Meal kits came to the market strong and, for a while there, it seemed like everyone was offering a variation of a direct-to-one’s-door delivery of dinner’s component parts waiting for assemblage. That market has since seen more than a bit of difficulty in sustaining the enthusiasm.
Blue Apron is the paradigmatic case in this narrative. The firm has been ranked the worst-performing tech initial public offering (IPO) in 2017 after it launched at $10 and ended the year at $4.29, a decline of more than 57 percent. Beset by issues at a New Jersey warehousing facility, falling investor confidence and a churn rate of more than 70 percent among its customers, Blue Apron has become one of last year’s more popular cautionary tales. Among market watchers, the favored path for its salvation is an acquisition by Walmart.
On the upside, the two firms do have similar taste when it comes to color schemes.
But, while Blue Apron has been singled out most often, it’s problems are hardly unique. HelloFresh, which also IPOed in 2017, actually has an even higher churn rate among its customers than Blue Apron does at 80 percent.
As many analysts have noted, the problem is that the field is crowded. Approximately 150 meal kit delivery companies came to life in the last five years, and consumers churn frequently across the board in the segment. High competition and turnover have pushed some companies out of business and others into acquisition deals like the one struck by Albertsons and Plated.
Investors seem to be noticing, too, and they are backing slowly away from the segment in response.
Despite the sudden case of investor indigestion when it comes to meal kits, though, the team of San Francisco-based subscription meal delivery service Sun Basket has recently managed to rustle up $57.8 million in funding. The Series D round to the tune of $42.8 million was led by August Capital, and those funds follow a $9.2 million investment from Unilever last year.
According to Sun Basket CEO Adam Zbar, though the round ultimately went the way Sun Basket was hoping, it involved some of the hardest fundraising he’s ever had to do. The company has persisted and succeeded where others have hit the wall of late, and for one very simple reason.
“We’re the only ones getting the meal kit right,” Zbar noted in a recent interview with PYMNTS.
Focusing On The Eater And The Food
Specialization is the secret sauce Sun Basket uses to bring customers in and keep them on board, Zbar noted. All meal kit companies deliver dinner to the door — albeit a dinner broken down into its component parts to be prepped, assembled and cooked, which makes dinner preparation easier.
It’s a good start, but the healthy meal delivery service was designed to not only make it easier for customers to prepare dinner, but also make it easier for customers to maintain, or even change, their dietary choices.
Sun Basket capitalizes on the “clean eating” trend by giving consumers many flavors of healthy eating from which to choose. Those choices range from the expected like paleo, vegan, lactose-free or gluten-free — which are also found on other platforms — to the perhaps a bit more exotic, like soy-free, pescatarian and Mediterranean.
Layered onto those specifications is a guarantee that all products are organic and all packaging is recyclable.
According to Zbar, that multi-tiered and highly customizable solution is critical to Sun Basket’s success and the fact that it claims a retention rate “three-times higher” than that of its competitors. He declined to put a specific number on that claim, but a Morningstar report earlier this year indicates average meal kit retention rates of 8 percent to 18 percent — implying Sun Basket claims a retention rate between 16 percent and 54 percent.
Zbar has also noted in interviews with food industry news source FoodDive that his firm's average customer spends between $150 and $200 per month on the platform, which is higher than the average meal kit subscriber spends on others.
The Road Ahead
Sun Basket is not profitable yet, though Zbar notes it would likely be but for its marketing costs.
The vision for Sun Basket is not just to be the go-to source of meal delivery, but instead be thought of as something of a marketplace geared specifically to nutrition and supporting consumers' range of healthy lifestyle choices.
That marketplace can, in turn, play matchmaker between companies that want to sell to Sun Basket’s cleaning eating consumers — firms like, say, investor firm Unilever and healthy living-enthused customers, themselves.
How that marketplace might run, and whether Sun Basket is better suited to run it itself or be acquired by a bigger firm to take on this bigger vision, is a favorite subject of debate among market watchers. Funds in hand, though, Sun Basket is not debating at present.
It’s got distributions centers in the East and Midwest to open.