By Tonya Garcia, MarketWatch
Meal kits were expected to overhaul dinner time in the U.S., helping busy workers indulge their love of cooking without the burden of shopping for individual ingredients.
Now, it seems the many players that have emerged in recent years—there are more than 150 meal-kit companies operating in the U.S. today, according to The Motley Fool — are backing a business model that is unsustainable, suggesting a shake-out is all but inevitable.
“The meal kit sector seems a lot like the dot com boom and bust of the late 90s,” said Darren Seifer, food and beverage industry analyst at NPD Group. “Lots of competitors jockeying for market share and not focusing on the bottom line.”
The main problem facing meal kit providers is the high cost of customer acquisition, and the difficulty of retaining those customers, who can quickly move on to embrace the next food fad. Then there’s the cost of paying staff to put the ingredients together and the packaging and logistics required to deliver a highly perishable product.
“Between having staff to get boxes together, shipping costs, [and other costs], it sounds like it could be an expensive business model,” said Seifer.
For now, Blue Apron Holdings Inc. /zigman2/quotes/203710464/composite APRN -1.50% and HelloFresh SE /zigman2/quotes/209850698/delayed DE:HFG +1.46% , the two biggest publicly-traded, pure-play meal-kit providers, have failed to turn a profit. Blue Apron was founded in 2012, while the Berlin-headquartered HelloFresh was founded in 2011. Blue Apron shares have fallen 60% in the last 12 months, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.20% has gained 5%.
How everything around you could soon turn into a subscription
The 'subscription economy' could soon capture everything from dishwashers and other home appliances to food, entertainment, heavy machinery and even floors. Here's how.
The cracks are beginning to show elsewhere, too. Earlier this month, Chef’d closed abruptly and was acquired by packaged-food consultancy True Food Innovations, which will halt its e-commerce operations until it has figured out how to be profitable, as The Wall Street Journal reported.
Chef’d’s demise is disappointing as it was one of the players that had supply deals with physical retailers and reports from grocers suggested sales were healthy. The news has led to speculation about who will be next to close or merge with a bigger player.
The sector has already seen companies make deals and seal alliances. Albertsons Cos. announced it was buying Plated in September 2017. Blue Apron announced a pilot partnership with Costco Wholesale Corp. /zigman2/quotes/201191698/composite COST -0.31% in May.
HelloFresh S.E said in June that its meal kits would be sold in 600 Giant Food and Stop & Shop stores this year. In May, Kroger Co. /zigman2/quotes/206215053/composite KR +0.46% announced a deal to purchase meal-kit company Home Chef for up to $700 million.
In some cases, grocers are launching their own meal kits, with Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.38% announcing in March that it will make their’s available in 2,000 stores this year.
For those meal-kit companies that remain, the audience may be too niche.