The meal kit ticket
In their seemingly ceaseless quest to provide time-starved consumers with easy-to-prepare options for meals, more grocery retailers are introducing private-branded meal kits.
Featuring pre-measured food ingredients and recipes for consumers to prepare their own meals at home in a short time, meal kits are just the latest offering to refresh the growing fresh category, whether retailers are offering them in-store, for click and collect, or for online ordering and delivery.
And meal kits are moving. According to a March 2017 study from consumer market researcher Nielsen, one in four adults had purchased a meal kit (in-store or for delivery) in the previous year and a whopping 70 percent of those purchasers said they plan to buy meal kits again.
Consumer market researcher Packaged Facts recently reported that the meal kit business has “mushroomed” to $5 billion in sales.
“This space is the most striking example of the movement toward greater convenience in getting fresh foods to the consumer,” says David Sprinkle, research director for Packaged Facts, in the report. “And new approaches to fresh food groceries are what consumers are most interested in, and what will determine the winners and losers of the current food industry re-set.”
New approaches to fresh food groceries are also exactly what retailers are looking to capitalize on with private brands.
When The Kroger Co. rolled out its Prep+Pared Meal Kits last year, the Cincinnati-based supermarket chain made it as clear as a bottle of private-branded water that the new offerings were part of its own brands, which Kroger calls Our Brands. In a store in Newport, Ky., the Prep+Pared Meal Kits were merchandised in a stately and easy-to-spot kiosk toward the front of the store.
In a press release, Kroger’s Senior Vice President of Merchandising Robert Clark said Prep+Pared Meal Kits are a growing part of Kroger’s Our Brands portfolio.
The Prep+Pared Meal Kit ingredients are fresh, seasonal, prepped and measured to precisely provide customers with only what is needed for each recipe. Cooking time for each meal kit is about 20 minutes. The meal kits feed two adults and range in price from $14 to $20.
Gil Phipps, Kroger’s vice president of Our Brands, says food and packaging waste is a concern for consumers, and Prep+Pared addresses that issue.
“[Each meal kit contains] only what you need to feed two people a meal,” Phipps says. “There is very minimal packaging and no wasted product.”
Kroger began testing Prep+Pared in May 2017, and the retailer says customers have responded favorably. That’s not surprising.
“From a culinary standpoint, this is not rocket science,” says Jim Wisner, a private brands consultant and president of Libertyville, Ill.-based Wisner Marketing Group.
While Wisner doesn’t believe that meal kits will be a huge revenue generator for retailers, they will certainly make retailers enough money to justify them as a worthy investment.
“From a margin standpoint, I would anticipate that retailers will target a return in the range of other prepared food offerings,” Wisner says.
The barriers to entering the category are low, including from a financial standpoint, Wisner adds.
“You don’t have to be a prime manufacturer to do this in private label,” Wisner says. You don’t need manufacturing. You need assembly.”
Meal kits also allow retailers to differentiate through innovation, which is the calling card these days for private brands. Consider Kroger’s Prep+Pared Meal Kit offering that features Vietnamese-inspired spicy lemongrass pork with coconut rice and cabbage salad. Talk about distinct.
“Meal kits allow [retailers] to do things to differentiate themselves from the competition in a very significant way,” Wisner says. “They [allow retailers] to customize what meal offerings are down to an individual store level.”
And meal kits provide flexibility. If a recipe is not selling, a retailer can switch it out quickly and offer something different, Wisner says. Retailers can also take a value or convenience or premium approach to meal kits.
Why meal kits make sense
Meal kits are simply an extension of meal solutions or what’s-for-dinner programs that retailers began offering in the 1990s.
“What has changed is that technology has enabled new forms of competition,” says David Bishop, a partner with Brick Meets Click, a Barrington, Ill.-based firm that offers consulting and retail advisory services for grocery.
That technology is in the form of online meal kit providers such as Blue Apron, Chef’d and others, which have made it clear that consumers have embraced meal kits, Bishop says.
But something has happened while those meal kits were in transit via FedEx to consumers: Brick-and-mortar retailers have realized that meal kits are a segment that they can easily and quickly capitalize on, Bishop says.
In the second quarter of 2017, a Bricks Meet Click shopper research revealed that supermarkets’ share of online spending for groceries was about 31 percent. Online meal kit providers accounted for about 9 percent of spending. Supermarkets looked at that 9 percent and asked themselves how they could get that share, which has sparked them to introduce meal kits, Bishop says.
Supermarkets and other retailers also realized the weaknesses associated with online meal kit providers — and they are pretty big weaknesses.
First, online meal kit providers lack proximity to physical customers because they don’t have brick-and-mortar stores, Bishop points out. Second, brick-and-mortar retailers can do meal kits cheaper and perhaps fresher.
