Meal Kits May Be Just Getting Started

In the days following HelloFresh’s acquisition of the organic and vegan food delivery company Green Chef, other health-based meal kit delivery services are finding hope that there’s a strong market for their offerings — as well as plenty of room for them to find their niche.

At least, that’s what Terra’s Kitchen CEO Mike McDevitt has taken away from the news — along with a sense that the hot space which is meal kits may now be beginning to settle and mature.

“The meal kit market is crowded, but it’s also growing rapidly, so there’s room for a lot of types of brands,” McDevitt told PYMNTS. “There are lots of different styles of consumers. The acquisition is a sign that others are seeing the rising trend in consumer demand for healthy products, which validates our brand position and gives us confidence for continued growth in our sector.”

How can meal kit brands achieve that growth, and what does growth really look like as the space matures? McDevitt shared his insights.

Standing out in a Crowded Market

McDevitt said there are two things meal kit brands must do to break through the noise and succeed.

First, they must understand the type of consumer they’re courting and focus on meeting that consumer’s exact needs. Food is a big category, McDevitt said — too big for most meal kit companies to do it all, though brands certainly have emerged that are able to do this; consider Blue Apron and HelloFresh, national brands reaching a very wide and diverse user base.

However, those national brands poured a lot of capital into infrastructure, said McDevitt, so they need to cater to a wider market to be profitable. If an organization can minimize, it can allow that company to focus on customers in the areas where they want to focus because the everyday expense of infrastructure is not hanging over their heads.

McDevitt said that’s the route Terra’s Kitchen took. The fresh food delivery service is able to focus specifically on the health-conscious consumer because it has outsourced that infrastructure.

The second thing McDevitt said meal kits must do to succeed is provide a quality product and experience. People have high expectations around food quality, he said, and the ubiquity of internet shopping has created similarly high expectations for any digital experience — so the ordering and delivery experience must be A+ if brands hope to make a lasting impression.

One thing Terra’s Kitchen has done that McDevitt believes other meal kits should duplicate is reduce packaging waste. He said that, when using other company’s meal kits, he often felt guilty about the amount of trash he was bringing to the dump every week.

So, he made it a priority when starting Terra’s Kitchen to package meals in reusable shipping containers. The containers use thermal technology to keep pre-cut ingredients fresh and are collected by the company to be reused — sometimes as many as 100 times.

The Faces of Growth

Growth doesn’t always mean building oneself bigger. As HelloFresh demonstrated with its acquisition of Green Chef, growth can also be achieved through buying (or, in Green Chef’s case, being bought).

McDevitt said growth can come either from adding product lines to a specific consumer base — which is what Terra’s Kitchen does — or from expanding the consumer base — as HelloFresh was able to do by acquiring Green Chef.

Indeed, McDevitt said, buying can actually be cheaper and easier than building the same functionality in-house because it allows everyone involved to continue focusing on what they do best.

Again, he said, that’s why Terra’s Kitchen outsources infrastructure: So it can focus on what it does best. And seeing a large player like HelloFresh snap up a niche, high-end product like Green Chef suggests that it’s a wise approach with demand from health-conscious consumers on the rise.

The Shelf Life of the Meal Kit Trend

McDevitt expects the Green Chef acquisition will be just one of many as the meal kit space takes shape. In other industries, he noted, a rash of activity often settles into a consolidation phase. Market activity transitions from dozens of individuals and companies launching in the hot new space to core players emerging as leaders and either snapping up or driving out smaller niche competitors.

As that shift takes place, McDevitt said capital for new players will be harder to come by — investors have already picked their favorites, and it’s clear who the leaders are. Therefore, it’ll be more common for newer companies to take an outsourcing path like Terra’s Kitchen has done.

That may create new challenges, but McDevitt doubts it’ll slow the influx to the space. He says the meal kit trend is still just getting started as the grocery category overall sees massive transformation. Grocery is still around 97 percent retail, with only 3 percent migrating to digital platforms.

McDevitt said that’s because it’s hard to create a good grocery user experience in a digital environment — and that’s exactly why meal kits are such a hot space right now. Going to a major grocer’s website and selecting ingredients is not a good user experience, he said. Meal kits simplify the product offering.

They also cater to people’s desire to start spending more time at home with their families, McDevitt said. People may not love cooking because of the labor component, he noted, but there is definitely a reemerging cultural emphasis on the family and home that meal kits can help support.

So, no, it’s not too late to get in on the meal kit game. A Nielsen report suggests that, by 2022, consumers could be spending as much as $100 billion per year on online grocery — with an emphasis on consumer packaged goods, as these are easier to store and deliver.

But man does not live on cereal alone, and that’s a void that meal kits can definitely fill as online grocery gains traction, McDevitt said.