Meal Kit Services: Coming To A Grocer Near You
The grocery business has become like a huge chess game. Where will the consumer go next? What will the next disruptor be? Albertson’s recent purchase of Plated, a meal kit company, for an undisclosed amount, is just the latest acquisition but could have a domino effect across the industry. Once considered a big threat to brick-and-mortar grocery stores, meal kit companies could become a complementary service with click-and-collect, expanding chains in a whole new direction.
Meal kits are just what they sound like: pre-selected, pre-prepared fresh ingredients with a recipe card that allow the purchaser to produce a gourmet meal for a specified number of people. Often they include meals for a few days and cost around $10 per meal, depending on the service. They’re delivered on a subscription basis to the consumer’s home, saving them the trip to the grocery store. Albertson’s plans to offer them in-store as well as through subscription.
Who Has The Optimal Resources for Meal Kit Success?
Meal kit companies were one of those innovative darlings that attracted a lot of investment money, around $650 million according to a Tech Crunch article quoting research from Packaged Facts. But when pioneer Blue Apron did an IPO in July, it dropped the price from $10 a share to $7 just prior to issuing, and the price plunged from there. A lot of that was attributed to the fact that Amazon announced its intention to buy Whole Foods only weeks before, throwing the whole market into confusion.
But the other problem is that meal kit subscriptions seem to be more of a novelty item than a sustainable business—at least as an independent operation. An increasing amount of data shows that while the number of subscribers grows by a few points every year, people tend to drop their subscriptions after about six months. On the one hand, that means the meal kit industry is losing people for some reason: cost, variety, etc. On the other hand, that may make the kits an ideal investment for grocery chains.
Meal Kit Customers Make The Best Grocery Customers
Meal kits are an estimated $1.5 billion industry and growing, taking a significant bite out of the nearly $700 billion grocery industry. According to Cardlytics, meal kit purchasers are the shoppers who spend 28 percent more than average shoppers. So they’re very valuable. By offering the choice of meal kits within the grocery store, grocery retailers capture the market and further build loyalty among shoppers.
But one question may be what should the meal kit offering look like? Kroger started offering meal kits in some of its stores recently to compete with companies like Blue Apron and Plated and the dozens of others that have cropped up. But with no subscription option, will the kits be as popular with the high-end shoppers? Meal kits companies have sold themselves on their premium ingredients and their innovation. They’re packaged to appeal to high-end shoppers who want the best quality and to make their own gourmet meals at home with the convenience of delivery. Will in-store kits be able to create the same mystique?
There’s no doubt that adding a meal kit offering creates more work for grocery retailers. Either they have to sustain the costs of a subsidiary preparing the meals or bring the work in-house. One advantage is that they can use their own groceries in the kit. But assembling the kits is high labor. Robots might be able to do it for considerably less, but that requires investing in the technology—something large chains could afford much more easily than independent services later on down the road.
But these days, the biggest risk might not be to take a gamble on something like a custom meal service. It might be to fail to play the game boldly.