Retail

Meal Kit Providers Exit Q2 With Industry In Major Flux

Blue Apron has long enjoyed the distinction of being among the early innovators in the meal kit category. With millennials working multiple gigs, very few have enough time left to make a proper meal — if they aren’t eating out at a local restaurant.

Blue Apron seemed to fit the bill with quick, healthy, fresh foods that let young professionals live a busy lifestyle and still have time for a home-cooked meal. However, once the category heated up and big box rivals began to jump in, the ability to maintain customers on a long-term subscription became a problem. Blue Apron’s 2017 IPO largely flopped on Wall Street, and the company made a number of high profile changes like expanding into Costco. Eventually, rivals like Hello Fresh began to outpace the growth curve.

Blue Apron opened up an experiential pop-up retail location in New York City, which featured cooking classes and celebrity chefs. The pop-up opened after Memorial Day and closed in late June. Last month, Blue Apron hired a new chief supply officer to help the company figure out the most efficient way to get its omnichannel distribution strategy together.

Hello I Must be Growing

Hello Fresh, a German-based meal-kit company, saw its share of the market boom and took the pole position from rival Blue Apron earlier this year. Business exploded by the fourth quarter of 2017, and the company reported 1.45 million customers and 39.5 million meals delivered. Hello Fresh moved to expand its business, acquiring U.S.-based organic meal-kit firm GreenChef Corp. in March of this year. Last month it announced plans to expand into supermarkets like Stop & Shop and Giant Food.

Big Benefactor

One of the remarkable stories of the meal-kit business has been the success of Plated, whose locally sourced, organic food business took a while to get going, but created national buzz after appearing on Shark Tank. The buzz became so powerful that the Albertsons supermarket chain decided to acquire the firm for $300 million in 2017. Albertsons, which had already been selling the meals in California Safeway and Chicago-area Jewel-Osco stores, started selling the product in hundreds of its Albertsons stores and via home delivery on Instacart.

Meanwhile, rival Home Chef, the largest private meal-kit company in the U.S., entered a $200 million aquisition in May with supermarket chain, Kroger Co. Based on incentive payouts, it could be valued at for up to $700 million. Kroger, which owns more than a dozen supermarkets, plus Fred Meyer department stores and other retailers, will offer the meals at its various outlets, and Home Chef will maintain its eCommerce operation.

Walmart Clears the Field

Much of the chaos in the meal-kit business can be tied to Walmart’s move to enter the category with pricing that completely undercut the entire field and provided customers with convenient in-store and delivery options that were integrated with everyday shopping routines. Walmart began selling the kits at the low price of $8 to $15 each in 250 of its stores, and planned to expand them to 2,000 by the end of the year. Walmart gave customers the options of either pre-portioned meal kits for home cooking, pre-cooked rotisserie chicken meals or one-step meals that could be heated up quickly.

Of course, Amazon, which has been testing meal-kit services after filing for trademarks in the summer of 2017, is hovering above all of this activity with its grocery dominance and ownership of Whole Foods, which is a major destination brand and potential fulfillment outlet for meal-kit services.

Another major threat to the model comes from Chick-fil-A, the Atlanta-based quick-service restaurant, which, just a week ago, disclosed plans to run a limited-time test of its Mealtime Kit service starting August 27 in Atlanta area restaurants. The chain will be offering the kits inside restaurants or at the drive-thru and is asking customers to fill out request forms if they want such a service in their area.

Casualty of Competition

Los Angeles-based Chef’d has become the canary in the meal kit coal mine after it shuttered its operations on July 16, reportedly due to financial issues, and later had its assets acquired by True Food Innovations. Chef’d was unique in the space as the only major player that offered meal kits without a subscription requirement.

Just weeks before it closed, Chef’d entered a number of high profile retail agreements designed to get its meal kits in front of consumers. In June, the firm extended a partnership with Smithfield that would include offering the meals for sale at Walgreens and Duane Reade stores in New York. The partnership, originally announced in May, called for Chef’d to offer its meal kits in more than a dozen retailers, including Costco, Harris Teeter, Tops and other stores in a total of 27 states.

Truly Innovating

As the firm that acquired Chef’d, True Food Innovations has now set itself up as a relatively new entrant to watch out for. The California-based food technology firm, backed by real estate and food investor Alan True, will continue selling Chef’d meal kits in stores, but has shuttered its eCommerce business for now. The firm also sells its own meal kit under the name True Chef, and is expected to use some of the acquired Chef’d assets to expand its own brand.

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