“Now you see retailers like Kroger offering their versions of meal kits at much affordable prices,” Bishop says, noting that Brick Meets Click expects physical grocers to soon “own” the meal kit category.
From the beginning, Wisner says, online meal kit providers posed a concept that “did not have a consequential barrier to entry.”
“The cost of the subscription model that a Blue Apron has is extremely high relative to what a retailer is going to have to incur,” Wisner says. “So there is an economic disadvantage for the Blue Aprons of the world to continue over the long haul.”
Wisner says meal kits can be serviced more effectively on a local basis. Consumers can decide if they want a meal kit “today” on the local level rather than ordering from a mail provider for a meal kit that they will receive a few days later.
“Ultimately, [retailers] provide a more affordable option and a more convenient option,” Bishop adds.
Retailers getting on board
Kroger isn’t the only retailer that has recognized the potential of meal kits as a store brand. Last November, Publix Super Markets rolled out Slow Cooker Meals under its own brand with the tag line stating, “All the prep work is done. Delicious meals, made easy.”
Last May, Lakeland, Fla.-based Publix introduced pre-bagged meal kits to a few stores featuring pre-measured ingredients available in three levels of preparation: simplest (heating the food), simpler (up to four steps of preparation) and simple (up to six steps of preparation).
Eden Prairie, Minn.-based Supervalu Inc. recently launched Quick & Easy Meals, a line of meal solutions including meal kits, at its retail banners and the 3,000-plus independent grocery stores served by the company’s wholesale business.
“Originally, a grocery store only needed to have the components to make the meal,” says Anne Dament, Supervalu senior vice president of retail, merchandising and marketing. “Now we need to have the full solution available to time-starved customers at our stores, or delivered to their homes, whether it is ready to eat, heat and eat, or prepare at home.”
West Des Moines, Iowa-based Hy-Vee Inc. announced recently that it plans to build a $64 million production facility in Ankeny, Iowa, that will house the West Des Moines-based chain’s prepared foods commissary, central bakery and meal kit division.
Other retailers are partnering with third-party branded vendors. Williamsville, N.Y.-based Tops Friendly Markets Tops recently struck a deal with Chef’d to sell its meal kits in dedicated displays.
And then there is Boise, Idaho-based Albertsons Cos., which acquired the meal kit service Plated last September. Plated will operate as a subsidiary of Albertsons, but might Albertsons turn the business into an own brand over time?
“That depends on how [Plated] continues to fair under the online subscription model,” Wisner says. “But [the acquisition] launches Albertsons forward a lot quicker without it having to do the legwork.”
Retailers will likely market and merchandise meal kits in-store and online, but it’s vital they communicate that meal kits can be ordered online and picked up in-store, ordered online and delivered, and purchased in-store, Bishop stresses.
Regarding in-store merchandising, Bishop says retailers should locate meal kits toward the front of the store where there is high traffic and visibility, preferably on a refrigerated end cap where they can also cross merchandise other items such as wine or desserts.
The current availability of meal kits among grocers is still low, but Bishop expects this to change quickly.
“Retailers are testing the waters to figure out what will work for them,” he adds.
Acceptability will depend on quality and price, Bishop says, noting that retailers are likely to be spot on with both factors.
“It really comes down to [retailers’] selection of meals and recipes, and how they can adapt those and broaden attractiveness,” Bishop says.
With packaging, Wisner says retailers can get away with it not being high cost.
“But you don’t want the package to be unattractive,” he adds. “Yes, it can be in a cardboard box, but you want a more nicely printed box that doesn’t look like standard case packaging.”
The audience for meal kits is predominantly composed of small families “who don’t want to burn out their pocketbooks” by eating out and who want to eat something healthier than fast-casual food, Wisner says. Others include urban dwellers and consumers looking to replace more processed frozen-prepared entrees with fresh items that are low in salt and free from other ingredients.
Meal kits also provide families the opportunity to prepare meals at home, albeit in a shorter time because they already have the recipe and ingredients, to provide family members with healthier meals, Bishop adds.
With 60 percent of Americans using diet to help prevent ailments, the inclusion of fresh foods and easy-to-follow recipes makes meal kits a simple option for those looking to manage their health and diets, according to Nielsen’s report.
To that point, Rochester, New York-based Wegmans Foods Markets launched a line of refrigerated Power Meals, priced from $8 to $15, early in 2017. In developing the heat-and-eat line, Wegmans’ meal development team consulted the company’s nutritionists to set the parameters that each offering needed to meet to provide well-balanced meals.
Wisner says the category “has legs for the long haul,” but it will level out over time and there will be shrink. Meal kits won’t dominate retailers’ fresh food sections, but they will become an important component of their offerings.
“[Retailers] will find their own solutions for what works well with their particular store formats and what works well with their particular customer bases,” Wisner states.
Aylward, editor-in-chief of Store Brands, can be reached at [email protected]eiq.com.