Meal Kits: Reprieve or Turnaround?

Meal kits represent one consumer product segment that has benefitted from the stay-at-home orders in place during the last two months in the U.S. (and longer in some other regions) to stop the spread of COVID-19. Research has shown that this sector appeals to consumers, especially younger adults, at least in theory. Prior to the pandemic, however, it had been struggling to find a workable business model that would satisfy price-sensitive consumers while generating ongoing profits.

During the current crisis, meal kits have offered an attractive alternative for many. They keep consumers out of crowded grocery stores; they present another option, alongside restaurant delivery and curbside pick-up, to fill the void left by the elimination of dine-in restaurant options; and they help consumers prepare a good meal at home, even if they lack cooking skills or a full complement of beyond-basic ingredients. These benefits have led to an increase in sales for meal kits and related products and services, as well as the launch of new kits, across a variety of players:

  • Meal kit specialists. Hello Fresh saw year-on-year growth of more than 66% for the first three months of this year, through March 31. That included two weeks of the lockdown in the U.S., the company’s biggest market, and longer in Europe, where it is based and where the virus hit earlier. It also doubled its U.S. customer count compared to the same period in 2019. Blue Apron reported a loss in the first quarter, but said its sales were up 8%, with orders up from 1.6 million to 2.5 million and customers up from 351,000 to 550,000 in the quarter, year-over-year. Other meal kit companies have reported similar results, and researchers including Nielsen and Earnest Research have tracked sales spikes for the segment as a whole during the pandemic.
  • Restaurants. In addition to offering curbside pick-up and delivery of a range of prepared menu items, several restaurants have launched kits to allow consumers to prepare a fresh-cooked replica of their favorite restaurant foods. Shake Shack is offering DIY ShackBurger kits in partnership with Cream Co. Meats, delivered through Uber Eats in the Bay Area of California. Chick-fil-A launched a chicken parmesan meal kit, containing two precooked, breaded filets, marinara sauce, cheese, and creamy garlic and lemon pasta. Denny’s is offering Make-at-Home Meal Kits including a breakfast meal, picnic sandwiches, chicken and rice and pot roast dinners, and apple crisp desserts. Smashburger is offering kits including Classic Smash, crispy chicken, and smoked bacon brisket, all with tots. Taco Bell has an At-Home Taco Bar. A popular and award-winning Chicago fine-dining restaurant, Fat Rice, closed for good and transformed into a meal-kit provider called Super Fat Rice Mart. Several independent restaurants offered Cinco de Mayo kits so consumers could celebrate on May 5, a big day for Mexican restaurants in the U.S. And the list goes on.
  • Retailers. U.K. retailer Home Bargains is selling lockdown baking boxes that are delivered to consumers’ homes and gather together all the Jane Asher-licensed products consumers need to create a variety of baked goods in their own kitchens. Each box includes five different cake and pastry mixes (from a vanilla sponge to scones); a variety of kitchen gadgets such as pastry cutters, tins, spatulas, and paper cake cases/baking cups; and additional ingredients such as frosting and sultanas/golden raisins. Kroger has seen almost triple the number of customers purchase its Home Chef kits (sold in-store and by subscription) during the lockdown, compared to before the virus hit. In a slightly different twist, Kroger is also offering downloadable activity kits for weekly parties under the “Social, Social” banner, with examples ranging from Mother’s Day to an ice cream social. Downloadable assets like cards and activities are paired with recipes using ingredients under the company’s various private labels, which must be purchased separately. Consumers are encouraged to share photos themed to the events.
  • Delivery companies. In addition to partnering with restaurants to deliver their menu items, some services are creating kits, with a focus on special occasions. Deliveroo offered “Seder-to-Go” Passover kits in four cities in the U.K. and Ireland, in partnership with charity organization Chabad Lubavitch. The kits contained traditional foods plus other items that are part of the ceremonial meal, including a roll-up Seder plate, a box of matzoh, a bottle of grape juice and one of wine, a Kiddush cup, and a Haggadah with an English translation. The boxes were aimed primarily at vulnerable consumers who cannot or should not shop.
  • Suppliers. Produce companies across the country are creating community-supported agriculture (CSA) style boxes of fresh fruits and vegetables for consumers to pick up, as well as direct-to-consumer fresh-produce delivery services. These ventures help them generate cash flow to partially replace the loss of their restaurant and other food service customers, as well as providing a channel for excess inventory and appealing to consumers’ desire to avoid stores.

The question, of course, is whether these positive trends for meal kits and related services will continue after things get back to some sort of normal and consumers feel more comfortable going back to restaurants and shopping regularly at supermarkets.

This is something licensors, especially in the food, diet, media, and celebrity spaces, will be closely watching. They have viewed meal kits from the beginning as a logical opportunity for partnership, with both marketing benefits and, potentially, revenue-generation opportunities. Many deals have been done over time, from Food Network with Kraft Heinz, to the blog Skinnytaste with Peapod, to model Kate Upton with Urban Remedy. But—with some notable exceptions—the challenges meal kit purveyors have faced in trying to build a sustainable business model have increasingly kept property owners away.

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