Dozens of meal-kit options are now on the market, but none of them are profitable and many are teetering on the brink of bankruptcy. The pressure is growing for the larger players – Blue Apron Holdings Inc., HelloFresh and others. Earlier this month, one of them – Chef’d, ceased operations after it ran out of cash and then sold itself to a consultancy firm just last week at a significant discount to its previous valuation of $160 million. Albertsons, one of the largest U.S. grocers, acquired meal kit service Plated last year and Kroger announced its intention to buy Home Chef last month.
The remaining companies are struggling to acquire and maintain subscription customers. Blue Apron’s shaky public offering last year, with its shares losing two-thirds of their value after debuting at $10, has all but closed the door on other meal kit companies hoping to go public and raise capital. Their only hope is that large grocery chains will acquire their business and put them out of their misery.
Each of these companies offer subscription plans typically costing between $7.50 to $9.99 per serving, though most companies offer discounts for new subscribers. They promise home delivery but many of these kits are also available on store shelves alongside other prepared meals and frozen entrees. And therein, lies the problem. With no real differentiation, the consumer at the store could take a salad, grab one of those frozen entrees or simply call for pizza delivery from his house. Why buy a meal kit and cook dinner?
Future Wealth’s View
The fundamental flaw with the meal kit business is that these meal kits are not trying to solve a problem for the customer but are instead creating one. They are presenting customers with a paradox. If someone is hungry enough and does not want to cook, he will likely to go to a restaurant or order delivery of ready to eat food. On the other hand, if one is not hungry enough and wants to cook, he or she is likely to pick up fresh ingredients from the grocery store and make the lunch or dinner at home. Under what scenario will a consumer pick up a meal kit? – When one is not so hungry that he wants to eat prepared food but hungry enough that he does not want to cook food from scratch at home. As you can tell, we are splitting hairs here.
The reality is that Americans hate to cook. They would rather eat in a restaurant, order take-out or delivery. Most don’t even make coffee in the morning anymore, stopping at Starbucks instead. And many dislike going to the grocery store. Grocers have been lowering prices to lure more customers and are adding restaurants and salad bars to their stores. But, nothing seems to be working.
In the meantime, online and mobile food ordering services like Grubhub, Eatclub and Doordash are gaining traction allowing consumers to order food for delivery from range of restaurants including KFC, Taco Bell and other fast food establishments. Unlike meal kits businesses, these food ordering businesses are adding subscribers and turning profits.
Given this backdrop, the meal kit proposition is somewhat muddled. Is it meant to simplify cooking or does it offer a healthier alternative to pre-cooked meals or both? The problem isn’t the convenience of a meal kit service. It is that consumers do not want to deal with food at all. Trying to appeal to consumers by claiming that these meal kits are fresh and hence, take one of these instead of a frozen entree or pizza delivery sounds charming, but fresh food by its nature is perishable inventory, which means fish starts smelling after a day, eggplant starts rotting and the company’s finances start burning at a rapid clip. We simply don’t see a recipe for growth in this business and large grocery chains buying overheated meal kit startups is going to cause some serious indigestion to their financials.