Deep Dive: The Meal Kit Market

The meal kits services like Blue Apron and HelloFresh have been a cornerstone of the subscription market over the past several years. Recently, however, consumers’ appetites for meal kit subscriptions appear to be waning. The latest Subscription Commerce Tracker includes a Deep Dive on the state of the digital subscription market and its growing competition from online grocery sales.

Consumers have a long history with doorstep delivery. Decades ago, it was newspaper deliveries and glass bottles of milk, followed later by hot meals. Today, consumer deliveries have switched to entire meal kits, with fresh raw ingredients.

As consumers’ tastes change, are meal kit businesses prepared to feed their appetites, or will they bite off more than they can chew?

In 2017, there were approximately 150 meal kit companies in the U.S., such as Blue Apron, HelloFresh and Munchery. These services deliver ingredients and recipes directly to consumers’ homes, sparing them from ordering takeout, or finding the time to stop at the grocery store.

According to recent data, there is still a healthy appetite for these services. The meal kit subscription market is projected to generate approximately $3 billion in 2018. However, this figure accounts for less than 1 percent of the $1.3 trillion U.S. food market.

Keeping meal kit customers coming back

There are signs, however, that consumers are not as hungry for subscription meal kits as they once were.

A recent survey found that 19 percent of U.S. adults have tried a meal kit service, but businesses face problems with customer retention. Of the group that have tried meal kit deliveries, only 38 percent are still subscribing.

The same survey also found that consumers are not willing to commit to these services long-term — 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.

Price was one of the most significant factors that influenced subscriber commitment, with 49 percent cancelling services due to their costs. A larger share at 59 percent said they never used a meal kit service past its trial period because of the expense.

With price being a top concern, cheaper meal kits proved more popular than others. Blue Apron, one of the least expensive services available, was favored by 43 percent of respondents, followed by HelloFresh, which came in second at 33 percent.

If meal kit subscription business want to grow, they need to retain more consumers. A service that comes with too high of a price point clearly leaves a bad taste in consumers’ mouths. 

A crowded plate

Meal kit services should also be concerned about additional competition from non-meal kit food providers. Grocery stores are gaining a stronger foothold in the eCommerce space and several notable players are offering consumers grocery delivery, instead of requiring them to shop in a traditional brick-and-mortar supermarket. The Food Marketing Institute (FMI) estimates this market is likely to reach $100 billion by 2025, accounting for 20 percent of the grocery retail market. Additionally, the FMI predicts that 70 percent of U.S. consumers will buy their groceries online by 2024.

Quick delivery is one of the advantages for online grocery shoppers. Instead of waiting for a meal kit to arrive based on a subscription plan, consumers can purchase groceries whenever they want and have them delivered within a few hours. Amazon and Whole Foods are experimenting with this concept by offering free two-hour delivery to Prime members in more than 30 major U.S. metros.

The growing role of grocery stores in the space is prompting some meal kit providers to look for new partners. To that end, Blue Apron has partnered with Costco, which will offer its meal kits at 80 locations.

Meal kit businesses could also learn a few lessons from earlier food subscription markets. During the 1960s, home delivery accounted for approximately 30 percent of milk sold in the U.S., according to the U.S. Department of Agriculture. By the 1990s, that figure was less than 1 percent.

While meal kit subscriptions are one of the key cornerstones of the modern subscription market, their success is not guaranteed. Changing consumer attitudes and food delivery alternatives could eat into their market.

All told, meal kits have plenty to chew on as they consider how to maintain and grow their presence in the subscription market.