Meal Kits Had Their Chance. Covid-19 Gave Them Another One

For a while, meal kits were hot. They promised gourmet meals even amateur chefs could make, with preportioned ingredients sent directly to your door. A dash of maximum convenience with a pinch of minimal effort resulted in a theoretically perfect dish for modern living. Then enthusiasm waned. Subscriptions were expensive, and menus got repetitive. Rather than revolutionizing the way we eat, meal kits settled into a dinnertime niche. Now, with much of the nation working, exercising, socializing and eating breakfast, lunch and dinner within the confines of the great indoors, the buzz is back. The meal kit industry has its shot at redemption. [kickout id="1"] In recent weeks, Sun Basket and Purple Carrot have experienced a bump in mentions and engagement on social media, according to online media analytics firm Talkwalker. In March, HelloFresh and Blue Apron saw boosts in organic search traffic compared to the previous two months, according to market intelligence company SimilarWeb. While some, like Home Chef, declined to provide specifics and noted only a “material increase in orders,” another, Marley Spoon, said it is seeing growth of more than 40% year-over-year compared to Q1 2019. “Right now, it's a great time to be in the meal kit business,” said Andy Levitt, founder and CEO of plant-based meal kit company Purple Carrot. “I wouldn't have said that six months or a year ago.” The big-dollar question, though, is whether meal kits can use this current momentum to become a permanent part of how America does dinner, or if they’ll fade back into their corner once options for consumers open up again. The rise and stall of meal kits Perhaps no company better illustrates the trajectory of meal kits than pioneer Blue Apron. Established in 2012, Blue Apron had acquired over a million customers by the first quarter of 2017. With much hype and a $2 billion valuation in 2015, the company went public in June 2017. Share prices have been more or less declining ever since. Part of the issue was that about two weeks prior to Blue Apron's IPO, Amazon announced plans to purchase Whole Foods for $13.7 billion, spooking investors. Food delivery services such as GrubHub, DoorDash, Postmates and Uber Eats were also maturing, offering consumers plenty of at-home meal options that required zero cooking. Then there’s the fact that Blue Apron has failed to turn a profit, and its income is shrinking. In 2019, Blue Apron reported $455 million in net revenue, down from $668 million the year prior and $881 million the year before that. Recent numbers reveal Blue Apron now has only 351,000 customers, a 65% decline from its peak in early 2017. It certainly didn’t help when meal kit competitors started gaining momentum as online grocery options from Amazon, Walmart and Instacart proliferated. [article_summary section="1"]That’s in part why the meal kit category as a whole has struggled to catch on. Throughout 2019, only 5% of U.S. adults said they had tried a meal kit service in the past 30 days, according to market research firm the NPD Group. That number is higher than the 3.5% of consumers who said the same a few years prior, but not by a margin that indicates meaningful growth. “It seemed as though adoption had stalled,” said Darren Seifer, food and beverage analyst at NPD Group. [kickout id="2"] A pandemic brings change Then the coronavirus came and upended any semblance of normal life. Just as Home Chef and Marley Spoon are thriving in this environment, HelloFresh has also seen an increase in sales, according to a company spokesperson. Freshly, which provides fully prepared dinners, shipped around 5 million meals in March, up from 3.5 million in February. [kickout id="3"] "If we had more capacity we would have sold more, because there was more demand," said Freshly CMO Mayur Gupta, who noted that the company had to put several would-be customers on a waiting list. "We increased our operational capacity in the facilities by 15% to 20%, but even that wasn't enough to fulfill the entire demand." Orders are surging for Blue Apron, too. Around mid-March, the company said demand was so much higher than expected that staff were overwhelmed, causing delays in its fulfillment process. It is currently hiring for both temporary and permanent positions in its Linden, N.J., and Richmond, Calif., fulfillment centers. “We believe we are positioned to support home cooks across the country during this time, and we are doing everything we can to serve our customers,” said Blue Apron CEO Linda Findley Kozlowski in a statement. “We believe home cooking is important now more than ever, and we intend to continue delivering our customers fresh, delicious Blue Apron meals right to their door.” The financial rewards have been multifaceted, going beyond increases in revenue. In mid-March, Blue Apron’s stock came back to life, spiking more than 600% over a few days. At Purple Carrot, Levitt said his company is experiencing unprecedented demand for its meal kits. Not only are new customers joining, but cancelation levels and skip rates—which allow customers to put the service on pause while they’re out of town or need a break—are dropping. In other words, all metrics are moving in the right direction. “We feel really good about being on the right side of this now, by offering the same service we've been offering for years,” Levitt said. “It's just that it now has a much greater shine to it.” [article_summary section="2"]Meal kits, it seems, have benefited from the newfound concern that accompanies leaving the house to get food and supplies. They are also appealing, Levitt argued, because they provide a sense of power amid a general atmosphere of powerlessness. “This feels like a very out-of-control moment,” Levitt said. “So