Retail

Thistle On Why Discipline Is Critical To Meal Kit Success

A quick glance at the  PYMNTS Subscription Commerce Tracker quickly explains the massive allure of the meal kit delivery business for entrepreneurs of all kinds. The projected value of meal kit subscription sales is estimated to hit $3 billion in 2018. Which is why there are so many players of so many descriptions running after the market.

But for all the potential value that could be captured, the trouble with being in the meal delivery box subscription business, according to Thistle CEO Ashwin Cheriyan, is that it isn’t actually one business, it is three: the food business, the logistics business and the technology business.

To succeed in the competitive and crowded industry that is getting meals to the front doors of subscribers nationwide, a successful business has to build out all three — and get them just right or risk seeing their clients churn out.

And churn is a massive problem in the meal kit delivery game. According to the PYMNTS tracker, 19 percent of U.S. adults have tried a meal kit service, but of that 19 percent, only 38 percent are still subscribing. Among consumers, 39 percent of respondents who tried a service only used it once, and 26 percent used it for under a month. Only 9 percent said they subscribed for half a year or longer.

All subscription services have churn, but meal kits tend to lead the pack. Netflix, as a comparison point, has a churn rate of about 9 percent.

Keeping clients on the platform, however, is more than just mastering the blocking of the food, tech and logistics. The meals themselves mostly must justify the cost of having the food delivered, as the vast majority of consumers who pull the plug on their subscription (59 percent) cite cost as the reason they did not continue forward.

With Thistle’s entry into the market, its distinguishing points are what it sells and how it has approached the market.

On the product front, the meal kits are designed for vegan eaters and offer a wide variety of plant-based offerings for those who eschew animal products.

On market approach, Thistle avoids raising money from investors almost as hard as it avoids animal-based products in its food. Instead, according to the company’s CEO and co-founder, Thistle decided to raise money the old-fashioned way — by selling people things.

“There’s this idea that building a business is predicated on raising capital, and so many people think it’s absolutely necessary,” Cheriyan said. “We built [Thistle] the normal-ish way. We just sold product.”

In five years, the firm has raised about $1 million.

In the earliest days, the very bootstrapped firm made many manual efforts. Their first product was cold-pressed juice, sold out of sub-leased spaces within shops and restaurants, and online. The firm manually updated orders on its site during the day, and when someone ordered something a notification went directly to Cheriyan’s email inbox. The company would then respond directly, and buyers could then track their delivery driver in real time.

The delivery driver, by the way, was Cheriyan.

“We made it seem like there was real technology to it, but there was no tech. It was literally two people pushing buttons,” he said.

But what they lacked in tech, they made up for in sales. By the end of its first year Thistle was raking in about $500,000 in profit — while competitors were losing money, and lots of it. The company also got a big assist from the team at Square, who discovered the vegan juice sometime during that harrowing first year and began ordering 700 a day as a company.

One corporate client quickly became four and then five — and that bulk was critical to build out the firm in its earliest days as juice merchants.

The problem with the juice on demand business, however, was that it was too reliant on those corporate partners to make money. Square, for example, eventually realized it was spending $10,000 a week for cold-pressed juice and cut the order.

And so Thistle pivoted in May 2015 to a subscription service that allows consumers to choose between three plant-based meals a week, up to three meals a day, six days a week, plus snacks and juices. And though subscription has been a challenge for many of its more heavily VC-backed competitors — thus thinning the market for Thistle — it has been profitable for the vegan delivery startup. Since shifting to its subscription model, the company has grown by nearly 1,030 percent over the past three years. In 2017 it posted nearly $9.5 million in revenue.

And growth is in the firm’s future, albeit of a controlled kind. The firm is moving into a new office, and is aiming to triple its revenue to $28 million over the next year. Thistle will also look to expand its growth in the San Francisco Bay area and in greater L.A. — but the firm is committed to keeping its growth very controlled.

“One of the lessons we’ve learned from companies like Blue Apron is that premature geographic expansion is why a lot have suffered or failed,” said Cheriyan.

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