Meal kits: analyzing business models and market trends

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90 min
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1

Think about these questions before watching. Share your ideas with a partner.

  1. Considering your own weekly routine, what factors are most important when deciding what to eat for dinner: convenience, cost, variety, or healthiness? Describe a situation where you had to prioritize one over the others.
  2. Many companies today rely on a subscription model. Thinking about services like meal kits or streaming platforms, what makes a subscription valuable enough for you to keep paying for it long-term?
  3. Imagine you were designing a new food service to compete with both traditional grocery stores and meal kits. What unique features or benefits would your service offer to attract and retain customers?
2

Watch the video from 3:15 to 7:00. Pay attention to the main ideas, key vocabulary, and examples in this section.

Video script229 segments · click a timestamp to jump

(upbeat music)

- [Narrator] Meal kit companies

set out to disrupt grocery stores

and change the way we cook at home.

Now, there's 382 of them in the US,

a 300% increase from a decade ago,

when they were just 13.

Despite industry-wide growth,

the meal kit model faces an obstacle, you.

Of all the people who tried

one of five major meal delivery services in 2022,

about 90% canceled their subscription

by the end of the year.

- Human behavior is very fickle,

especially when it comes to food and beverage.

- [Narrator] And now, Blue Apron,

one of the earliest players is selling.

This is The Economics of Meal Kits.

This graph shows the share of sales in the US

between the major meal kit companies in 2022

Sunbasket and Marley Spoon Inc., have 2 and 3%,

Blue Apron and Home Chef took 6 and 12%

while HelloFresh and its subsidiaries ate up 78%.

But no matter their size,

many of these companies use the same key ingredients

to find and keep customers,

price point, convenience, and variety.

First, get the customer.

Meal kit companies focus a lot on the price per meal.

- [Presenter 1] Here's how I make fancy meals

for under $5. - [Presenter 2] Wow!

- [Presenter 3] Get 1.49 per meal.

- Our biggest competitor are the offline grocers.

- [Narrator] Which is why HelloFresh and Home Chef

say, "It's cheaper to buy meal kits than to buy groceries.

- Wherever you source the ingredients

to do home cooking from scratch yourself,

that's our competition in some way.

- [Narrator] But what makes that possible?

- It's all about economies of scale.

- [Narrator] Brian Choi has done market research

on the food and beverage industry for 15 years,

and he says that,

"When it comes to keeping prices low for the consumer,

grocery stores have an advantage

over most meal kit companies

because of the volume of product they handle daily.

But similarly, the meal kit companies

that are best positioned

to offer the lowest price point for consumers,

are the biggest ones, like HelloFresh."

- Economies of scale allow us to get better pricing,

to get a better margin on the product,

and then to reinvest parts of that margin,

either into a better customer experience

or into lower pricing.

- [Narrator] Which means that at times,

the company can compete on price with grocers,

but on a per-meal basis,

buying the ingredients yourself from a grocery store

still tends to be cheaper, especially considering

that you can always buy fewer ingredients

or go for cheaper options.

Whereas the minimum you could spend on HelloFresh

and Blue Apron in a week is $60.95,

$12.49 per meal, at least before discounts.

- It's sometimes hard to get people

over the purchase barrier.

That's why incentives are a key part

of our marketing or growth playbook.

For every dollar that we spend

on getting that group of customers,

it takes about six months

to actually earn that dollar that we invested back.

- [Narrator] Which makes the next step

all the more important, keeping the customer.

These are the customer retention rates

for the same five meal kit companies in 2022.

In less than a year,

they all lost the vast majority of the new customers

that bought their first meal kits in January.

One possible reason everyone drops off, the discounts.

- They're doing their own mental calculus.

They're like, "Wow, $12 meal is very different from the $4,

you know, based on the promotional rate."

- [Narrator] When you introduce a product to someone

at a severe discount,

you may get more people to try it,

but when the discount goes away

and they have to pay full price,

it may not be worth that new price to them.

- One thing about the American consumer

is they don't like dramatic change in prices.

- [Narrator] So how do companies get retention rates up?

One way is to offer the discounts again,

and hope that they entice customers to return.

And another is to add more convenience and variety.

- The biggest value proposition is the convenience.

- [Narrator] The big thing meal kits offer to consumers

is a convenient way to cook at home.

They ship to your door

and give you pre-portioned ingredients

for relatively simple recipes.