if you can control the food that you're eating by preparing a meal for yourself or someone you love in your family, that builds a sense of confidence and creates a sense of calm and certainty in these very uncertain times.” But will it last? As states start loosening shelter-in-place orders and things begin to feel less unsettling, the question is whether meal kit companies can sustain the momentum. Experts have their doubts. If anything, meal kit companies will be left to confront the same old obstacles—price, repetitiveness and waste, to name a few—that held them back prior to the coronavirus outbreak. “They’re operating on a non-level playing field,” said Sucharita Kodali, vice president and principal analyst at research firm Forrester. “We know what the level playing field was. The alternatives are too copious for them to effectively compete—there’s the restaurant industry, grocery stores, etc. So I kind of think things go back to the way they were once restaurants reopen and people go back to their normal lives.” The cost of these subscription-based services is one of the biggest hurdles. “The No. 1 reason consumers say they stopped using [meal kits] is that they feel they're too expensive,” NPD Group’s Seifer said. “So, in many cases, they did not prove their value to consumers by saving them a trip to the store.” As Kodali put it, “A very, very expensive way to get a tomato to someone’s house is to FedEx it with ice packs.” One way to solve the price problem is to partner with grocery stores, Kodali said. Home Chef, for example, has sold kits at parent company Kroger's retail locations since 2018. This allows shoppers to pick up a meal kit or two during their weekly shopping trip without the recurring expense or commitment. “That drives a lot of volume without having to worry about FedExing a box,” Kodali said. “They’re a nice occasional purchase, especially if you don’t have to pay for shipping … [but] it’s not something the average person will do.” However, even if these companies do partner with grocery stores, Kodali said, the meal kit industry is not a billion-dollar business—and never will be. “It’s a SKU in a grocery store that is kind of a repository of good recipes that are relatively easy to make,” she said. “That’s it. That’s all it is. It generates money like eggs generate money.” Price aside, another nagging issue for meal kits is their eco-unfriendliness. "One substantial complaint that I think exists across the spectrum of the meal kit category is the waste and the excess with packaging and the gel packs,” Levitt said. “That's been happening since Day 1." Purple Carrot does its best to communicate how to reuse and recycle its boxes and containers, Levitt noted, adding that his company's plant-based meals are gentler on the environment than ones involving meat and dairy. The waste problem receives a lot of attention at Freshly, too. While everything the company delivers is either recyclable or biodegradable, Gupta said, the company continues to explore different packaging options. [article_summary section="3"]In order to further expand its customer base in the present moment, Freshly recently introduced a new b-to-b platform called Freshly for Business, which allows companies to order meals for their employees, whether they're working at home or on the front lines of the pandemic. The initiative has been in the works since last year, but the coronavirus outbreak brought it to fruition sooner than planned, according to Gupta. Current partners include hospital associations, media companies and financial institutions. “We’ve seen a huge demand from employers who want to provide their teams with healthy and affordable food options right now,” said Freshly founder and CEO Michael Wystrach in a statement. “We're all adapting in this current climate, and businesses are shifting their work perks like meals, coffee and snacks to virtual options. As access to fresh food becomes increasingly challenging and costly, Freshly for Business is helping meet evolving needs.” But one thing meal kit companies across the spectrum share is the challenge of how to retain customers beyond the pandemic. With more people signing up and getting a taste of the service, the hope is that some will appreciate it enough to stick around even though, as Levitt put it, “We have to be mindful that this too shall pass, and there will be some leveling out.” At the same time, if meal kit companies can solicit information from consumers about why they are interested in their services—convenience, health, lack of cooking skills—those companies can not only better serve and retain existing customers, but they can also cater messaging to like-minded people and distinguish themselves in a sea of competitors. When consumers sign up with Purple Carrot, for instance, the company encourages them to complete a welcome survey. The survey gathers information on food preferences and identifies what motivates people to pursue a plant-based diet, whether it's health, environmental, animal rights or some combination of factors. “When I think about the way our company has matured over the years, I would say we're far more sophisticated with the way we market to consumers, with a higher level of intelligence and empathy than maybe we'd ever had in our earlier years,” Purple Carrot's Levitt said. “That should lead to a net positive with respect to customer retention.” Another positive omen: With each passing day comes another opportunity for consumers to ask themselves that eternal question, “What's for dinner?”

Life in Quarantine

Meal Kits Had Their Chance. Covid-19 Has Given Them Another One

Sales are up, but analysts question whether momentum is sustainable

Paul Hiebert

Lisa Lacy

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Paul Hiebert

Lisa Lacy