Meal kit momentum
It’s 4:30 on a Tuesday afternoon in the American home.
The kids have just returned from soccer practice, the parents are getting ready to leave work, and everyone is about to gather together at home for the first time since breakfast.
But neither mom nor dad has had time to buy groceries in days.
The answer to the question “what’s for dinner" is still up in the air.
In 2019, the golden age of food and grocery delivery, you might think it’s easier than ever for consumers to answer that question. But the research shows the opposite.
According to data from market researcher NPD Group, more than 60% of Americans (still) don’t know what’s for dinner at 4:30 p.m. This is one reason why meal kits have become a convenient solution for consumers looking to solve this daily problem.
Meal kits are hitting a mark with shoppers by giving time back to busy households and delivering on key health and lifestyle trends. Research shows demand for meal kits continues to grow despite all the doom-and-gloom headlines surrounding companies such as Blue Apron, which has been losing customers and hasn’t made a profit since its 2017 IPO.
According to market research firm Nielsen, meal kit users increased 36% in 2018 over 2017. In the last six months of 2018, 14.3 million Americans bought meal kits, a 3.8 million increase over the same period one year prior.
Retailers such as Seattle-based Amazon, Cincinnati-based The Kroger Co., Boise, Idaho-based Albertsons Companies, Greensboro, N.C.-based The Fresh Market and even Dallas-based 7-Eleven have rushed to cash in on that continued momentum. Both Kroger and Albertsons acquired subscription meal kit companies, buying Home Chef (Kroger) and Plated (Albertsons) in 2018. And both grocers were quick to offer the branded kits in stores. (In May, Albertsons confirmed it has temporarily pulled Plated meal kits from some stores as it revamps its meal kit strategy.)
Germany-based HelloFresh, the U.S. meal kit market leader, started selling kits at Stop & Shop and Giant grocery stores last year. And struggling Blue Apron has teamed up with Walmart to offer same-day meal kit delivery in New York.
But the bigger growth opportunity in the space might be in food retailers developing their own brand meal kits.
Sales of meal kits in grocery stores and other retail outlets rang up $93 million in sales in 2018, according to a March 2019 Nielsen report, up 51% from 2017. Retail stores accounted for 60% of all meal kit user growth in 2018, according to Nielsen, helped by the introduction of private-branded and branded meal kits by retailers.
As the current meal kit business model evolves, grocery stores and other food retailers have a multimillion dollar opportunity to improve on the meal kit model and offer a private-branded meal solution that better answers the question “what’s for dinner?”
“The meal kit space is evolving very quickly,” says Jim Wisner, owner and president of the Wisner Marketing Group. “We're seeing an evolution from the online subscription model to an in-store model. I think the growth on the subscription models is going to be flat. Retention with those is very low. Marketing costs are very high. The economics of the in-store model are much better. And the in-store meal kits are way more convenient for the consumer.”
WHAT’S A MEAL KIT, ANYWAY?
The majority of what is known as a “meal kit” are still being sold through subscription-based providers such as Blue Apron, HelloFresh, Sun Basket, Purple Carrot and others. According to market research firm Packaged Facts, subscription-based meal kit providers still have 81% of the traditional meal kit market share in the United States. The total estimated size of the meal kit market in the United States is now $3.1 billion.
In the U.S., one in four adults has purchased a meal kit, via subscription delivery or in-store, in the last year, and 70% continue to buy them after making their first purchase, according to Nielsen. In addition to saving time from shopping, preparation and cooking, many consumers continue buying meal kits because they offer new, fresh and what are perceived as healthier meals.
But what is a meal kit in 2019, anyway?
Since meal kits took off in 2016, the definition of a meal kit has evolved just as much as the business model. It used to be that a meal kit was a product with ingredients that needed to be cooked to create a meal. Now there are meal kits that require some cooking, no cooking, some warming and other various stages of preparation.
“Savvy retailers and manufacturers have kept the definition of a meal kit fluid,” says Andrew Moberly, director of category solutions at Daymon. “But a simplified equation for ‘meal kits’ is easy: meal planning plus simple shopping equals a fresh fast dinner on the table.”
Consumers seem to like all of the varying versions of meal kits, but there have been some complaints. In the subscription meal kit space, long lag times between order and delivery have annoyed shoppers. The fish sitting in that box on the front porch may have spoiled in transit. And there’s all of those boxes and plastic bags for the customer to discard. Consumer complaints about in-store meal kits have ranged from driving to the store to pick up a kit is a chore, and prepping and cooking the meals often takes more time than advertised.
