Driven by niche offerings, data-driven customer insights, and incessant podcast advertising, meal kits were a hot-ticket item as recently as a couple of years ago.
Times have changed. Businesses like Blue Apron and HelloFresh are finding trouble sustaining long-term success, driven by three, more salient factors — the high cost of customer acquisition, restrictive subscription terms, and the simple fact that most people don’t want to cook after a long day at work.
But don’t write the meal kit off just yet. As a recent piece in Forbes from business strategist Brittain Ladd points out, the business model is actually thriving elsewhere. While meal kit businesses are not sustainable as a stand-alone business, they’re a perfect fit for grocery stores’ Relationship Commerce programs.
"It is unsurprising that many meal kit companies have been struggling to attract new customers and maintain existing ones under the subscription model,” David Sprinkle, Research Director for Packaged Facts, said. “Paired with the retention problem is the struggle with attaining profitability due to the high costs of shipping fresh ingredients directly to consumers.”
Those factors are seemingly insurmountable for most meal kit businesses; Relationship Commerce-enabled grocery stores are largely immune to all of them. The cost of meal kit customer acquisition for grocery stores is close to zero — customers are already in the store or engaged online.
With a powerful understanding of their customers, these grocery stores are much more capable of absorbing subscriber churn. And those grocery stores have fresh ingredients to hand, which means the problem of delivering perishables is also gone.
The Reheat Is On
But how to deal with perhaps the greatest hurdle: consumers’ unwillingness to slave over a hot stove for a Sheet Pan Shrimp Taco that looks nothing like the promised result. That’s where the meal kit itself gets tweaked.
Instead of compelling customers to essentially pay for privilege of cooking at home, the next generation of meal kits is largely prepared, and as far from labor intensive as possible. For a glimpse of the future, Ladd points to Frisco, Texas-based Icon Meals, which offers freshly made, individualized meal kits.
Instead of compelling customers to essentially pay for privilege of cooking at home, the next generation of meal kits is largely prepared, and as far from labor intensive as possible.
“All you have to do is microwave or heat them an oven… Icon Meals offers a plethora of meals to choose from, as well as customized meal planning available online. Unlike meal-kit companies with restrictive subscription models, customers can select a plan most convenient to their needs to receive meals.”
Of course, none of this will be as easy as it sounds. An effective meal kit play would require a reorganization of grocery retailer’s operational logistics as well as their larger supply chain management. Omnichannel messaging and data-driven customer relationship management aren’t simple solutions that can be built in-house.
However, an ecosystem of Relationship Commerce tools is already growing to serve these market demands. And grocery retailers will be incentivized by one simple fact: “Prepared food typically generates much higher margins than center store items,” Ladd writes. “Traditionally, grocery retailers experience very low margins on the products they stock and sell.”