TORONTO — Celebrities like Beyoncé, Oprah Winfrey, and NSync’s Lance Bass are now in the meal kit business, and for some that’s a sure sign the online subscription-based food startup phenomenon has hit its peak.
A plethora of the new e-commerce meal companies have popped up in Canada and the U.S. in the last couple of years, and subscribers have been joining the services in droves.
While the biggest player in the space, New York-based Blue Apron, does not operate in this country, a number of meal kit services are available locally and nationally for Canadians seeking a quick meal fix: Chef’s Plate, Goodfood, MissFresh, The Jolly Table, Cook It, Kuisto, Fresh City Farms, One Kitchen, Dinnerlicious, Fresh Prep and Germany’s Hello Fresh, to name a few.
There’s even a subscription-based startup for breakfasts, Montreal-based Oatbox, which delivers granolas, ‘overnight’ oats and granola bars to customers.
The convenience factor is undeniable. For about $10 to $13 per meal, customers receive a box of chilled, portioned food and recipes for an easy meal assembly.
Home chefs are able to cook dishes that evoke an au courant restaurant menu in less than half an hour: lentil mushroom tacos with jicama carrot slaw; mint sumac chicken with sautéed snap peas and carrot, parsnip and cucumber salad; Cajun tilapia over quinoa with a corn and tomato succotash.
But two recent initial public offerings by meal kit companies — including Blue Apron, the biggest player in the United States and Montreal-based Goodfood Market Inc. — ended up looking like a failed soufflé. Skeptics have drawn parallels between the spate of subscription startups and the faddish dot-com failures of the early 2000s.
“You could look at whether or not the Blue Aprons of the world will consolidate, but to make a call on consolidation, you first have to make sure there is an established market for meal kits,” said Sylvain Charlebois, agriculture expert and dean of management at Dalhousie University in Halifax. “And the jury is still out on that one, I think.”
The central question is not whether the meal kit trend will survive, but about which business interests will have enough money, clout and distribution power over time to sell them profitably to the mass market. Some pretty big large players are starting to kick the tires, which could spell trouble for the upstarts.
“Blue Apron spends more money on marketing than PepsiCo does, relative to revenue,” Charlebois said. “They are spending money to create a habit in a highly immature market. It means they need to stimulate the demand in order to ramp up sales, which usually is not a good sign.”
You’d have to avoid new media entirely to miss Blue Apron’s digital marketing assault. It has blanketed the ad space of top-rated podcasts, spending a total of US$144 million on marketing in 2016 and US$60.6 million in the first three months of this year. While it has quickly amassed new customers, the amount of money customers spent on orders slipped 11 per cent in the first quarter compared with a year ago.
While questions persist about which provider will win over the biggest number of loyal consumer palates, the meal kit boom doesn’t come as a surprise to those tracking the foodservice and grocery sectors.
Years of data suggest consumers want to eat better-quality food that they perceive to be healthy and tasty, but feel thwarted by a persistent lack of time — it takes time to think about what to cook, time to go the grocery store for the ingredients, and time to chop, mix and prepare a dish.
“There is a recurring moment where you or your spouse is thinking ‘What’s for dinner tonight?’ and that just gets more complicated when you have kids,” explains Jonathan Ferrari, president of Goodfood, which secured $21 million in financing before making its debut as a publicly traded company on the TSX last month.
“You want it to be nutritious and you want it to taste good. You know that ordering takeout or going to a restaurant is fine. But when you think about home cooked meals, you know what is going into it.”
Goodfood and Toronto-based Chef’s Plate Inc. are two in a raft of new meal kit companies now operating in Canada, along with Germany’s HelloFresh, which extended its business into Canada last year.
Chef’s Plate, this country’s largest provider, is on track to hit $50 million in revenue this year.
Behind it is the rapidly expanding Goodfood, which ships 200,000 meals per month to customers and has increased its subscriber base by about 900 per cent in the last year. Blue Apron, meanwhile, is aiming to hit about US$1 billion in revenue this year and now delivers about 8 million meals a month across the U.S., up from roughly one million monthly at the end of 2014.
Regardless, Blue Apron’s high profile IPO in June was a huge disappointment for investors and the earlier debut of Goodfood was equally tepid, with their share prices trading down 38 per cent and 19 per cent, respectively, since their debuts.
Still, the trend appears to be taking some business away from restaurants and grocery stores, according to Robert Carter, executive director of foodservice at market research firm NPD Group, though there is no estimate as yet for the impact the small but burgeoning meal kit market has made.
Canadians spend $155 billion on food annually at restaurant and grocery stores, and growth in those segments has stagnated, with sales growing an average of 1.3 per cent a year from 2014 to 2016.
Deflation made an impact on grocery sales beginning in early 2016, but the number of times people visited stores also fell as more consumers order take-out, join meal subscription services or receive direct deliveries of fresh food from local farms.
