that evoke an au courant restaurant menu in less than half an hour: lentil mushroom tacos with jicama carrot slaw; mint sumac chicken with sautéed snap peas and carrot, parsnip and cucumber salad.
But two recent initial public offerings by meal kit companies — Blue Apron, the biggest player in the United States, and Montrealbased Goodfood Market Inc. — ended up looking like a failed soufflé. Skeptics have drawn parallels between the spate of subscription startups and the faddish dot-com failures of the early 2000s. Indeed, on Friday, Blue Apron announced it is cutting almost a quarter of its staff as it struggles to become a profitable business.
“You could look at whether or not the Blue Aprons of the world will consolidate, but to make a call on consolidation, you first have to make sure there is an established market for meal kits,” said Sylvain Charlebois, agriculture expert and dean of management at Dalhousie University in Halifax. “And the jury is still out on that one, I think.”
The central question is not whether the meal kit trend will survive, but which business interests will have enough money, clout and distribution power over time to sell them profitably to the mass market. Some pretty big large players are starting to kick the tires, which could spell trouble for the upstarts.
“Blue Apron spends more money on marketing than PepsiCo does, relative to revenue,” Charlebois said. “They are spending money to create a habit in a highly immature market. It means they need to stimulate the demand in order to ramp up sales, which usually is not a good sign.”
You’d have to avoid new media entirely to miss Blue Apron’s digital marketing assault. It has blanketed the ad space of toprated podcasts, spending a total of US$144 million on marketing in 2016 and US$60.6 million in the first three months of this year. While it has quickly amassed new customers, the amount of money customers spent on orders slipped 11 per cent in the first quarter compared with a year ago.
While questions persist about which provider will win over the biggest number of loyal consumer palates, the meal kit boom doesn’t come as a surprise to those tracking the food service and grocery sectors. Years of data suggest consumers want to eat better-quality food that they perceive to be healthy and tasty, but feel thwarted by a persistent lack of time — it takes time to think about what to cook, time to go the grocery store for the ingredients, and time to chop, mix and prepare a dish.
“There is a recurring moment where you or your spouse is thinking ‘What’s for dinner tonight?’ and that just gets more complicated when you have kids,” said Jonathan Ferrari, president of Goodfood, which secured $21 million in financing before making its debut as a publicly traded company on the TSX last month.
“You want it to be nutritious and you want it to taste good. You know that ordering takeout or going to a restaurant is fine. But when you think about home-cooked meals, you know what is going into it.”
Goodfood and Toronto-based Chef ’s Plate Inc. are two in a raft of new meal kit firms now operating in Canada, along with Germany’s HelloFresh, which extended its business into Canada last year.
Chef ’s Plate, this country’s largest provider, is on track to hit $50 million in revenue this year.
Behind it is the rapidly expanding Goodfood, which ships 200,000 meals per month to customers and has increased its subscriber base by about 900 per cent in the last year. Blue Apron, meanwhile, is aiming to hit about US$1 billion in revenue this year and now delivers about eight million meals a month across the U.S., up from roughly one million monthly at the end of 2014.
Regardless, Blue Apron’s high profile IPO in June was a huge disappointment for investors and the earlier debut of Goodfood was equally tepid, with their share prices trading down 38 per cent and 19 per cent, respectively, since their debuts.
Still, the trend appears to be taking some business away from restaurants and grocery stores, according to Robert Carter, executive director of food service at market research firm NPD Group.
Canadians spend $155 billion on food annually at restaurant and grocery stores, and growth in those segments has stagnated, with sales growing an average of 1.3 per cent a year from 2014 to 2016.
Deflation made an impact on grocery sales beginning in early 2016, but the number of times people visited stores also fell as more consumers order takeout, join meal subscription services or receive direct deliveries of fresh food from local farms.
“Seventy-five per cent of all meals are cooked in 30 minutes or less, and people are cooking fewer meals at home,” Carter said. “But people perceive homecooked meals to be healthier than restaurant meals. We see that in our data.”
At the same time, health researchers have been urging families to sit down together for weeknight meals at home to help curb excess snacking and obesity, pointing to results from multiple studies of eating habits.
But the real key for the meal kit startups’ business success, he said, is customer retention. “It’s easy enough to get customers to try it once, but will those customers come back?”
Both Ferrari of Goodfood and Jamie Shea, co-founder of Chef’s Plate, say their companies are focused heavily on retaining customers.
“We avoid heavy discounting strategies,” said Shea, who is looking to take Chef’s Plate public in 2018 or 2019. “It doesn’t take a lot of customers to make it a good business if you keep them coming back.”
The success of such ventures, however, both in the early and more mature stages, suggests a customer need that will not likely quit any time soon.
“I think the whole industry in the U.S. was founded on mommy guilt,” chuckled Joni Lien, who cofounded Toronto-based Supperworks 12 years ago. “You want to feed the family, how do you do it?”
Portioned single meals have been a hit since the firm introduced them. Now, about 50 per cent of the company’s business comes from customers who pick up entrees that have been assembled earlier that day by Supperworks staff, and many of them have jumped on the company’s new delivery service.
In the meantime, there’s a good chance that the likeliest parties to dominate the meal kit business might not be in it yet: traditional grocery retailers and the big boogeyman in their rear view mirror, Amazon.
“Grocery retailers have historically been bad at hospitality and food service and I think the market is telling them with all of the readyto-eat product they offer, maybe it is time to start thinking about this as well,” said food-industry expert Charlebois.
Loblaw’s chief executive Galen Weston told analysts in July that it’s far from clear which meal kit businesses will work and which ones won’t. “But (we will) keep our options open to see what other services gain traction and adopt them or partner, and deploy them as appropriate.”