The Meal Kits Crowding Problem

Meal kits, at a quick glance, are a lucrative business — according to the latest installment of the PYMNTS Subscription Commerce Tracker, the projected value of meal kit subscription sales is estimated to hit $3 billion this year. It sounds like a massive figure, but is less than 1 percent of the $1.3 trillion Americans will spend on food this year.

Still, if there were only one or two players in the segment, 2018 would be looking pretty great for those meal kit subscription service providers. But the segment is far more crowded than that with players — there are subscriptions for vegans, gluten-free eaters, Paleo eaters, organic enthusiasts. Name a food preference and it is safe to assume that there is at least one specialty meal kit player hoping to literally cater to that niche.

And meal kit subscription services are plagued with an incredibly high churn rate — 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. The main reason for churn was cost: Among those who said they never used a meal kit beyond the initial free trial box, 59 percent reported that expense was the deciding factor.

And the already crowded and churn-laden environment has a new competitor stepping into the ring: grocery delivery services, a market that is on track to reach $100 billion by 2025. Online grocery delivery is less expensive than meal kit services — Amazon Prime members in 30 U.S. metros get free Whole Foods Market delivery as a perk of membership — and more flexible. The subscription box will only come once a week, but grocery delivery can be there in two hours.

Will meal kit subscription survive? The competition is stiff, as there’s a lot to chew on there.

But before writing off meal kits, it bears remembering that newspapers have, in recent days, mostly been written off as a dead letter in terms of subscription models. In the age of the internet, no one is going to pay for a content subscription, right? Well, the New York Times’ recent Q2 2018 profit of $24 million due to an increase of digital-only subscribers tells a different story.