- But when you stack that versus

the other options that are there for consumers,

the collective value proposition

has diminished significantly.

- [Narrator] With restaurants and grocery stores

offering delivery to your door,

it's hard for meal kits

to offer a unique convenience to customers,

and getting pre-portioned ingredients

maybe more convenient if you want to cook for yourself.

But Americans only cook an average

of 4.5 meals at home per week.

But companies across the meal kit industry

are expanding their offerings,

and one of the common ones isn't a meal kit at all,

it's just pre-made meals.

- [Announcer 1] Factor has chefs cook meals for you

and then they deliver them fresh to your house.

- [Announcer 2] They have oven-ready meals

with everything included

and fast and fresh meals

that can be done in 15 minutes.

- As you grow your customer base

and you grow your assortment,

you also tend to give customers a lot more choice.

- [Narrator] And more choice

means you're more likely to get customers

to spend more with your company,

but it's yet to be seen

how much these new offerings will increase retention rates

across meal kit companies,

plus retention rates aren't everything.

Looking back at this chart,

Blue Apron sits slightly above the rest,

which Choi says, "May be because

it offers slightly more options and customization."

But Blue Aprons' revenue has declined greatly since 2017,

then, there's profit,

Both HelloFresh and Blue Apron

got off the ground

by raising hundreds of millions of dollars in funding,

in 2017, they both went public,

then their paths split.

Blue Apron's revenue has slowly declined

with just a slight increase

during the industry's pandemic boom.

HelloFresh on the other hand,

has been consistently profitable since 2017.

Looking at its revenue, you see constant growth,

even after the pandemic shutdowns ended

and people could eat at restaurants again.

- Once you establish yourself as the leader in that space,

it becomes very, very hard to be disrupted

because you need to solve a lot of complex problems

over and over again to get to that position.

- [Narrator] While both faced stark drops

in their share prices,

the New York Stock Exchange threatened to delist Blue Apron

after its stock dipped below a dollar,

the company shifted to an asset-light model, scaling down,

and offloading many of its operations to another company.

Then it announced its selling to Wonder Group,

a food delivery startup,

and return to being a private company.

Another key step is to differentiate.

The barriers to enter the meal kit industry are fairly low,

which is partly why

there are so many meal kit companies today.

- But the barriers to scale

and build a big business are actually really high

- [Narrator] And why it's important

for each one to stand out if it wants to survive.

Take Methodology, a small meal delivery company

that started in 2015,

it doesn't offer meal kits at all,

instead, Methodology sends out

four or five days' worth of pre-made meals

with ingredients you're less likely to find in other kits,

like nopales, cacti, and purslane.

- Our audience is basically

who I was when I started the business.

They're really time-starved,

so they don't have time to cook healthy meals on weeknights,

and as far as their incomes,

most are making in the several hundred thousands,

if not more than that.

- [Narrator] Most other companies compete at a price point

around $8 to $15 per serving without discounts.

But Methodology costs around 17 to $30 per meal.

- Our sweet spot actually

is men who live on takeout

'cause they're already doing it

three to four times a week minimum,

they're spending 35 on average per meal.

- [Narrator] And it doesn't offer discounts

at nearly the same rate as the other companies.

The average discount for a Methodology Kit

is 10% off a customer's first week.

Nguyen says, "This model has allowed the company

to be profitable from year two."

- We have customers who have spent

over a hundred thousand dollars with us

because we really are a lifestyle for our target customer.

- We're operating in one of

the largest consumer categories out there,

which is food at home.

So in my view,

a large category will always attract

sort of like new business models,

new entrants in the category, and so on.

- [Narrator] Grand View Research forecasts that

the revenue across the US meal kit industry

will reach $64.27 billion by 2030.

- Do I believe the numbers?

- I think they're probably a little bit too optimistic.

- I don't know what the food industry

will look like in five or 10 years,

but I do think that we can play a really big role

in shaping the future of the food industry.

I think in 10 years, we'll probably see

one or two major players in the industry

still operating in that space.

I'll also expect to see some companies

that have gone bankrupt

or acquired by some of the larger players.

(rhythmic music)

3

Answer these questions in your own words. Support your answers with evidence from the video.