Meal kits today need to deliver on fast, easy, flexible, healthy and fun meal solutions while clearly communicating the value proposition that shoppers are looking for, Moberly says. According to Nielsen, almost half (46%) of U.S. consumers say they would be more likely to purchase a meal kit if it was less expensive and 36% would like to be able to buy and order kits ahead of time in their local grocery store. This is where own brand meal kits at a grocery store offer tremendous advantages for retailers. They allow consumers to see and purchase the meals in person, they boost customer traffic, and they extend the private brand program into another premium category.
“In-store meal kits are what’s driving growth in the segment because they represent a much more flexible opportunity for consumers,” Moberly says. “Smart private brands will offer programs that leverage all their existing meal solutions across the store — such as marinated meats, packaged salads, cut vegetables — in planned menus that make meal planning, shopping and preparation as simple as possible.”
WHO’S BUYING MEAL KITS?
While consumers across the shopper spectrum purchase meal kits, certain groups are more interested in them. For example, men are 40% more likely to purchase kits than their female counterparts across all generations, while millennials and Generation X consumers are 321% more likely to purchase them than older generations, according to Nielsen. Busy families with children are also enjoying the convenience and healthy options meal kits have to offer, purchasing them 326% more than households without children.
In its “Foodways of the Younger Generations” study, The Hartman Group found that 71% of millennials would prefer a home-cooked meal over any other option. And an NPD Group study found that 83% of millennial consumers are cooking more at home and making fewer restaurant visits.
But it’s not just specific age groups that are attracted to meal kits. Consumers looking to stay on certain diets are flocking to meal kits to help them stick to their eating plans.
Some subscription meal kits are specializing in niche diets, such as keto, vegan etc. Purple Carrot, for example, serves vegans and targets athletes through its partnership with Tom Brady. One Potato designs its meals for families with kid-size portions. Blue Apron partnered with WW earlier this year (formerly Weight Watchers) to offer WW x Blue Apron meal kits. Finally, other companies (Takeout Kit, for example) focus on meal kits inspired by global cuisines. There’s even meal kits for designed for holidays (Thanksgiving or Valentine’s Day), dessert lovers, allergy sufferers and low-income families.
“The goal is to offer customers options,” says Brittain Ladd, founder and CEO of Six-Page Consulting. “Private label meal kits generate the highest margins for retailers so there is an incentive to try and offer a high-quality meal kit that is differentiated in the marketplace."
THE FRONT OF THE STORE
In many ways, private brand meal kits could be the ultimate test of the meal kit model because many barriers along the path to purchase have been removed: Shoppers won’t have subscription commitments, don’t have to deal with shipping delays or packaging, and they can see, touch and purchase the meal kits in person. Meal kits can also add critical differentiation to grocers' prepared foods departments. There is ample opportunity for both retailers and suppliers to capitalize on the meal kit trend by focusing on innovation and merchandising.
“The meal kit market in retail stores has wonderful potential,” says Jan-Benedict Steenkamp, a professor of marketing and chairman of marketing at the Kenan-Flagler Business School at the University of North Carolina. “Retailers can construct meal kits from product they have already in-store, and suppliers can work together with retailers to make their products part of the meal kit value proposition.”
But a grocery store’s meal kit innovation has to come from more than just putting a private brand kit in a refrigerated case at the front of the store.
Retailers will need to take a few components from the subscription meal kit business model (such as catering to on-trend eating styles), add more features and personalization (online ordering via app), and perhaps staff a curbside pickup station at the front of physical stores for meal kits to fly off the shelves.
Moberly does believe that the front of the store is the best place to merchandise private brand meal kits. There, retailers can capitalize on impulse-driven appeal and present a dinner solution before shoppers have a chance to stock up on other ingredients.
“Front of store displays do a great job of creating awareness of meal solution products, but they also need to be part of in-store deli or restaurant displays and in meat and seafood — areas of the store where shoppers who need a last-minute dinner option will be looking,” Moberly says. “Demos are also absolutely critical. They’re an opportunity to really highlight the value of kits. Retailers need to show customers just how easy items are to prepare, help them understand just what’s inside of a kit, understand serving sizes, and of course offer new flavor profiles.”
Adding a curbside pickup option could introduce a whole new level of convenience for grocery meal kit shoppers. Curbside pickup would allow consumers to take advantage of personalized technology to simplify their meal planning and give them the flexibility of ordering and picking up their meal kit on the same day.
Clearly, the convenience trend in food retail is here to stay. Providing a private brand meal kit solution would clearly meet a need for a lot of consumers. Retailers have a chance to seize this opportunity if they embrace meal kit innovation and speed up their grocery infrastructure.