Why meal kits are grow­ing in pop­u­lar­ity

Emerg­ing mar­ket try­ing to ap­peal to masses of loyal con­sumer palates

Montreal Gazette - - FRONT PAGE - HOL­LIE SHAW Fi­nan­cial Post hshaw@na­tion­al­post.com

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.

Metro Inc., the coun­try’s third­largest gro­cer, an­nounced that it has ac­quired a ma­jor­ity stake in the Mon­treal-based meal kit com­pany Mis­sFresh Inc. “Mis­sFresh of­fers prod­ucts that will be com­ple­men­tary to what we have in store, which will help us to bet­ter meet the needs of con­sumers,” said Metro’s chief fi­nan­cial of­fi­cer François Thibault.

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.”

Ama­zon’s stun­ning US$13.7 bil­lion pur­chase of Whole Foods in June has the en­tire re­tail and food ser­vice in­dus­try re­cal­i­brat­ing their e-com­merce plans. Ama­zon filed a trade­mark in early July for a meal-kit ser­vice slo­gan — “We do the prep. You be the chef” — just days af­ter Blue Apron’s dis­ap­point­ing IPO, and has started its own meal kit ser­vice for cus­tomers in the Seat­tle area.

“The real chal­lenge to the mar­ket will hap­pen if and when Ama­zon and the gro­cery chains re­ally get into this,” said Carter. “I think the meal kit seg­ment will con­tinue to grow, and it will get much, much more com­pet­i­tive over the next 24 months.”


Meal kit play­ers and star­tups are hop­ing to prove the boom in the ser­vice is more than a fad af­ter re­cent dis­ap­point­ing ini­tial pub­lic of­fer­ings by Blue Apron, the big­gest player in the United States, and Mon­treal-based Good­food Mar­ket Inc.


Blue Apron is try­ing to stir up de­mand in a nascent mar­ket and ramp up sales by spend­ing mil­lions on mar­ket­ing. The amount of money cus­tomers spent on or­ders fell com­pared with a year ago.

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