What's Cooking in eGrocery: Meal Kits & Subscription Services

It's no surprise that customers love subscriptions. They cater to some of their biggest demands – home delivery, personalization, saving time, convenience, and purchases that offer an experience (yes, unboxing a package counts as an experience). They provide recipes and portioned-out ingredients, helping people eat at home even if the thought of cooking is foreign and overwhelming.  

Since 2007, subscription meal kit services have offered a new means for shoppers to order, prepare, and cook food – and people have latched on. According to McKinsey, subscription eCommerce has grown by more than 100% every year from 2013-2018. In contrast, "total brick-and-mortar sales for center store edibles (grocery, dairy, frozen foods) dipped 0.1% last year to $374 billion" (Neilsen).

Courtesy of Nielsen

Courtesy of Nielsen

But even though subscription eCommerce is a growing field, it's not an easy market to penetrate. Many companies have come and gone in the last decade, failing to turn a profit. Even those that survive, like HelloFresh and Blue Apron – who currently dominate the industry – struggle to stay afloat on the subscription-based model alone. Some experts say the business model is expensive or even unsustainable, with the high costs of production and customer acquisition, and increasing demand to keep prices down.

Despite that, experts predict more meal kits in customers' future. According to Nielsen, "Overall, 9% of Americans say they’ve purchased a meal kit in the last six months—that’s 10.5 million households. What’s more, 25% of consumers say they would consider trying a meal kit in the next six months—that’s more than 30 million households." The Maryland-based research firm Packaged Facts estimates that the meal-kit market will grow by double-digits for the next five years, then slow to low single-digit  growth starting 2023.

How can it be that meal kits are on the rise, if subscription companies are struggling?

That's where grocers come in.

According to Packaged Facts, "meal kit sales would not be growing at [such a high] rate if manufacturers stuck by the online-only, subscription-based model that has shaped the segment so far. The real opportunity…comes from working with grocery stores" (Digital Commerce 360). While the majority of meal kit purchases still happened online in 2018, in-store meal kit sales accounted for 60% of total growth in meal kit users (Neilsen).

Grocers and meal kits have found a natural synergy. Meal kits are now available at Publix, Walmart, and Costco (who sells Blue Apron kits). Giant and Stop & Shop sell Hello Fresh kits. In 2017, Albertson's acquired the meal kit service Plated and now sells its products in-store; the following year, Kroger acquired the meal kit service Home Chef. As of 2018, spending on in-store meal kits had grown three times faster than other channels, generating $154.6 million in sales at the end of 2017. (Neilsen).

Benefits & challenges to the grocer

While meal kits may be a natural choice for grocers to offer, subscriptions are a harder sell. Sure, they have some advantages. They allow the seller to make accurate predictions regarding volume and inventory. They expand the business's customer base. They provide a new opportunity to market the brand via packaging and the unboxing experience.

But of course, they are not without challenges, such as:

  • Consistency and quality. Customers are picky. They don't hesitate to cancel a subscription if they get a less-than-stellar delivery (McKinsey). They also want the flexibility to skip an order or opt out for a period of time, making the consistency of their subscription even more unpredictable. Grocers need to offer a unique, valuable experience in order to keep their customers. (One way to do this is to offer local and craft brands as well as mainstream CPGs in your subscription.)

  • Last-mile considerations, especially when perishables are involved. How to deliver your goods – which includes packaging as well as transportation – so that they arrive fresh and safe on the customer's doorstep is no small feat. That said, if your business already offers a delivery service, you might have your system already in place.

  • Infrastructure. Subscriptions are a subset of eCommerce, which poses a challenge for many traditional grocers. Partnering with a third-party provider can ensure that your company makes the transition seamlessly, builds on your existing brand, and offers your customers alternatives such as convenient Meal Planning.

As customer-driven demands evolve, grocers must stay on their toes in order to compete. With more and more markets transitioning to eCommerce, it is crucial that your business stay abreast of emerging trends and that you pivot your strategy accordingly. To learn more about how locai can help you stand out from the crowd and offer your customers a streamlined, end-to-end service, contact us here.