Meal Kit Moves

The meal kit industry has undergone a number of significant changes in the past two months. Although it’s still early days, these developments may signal trouble ahead for the start-ups that have dominated this sector, as big players increasingly enter the market, raising the level of competition. Meanwhile, the first IPO of a meal kit entrepreneur did not go well, indicating the difficulty of raising funds to support future growth.

Among the happenings in June and July:

• Blue Apron, the meal-kit industry leader with an estimated 17% share of market, announced its initial public offering in June, with hopes of raising more than half a billion dollars. The IPO ended up being the worst of the year to date among larger offerings, resulting in an investigation of fiduciary breach and a management shakeup. In spite of revenues doubling from 2015 to 2016, when they reached $795.4 million, the company is unprofitable, with losses of $54.9 million in 2016. In addition, its marketing costs are high and rising, and, in its filing, it acknowledged the risk of failure associated with this new business model. The timing of the IPO was also a challenge, thanks to Amazon (see below).
• Amazon’s acquisition of Whole Foods, which occurred just after Blue Apron’s IPO announcement, foreshadowed the former’s plans to strengthen its ecommerce sales of food, according to many analysts. Shortly thereafter, Amazon filed its second trademark application of the year related to meal kits, and then it soft launched its Amazon Meal Kits program, initially focusing on Seattle-area AmazonFresh members. The company already sells a few meal kits on its site, including Martha Stewart-licensed kits under the Martha & Marley Spoon Through AmazonFresh banner. (Grocery stores such as Kroger and Publix, as well as food-delivery service Peapod, have also experimented with meal kits.)
• Target named meal kit marketer Local Crate as one of the participants in the second edition of its Target + Techstars accelerator program. Eight of the 10 companies in the first class went on to work with the retailer in some fashion. Local Crate’s point of difference is that it uses local ingredients, partners with local chefs, and donates to local hunger-relief organizations. To date, it focuses on its (and Target’s) home market of Minnesota.
• Nestlé USA was the primary investor behind a total of $77 million raised to support the start-up Freshly, which plans to expand nationwide in 2018. Packaged goods marketers such as Campbell’s, Unilever, and Tyson have also made inroads into the meal kit segment in recent months.

In addition to the examples mentioned above, the meal kit category comprises companies such as Chef’d, Freshology, Green Chef, HelloFresh, Home Bistro, Purple Carrot, and Sun Basket, among others. A few of these meal-kit marketers, including Chef’d and HelloFresh as well as Marley Spoon, have allied with relevant licensed properties. The licenses primarily (but not exclusively) come from the realms of food and restaurant brands, celebrity chefs, cooking and lifestyle magazines, and diet programs.