In investing, sometimes the proverbial eyes are bigger than the proverbial stomach. Then comes the indigestion, then comes the automatic pushing away of the plate.
There’ll be no shortage of food metaphors in this article – but then again, it’s about meal kit companies, their attendant delivery services and what happens when the horn of plenty is just too much, too soo
The Wall Street Journal reported that the concept has gone from nascent and white-hot to what might be termed fully digested (okay, that’s our description). Venture capital firms put up lots of money – think hundreds of millions – to bring founders’ dreams into reality.
But the churn has been enough to churn stomachs. As in customer churn.
Noted the Journal, roughly 70 percent of Blue Apron Holdings customers walk away from regular purchases a mere six months after joining the service, and that tally is topped by the 80 percent of HelloFresh users who churn. That’s according to data from Daniel McCarthy, a professor at Emory University.
This comes against a backdrop where 150 meal kit delivery companies came to life in just the past half-decade. Of that tally, said the WSJ, at least four have shuttered. The projections are still enthusiastic, as some analysts think the sector can command $6 billion in sales three years from now, up from the $2 billion logged in 2016, per data from Pentallect.
Alongside that enthusiasm, the backing funds – as in investment dollars – have grown a bit more tepid. As noted by PitchBook Data, the latest year (2017), saw $274 million put into a dozen and a half companies. The highest level was seen the year before, at $308 million.
One of the key dissuaders of accelerating investments is the fact that large players – with coffers full, of course – are now testing the waters and jumping in. Amazon is the buzzkiller, perhaps, with its much-heralded acquisition of Whole Foods. It remains to be seen just how the pairing might impact the delivery space (having also filed for a trademark application tied to meal kits), as the company had stopped its Fresh delivery in some metropolitan areas. That stands in contrast to Prime hubs that have started to appear. In the meantime, firms like Walmart and Kroger are coming into the space.
After all, they’ve got the inventory – the ingredients – and so wouldn’t we think of a grocer or a Walmart as just one huge meal kit? Walmart, for its part, has been selling its meal kit subscriptions so fast, they’re going like hotcakes. Albertson’s bought Plated for some play in the space.
Blue Apron may be the poster child of the group, where shares have been shorn of half their value post-IPO.
Despite the footsteps of the juggernauts, the investors may be pulling back simply because the investors are pulling back. Note the churn as described above, but the subscription model seems to be a deterrent, in addition to the expense. Might we at PYMNTS offer a crumb for consumption? That work is still work, exotic ingredients or not. Turns out it’s not just the meat that’s organic – and so is the sweat you work up putting everything together and doing it all just right in the hopes that your inner Julia Child will be unleashed.
Also: The lack of differentiators may be a factor. Yes, there are niches to be filled: vegetarian, gluten-free, pescatarian and so on. But novelty wears thin as fridges grow full, say, with leftovers or ingredients that have yet to be combined. There’s prepared food and then there’s …. preparing the prepared food.
Overmeasured? Too much seasoning with hype? Pass the Tums.