Delivery

Why Partners And Profits Are Meal Kit Startup Chef’d Secret Ingredients

To say that there is perhaps an overabundance of meal kits in the market is something of an understatement. One PYMNTS reader living in San Francisco noted that between the various meal delivery startup services in her area, she and her spouse could literally sign up for free trials for a year and never once pay to make their own meals.

And while she ultimately decided not to let food delivery startups (and the venture capital backers) pick up the dinner tab for a year, it seems an ever-increasing number of consumers are electing to have their groceries not only delivered but also premeasured and sent along with a recipe card.

As of 2016, about a quarter of all American consumer were ordering meal delivery — and those meal kits turned out to be fairly sticky. The same Harris Poll that revealed that 25 percent figure also noted that 70 percent of that 25 percent stuck with their meal kits after those initial orders. Packaged Facts recently reported that meal kit startup services have exploded into a $1.5 billion industry over the past several years — and that their expectation is that the market will likely double within the next five.

Which is why there are so many food delivery services to chose from. Blue Apron, Plated, Purple Carrot, Sun Basket, HelloFresh — those are just the biggest and best known trying to lock up market share in an industry that some think is on track to be worth $3 billion by 2022.

On track — but not there yet.  Consumers are showing increased interest in meal kits, but there is not quite enough demand in the market among that 17.5 percent of consumers that are regular meal delivery service customers to support all the entrants to the space — especially when one considers that meal kits are also competing with old fashioned takeout — and firms that specialize in home cooking delivered to your door.  There are only so many urban consumers today eligible for these services, and there are only so many meals that customer base needs delivered. The casualties in food delivery in general have already began rolling in — earlier this year delivery on demand startup Sprig closed its doors, unable to generate sufficient demand for its gourmet-on-the-go model to sustain a profit.

But Chef’d, another of the bigger players in the food delivery game — specifically the meal kit end of it — is somewhat less worried about its longevity in a crowded market than some of its fellows in the game. Because Chef’d, although it is in a similar line of work, structures its business somewhat differently.

Chef’d dropped the subscription model entirely — there is no monthly fee, and consumers simply visit their site or app, browse through their very extensive meal selection guide, and order their kits up à la carte. CEO Kyle Ransford noted in an interview that Chef’d customers as a result get more selection and are being given more choice, which is ultimately a more profitable model.

Retailers are partnering with Chef’d because it offers hundreds of meals crafted by renowned chefs and top brands, and it’s a name that millennials are following. Searches on Yelp and Instagram both show younger people are talking a lot about it. Even Campbell’s Soup has been attracted to the company. The owner of Swanson, Pepperidge Farms, V8 and Prego brands recently invested $10 million in Chef’d with the hopes that it will help grow Campbell’s eCommerce capabilities.

“Our customer acquisition costs are about a tenth of of what the competitive set is paying. Most are running at about $100 to $200 costs, whereas ours are in the teens. As for lifetime value, we are more like an online grocery store where you’re not forced to use us every week. If you’re forced to buy every week, such as in a subscription-based meal model, people are going to quit.”

The proof, he said, is in the numbers. While its competitors are spending through large sums, Chef’d is “first-order profitable on six of the last seven months on a gross margin basis, and we’re growing super fast,” said the CEO.

Apart from eschewing the subscription model, Chef’d has also focused in tightly on relationships with retail brands, such as Campbell’s.

“eCommerce will transform the food industry in similar ways to how it transformed entertainment and apparel. It is a game changer for consumers, food makers and retailers alike,” Denise Morrison, president and chief executive officer at Campbell Soup, said in a statement. “The movement is irrevocable and irreversible. Chef’d will help Campbell connect with our consumers where they are today and, more importantly, where they’re headed.”

And by working with proven consumer brands — with tested consumer relationships like Campbell’s — Chef’d doesn’t have to be “giving it away” as part of its customer acquisition process — and instead can work with its partners to better develop those consumer brand relationships in a new digital environment.

Will it be enough to make Chef’d the undisputed meal-kit champs? Too early to say. But it does look at least like Chef’d will be around to survive several rounds of battle as the field thins.

——————————–

Latest Insights: 

The Which Apps Do They Want Study analyzes survey data collected from 1,045 American consumers to learn how they use merchant apps to enhance in-store shopping experiences, and their interest in downloading more in the future. Our research covered consumers’ usage of in-app features like loyalty and rewards offerings and in-store navigation, helping to assess how merchants can design apps to distinguish themselves from competitors.

Click to comment

TRENDING RIGHT NOW

To Top