“Seventy-five per cent of all meals are cooked in 30 minutes or less, and people are cooking fewer meals at home,” Carter said. “But people perceive home-cooked meals to be healthier than restaurant meals. We see that in our data.”
At the same time, health researchers have been urging families to sit down together for weeknight meals at home to help curb excess snacking and obesity, pointing to results from multiple studies of eating habits. “(Meal kits offer) not just a ‘gut fill’ food, but good quality recipes created by chefs,” he said. “I think the industry will continue to grow.”
But the real key for the meal kit startups’ business success, he said, is customer retention. “It’s easy enough to get customers to try it once, but will those customers come back?”
According to a Nielsen survey of U.S. consumers for the year ended March 4, meal kit businesses in the U.S. were able to hold on to their initial customers. One in four adults in the U.S. bought a delivered meal kit, Nielsen said, and 70 per cent of consumers continued to buy more of them after the initial purchase.
Both Ferrari of Goodfood and Jamie Shea, co-founder of Chef’s Plate, say their companies are focused heavily on retaining customers.
“We avoid heavy discounting strategies,” said Shea, who is looking to take Chef’s Plate public in 2018 or 2019. “It doesn’t take a lot of customers to make it a good business if you keep them coming back.”
Like Charlebois, Shea believes grocery and foodservice players have been slow to adapt to evolving customer needs, and particularly reluctant to use technology to enhance their businesses.
“There is a huge opportunity in the food tech space in Canada,” Shea said. “Food is really the last traditional category in retail that hasn’t undergone an e-commerce transition of any significance. Books, apparel, music, office supplies — all of them have moved online. Food is an archaic category, and consumers are looking for change and convenience.”
The success of similar ventures, however, both in the early and more mature stages, suggest a customer need that will not likely quit any time soon.
“I think the whole industry in the U.S. was founded on mommy guilt,” chuckled Joni Lien, a co-founder of Toronto-based Supperworks, a company she co-founded 12 years ago. “You want to feed the family, how do you do it?”
Supperworks began as a venue where customers would pre-select meals online and assemble them in the professional kitchen at one of Supperworks’ retail locations, using the company’s ingredients and recipes. Over the years, Lien has noticed a shift in her customer base from one that predominantly consisted of the mothers of young families. Millennials and empty nesters are also using the service, and portioned single meals have been a hit since the company introduced them.
Now, about 50 per cent of the company’s business comes from customers who pick up entrees that have been assembled earlier that day by Supperworks staff, and many of them have jumped on the company’s new delivery service.
In the meantime, there’s a good chance that the likeliest parties to dominate the meal kit business in the future might not be in it yet: traditional grocery retailers and the big boogeyman in their rear view mirror, Amazon.
“Grocery retailers have historically been bad at hospitality and foodservice and I think the market is telling them with all of the ready-to-eat product they offer, maybe it is time to start thinking about this as well,” food-industry expert Charlebois said.
Metro Inc., the country’s third largest grocer, announced that it has acquired a majority stake in the Montreal-based meal kit company MissFresh Inc. “MissFresh offers products that will be complementary to what we have in store, which will help us to better meet the needs of consumers,” said Metro’s chief financial officer François Thibault.
Loblaw’s chief executive Galen Weston told analysts in July that it’s far from clear which meal kit businesses will work and which ones won’t. “But (we will) keep our options open to see what other services gain traction and adopt them or partner, and deploy them as appropriate.”
There’s another reason for traditional grocers to move slowly when it comes to the meal kit businesses, a threat that has been played out for years among retailers and service businesses: Amazon.
The internet giant’s stunning US$13.7 billion purchase of Whole Foods in June has the entire retail and foodservice industry recalibrating their e-commerce plans, amid anxious speculation about Amazon’s plans for the organic food chain.
To compound that worry, Amazon filed a trademark in early July for a meal-kit service slogan: “We do the prep. You be the chef,” just days after Blue Apron’s disappointing IPO, and has started up its own meal kit service for customers in the Seattle area.
“The real challenge to the market will happen if and when Amazon and the grocery chains really get into this,” said Carter. “I think the meal kit segment will continue to grow, and it will get much, much more competitive over the next 24 months.”
Ferrari, of Goodfood, isn’t worried.
“Goodfood’s stock price quite naturally has been following Blue Apron’s stock price,” he said. “I think really investors are trying to figure out what the future of groceries is going to look like. When the Amazon whole foods deal was announced all of their stock prices were affected that day and it speaks to the power of Amazon’s clout.”
On the up side, he said, Amazon’s interest in meal kits further validates the potential size of the market.
“Amazon is not going to get into a market that is less than $100 billion (in potential sales). I think it speaks to the size of the market and it also speaks to their thinking that the market is here to stay. They pick big industries, ones where there are already other big competitors.”