Albertsons made a big splash in the $5 billion meal kit industry by acquiring Plated, bringing one of grocery’s biggest powerhouses into the fold. The move comes two months after Amazon entered the market with a trial of its own home-delivery meals, indicating that meal kits may be the next target for e-Grocery growth.
The RTP edit team discusses whether meal kits will take off as a result of the major investments from Albertsons and Amazon. The editors share opinions on factors that could impact the segment’s success, including pricing, customer churn levels and sustainability.
Debbie Hauss, Editor-in-Chief: A $5 billion industry in 2017, up from an estimated $400 million in 2016, with more than 100 players, the meal kit delivery segment is hot right now. Even Martha Stewart has gotten in on the meal kit game. Amazon is toying with it as well. But how many offerings can the segment sustain moving forward? And how can services differentiate themselves? Those are the million-dollar questions. The Albertsons acquisition of Plated has created an intersection of brick-and-mortar and online in the segment, which could be a key to sustaining the Plated brand moving forward. It will be interesting to see if other traditional grocery retailers also will acquire a service or even create their own. Otherwise, to stand out from the crowd, meal kit services need to come up with unique marketing ideas, maybe creating specific meals for personal events, seasons or holidays. In the meantime, they’re fun to try, especially with the significant first-time buyer’s discount most offer. Just today I was offered a $30 credit on my American Express card for spending $60 or more with Sun Basket, and close to 25,000 consumers reportedly have shown interest in the deal so far.
Advertisement
Adam Blair, Executive Editor: I have my doubts about the growth potential of the meal kit segment, despite the interest shown by big names like Albertsons and Amazon. Like Debbie, I wonder how many services the market will be able to support — particularly if deep-pocketed newcomers initiate price wars that shrink already thin margins. Additionally, meal kit companies thrive on driving awareness of their offerings, to continuously acquire new customers as a way to combat “churn.” But if someone already has made a trip to the supermarket, isn’t it a little late in the game to be alerting them about a meal kit option? Obviously there will be some growth potential among supermarket customers who are seeking higher levels of convenience (or guidance on how best to prepare the food). I’m just not sure this incremental growth will be substantial enough to get meal kit companies’ customer bases to where they need to be for profitable operations.
Marie Griffin, Managing Editor: Plated now has the potential to become a leader in the maturing meal-kit business, and it is a great deal for Albertsons too. With approximately $60 billion in sales, Albertsons brings tremendous economies of scale to the buying of the food products that go into Plated meal kits, plus it has 2,200 units on the ground in 35 states to provide fresh, locally sourced ingredients. Plated has a new partner that has already been investing heavily in the big expense of last-mile delivery, as Albertsons CEO Bob Miller explained in a July interview with the Idaho Statesman: “We’re going to work hard on home delivery…We think we can compete in that space.” Miller also lets individual business units operate with true independence, which means the Plated team can concentrate on developing their offering rather than raising money. Read more about how the combined entity can become more than the sum of its parts here.
Glenn Taylor, Senior Editor: I don’t think meal kits are going to be the next big thing despite their growth projections. The Albertsons-Plated deal shows that there is plenty of interest in the kits themselves, but the constant churn from consumers makes me think the acquisition is more about the e-Grocery long game than the meal kit service itself. More than 55% of subscribers at Blue Apron, Hello Fresh and Plated have cancelled their subscriptions within a year of starting the membership, according to NPD Group’s Checkout Tracking data as of September 2016. The customer base simply hasn’t shown enough staying power to create a stable business model yet. Pricing will be the key to this whole scenario going forward if any of these meal kits, owned by a bigger company or independent, want to stabilize their customer base. Without a way to lower prices, the kits themselves won’t take off. But these customers will provide value in some ways for bigger grocery brands, perhaps by providing data on customer behavior and food trends, so I do foresee more of these kinds of partnerships happening for those purposes.
Klaudia Tirico, Features Editor: I can see why my colleagues don’t believe meal kits have much growth potential. I sure don’t think they’re going to take over the world, but that doesn’t mean companies such as Plated, Blue Apron and Hello Fresh can’t be sustainable and successful. They’re convenient and help fresh, local businesses reach more consumers. What’s not to like? Maybe that’s the Millennial in me talking. I get home around 7:30 pm because I go to the gym after work, so I don’t always have time to shop for fresh ingredients or spend hours on Pinterest looking up recipes. With that said, I am subscribed to both Blue Apron and Hello Fresh (because who said consumers have to be loyal to just one? You can skip weeks, after all!). I pick and choose when I need my meals delivered to me, and from which company depending on the week’s offering. With big names like Albertsons and Amazon in on the hype, it’s only a matter of time before others hop on the bandwagon, which will give these companies a chance to expand their offerings and bring fresh, local food to the masses. I, for one, am waiting for a dessert meal-kit delivery service, and a breakfast-only one, too!
