There has been a significant recent growth in the meal kit delivery market, but who is using them, and is this growth sustainable?
Familiar names in the U.K are Hello Fresh and Gousto, but many more are now entering the market. They have become popular for many reasons, among them: meeting consumer demand for convenience, customisation, healthier eating and dining at home.
Mindful Chef, which launched in 2015, believed its key demographic would be twenty-something urban professionals, but has since noted its best customers are in their 30s and 40s: busy couples with young children. They also have a growing customer base of people living in the countryside who may not have easy access to supermarkets.
What does the future look like?
With so many of these boxes now appearing on the market, there are some key areas to consider:
- Delivery is expensive and relies on maintaining the quality of the food whilst out for delivery and trust in leaving the boxes outside houses if nobody is in
- Customer acquisition is expensive. Anyone who has travelled on the London Underground recently will have noticed the continuous, aggressive and costly marketing techniques and discounts offered. In the US, Blue Apron spent 18.1% of its revenue on marketing in 2016 ($144m), which is resulting in losses and long-term debt accumulation
- Once signed up, building loyalty is challenging. There is little to stop customers switching between meal kit boxes, particularly when discounts are so prevalent
- Also in the US, Blue Apron has found that ‘loyal’ customers spend less over time, with the average order size reducing from $59.28 to $57.23 and basket size dropping from 4.5 to 4.1
However, some companies are starting to achieve success. Despite these challenges, meal delivery businesses have enjoyed impressive growth over the past few years. Hello Fresh now operates in nine countries and delivers c.9 million meals a month and is valued at c.£2bn. More locally, Gousto delivers 400,000 meals a month and Mindful Chef is backed by Andy Murray and Victoria Pendleton and has attracted an investment of c.£1.3m on Crowdcube. Blue Apron’s revenue is growing faster than its losses and grew from $340million in 2015 to $795 million in 2016.
The big concern is the imminent entrance of Amazon. They have already launched in the US and it can’t be long before they launch in the UK, which is already spreading concern. Both Hello Fresh and Blue Apron released their first IPOs last year. Blue Apron’s was scaled back due to Amazon’s surprise entry and Hello Fresh only achieved a mid-range price.
However, companies are already finding new avenues to compete in: Mindful chef has teamed up with The Sanderson’s Hotel; Hello Fresh is now available in Sainsbury’s and Blue Apron has acquired their own farms to limit reliance on suppliers. The diversification of these companies will be interesting to watch and will be necessary to sustain growth.