01According to the video, what is the main problem with attracting customers using severe discounts?
Sample answerThe main issue is that once the promotional period ends, customers might not think the service is worth the new, full price. They get used to the low price and don't want to pay more.
02In what way has the convenience offered by meal kits become less unique over time?
Sample answerIt's become less unique because now restaurants and grocery stores also offer delivery directly to your door. This means meal kits are no longer the only convenient option for getting food at home.
03How did the business performance of HelloFresh and Blue Apron compare after they both went public in 2017?
Sample answerTheir paths were very different. HelloFresh saw constant growth in revenue and has been consistently profitable. In contrast, Blue Apron's revenue slowly declined and it faced major financial trouble, even being threatened with delisting from the stock exchange.
04Why does a company like Methodology target a very specific, high-income audience?
Sample answerIt seems they do this to stand out in a crowded market. They offer a premium, pre-made meal service with unique ingredients for people who are 'time-starved' and can afford to pay for that level of convenience and quality, which differentiates them from cheaper, cook-it-yourself kits.
4

Vocabulary

Vocabulary
These expressions will help you communicate more naturally about this topic.
Examples
To gain a competitive edge — to achieve an advantage over other companies or products in the market.
This is a common business collocation. You can gain an edge through something (e.g., better technology) or over a rival.
A saturated market — a market where there are already too many businesses or products, making it difficult for new ones to be successful.
Often used with verbs like 'enter' or 'compete in'. For example: 'It's hard for new meal kit companies to enter such a saturated market.'
To cater to a specific demographic — to provide products or services designed for a particular group of people (e.g., based on age, income, or lifestyle).
'Cater to' is a useful phrasal verb. A 'demographic' is a more formal term for a group of customers. You can also 'target' a specific demographic.
To weigh up the pros and cons — to carefully consider the advantages and disadvantages of something before making a decision.
This is a great phrase for discussions. For example: 'A customer might weigh up the pros and cons of convenience versus cost.'
A flash in the pan — an idiom for something that is popular or successful for only a very short time and is not repeated.
Use this to describe trends or businesses that you think won't have long-term success. For example: 'Was the initial excitement just a flash in the pan?'
5

Decide if each statement is true or false. Correct the false ones.

01Since going public in 2017, both HelloFresh and Blue Apron have experienced consistent growth in revenue.
02According to the video, it is relatively easy to start a meal kit company, but it is very difficult to grow it into a large, successful business.
03The convenience offered by meal kit companies has become less of a unique advantage because grocery stores and restaurants now also provide delivery services.
04To increase customer choice and retention, many meal kit companies are now offering options that are not traditional meal kits, such as pre-made meals.
05Methodology is a company that differentiates itself by offering meal kits with unusual ingredients like cacti for a high-income audience.
6

Complete the sentences with words from the box. One word is extra.

Word bank
01To gain a competitive , many companies are now offering pre-made meals in addition to their standard kits.
02With so many similar services available, the meal kit industry has become a highly market, making it difficult for new companies to succeed.
03Some meal kit services try to to specific dietary needs, such as vegan or gluten-free, to attract a niche audience.
04Before subscribing, consumers should carefully the pros and cons, considering factors like cost, convenience, and food waste.
05Many analysts wondered if the initial boom in meal kits was just a in the pan, or if the trend would have long-term staying power.
7

Choose the best answer based on what you heard in the video.

01What strategic change did Blue Apron make in response to its financial difficulties?
02According to the video, why has it been difficult for other companies to disrupt HelloFresh's market position?
03What is the stated benefit of companies expanding their assortment and giving customers more choice?
04Which of the following is NOT mentioned in the video as a strategy for meal kit companies to succeed or differentiate themselves?
8

Business strategy concepts

Let's review some key ideas about business and marketing.

Match the beginning of each sentence on the left with its correct ending on the right.

Drag or click to match
Definitions
9

Discuss these questions with a partner. Try to use vocabulary from the lesson.

  1. The video mentions a 90% cancellation rate for meal kits. Do you think this business model is just a flash in the pan, or can it be sustainable long-term? What would a company need to do to gain a competitive edge over traditional grocery shopping?
  2. In your country, is the meal kit market saturated, or is there still room for growth? If a new company wanted to succeed, what specific demographic should it cater to, and how could it convince them of its value?
  3. After weighing up the pros and cons of both options, which do you believe offers better overall value to the average consumer: meal kits or grocery shopping? Consider factors beyond just price, such as food waste, skill development in cooking, and dietary variety.