Commentary

Kroger And Home Chef Cook Up A Deal For Meal Kits At Retail

The expansion of the burgeoning meal-kit industry into retail spaces continues apace with Kroger and Home Chef announcing a deal that starts at $200 million but could be for as much as $700 million if the Chicago-based startup hits certain targets over the next five years.

“Home Chef — the country's largest private meal kit company by sales — would become a wholly owned Kroger subsidiary and make its meal kits available in Kroger stores across the country and online. In addition, Home Chef will continue to offer its existing subscription and home delivery service,” reports Randy Tucker for USA Today. “Home Chef’s in-store offerings would complement Kroger’s Prep+Pared meal kits already available in more than 525 Kroger stores.”

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The company “employs approximately 1,000 employees, is headquartered in downtown Chicago, and operates three distribution centers in Chicago, Atlanta and San Bernardino. Home Chef’s distribution centers reach 98% of all continental U.S. households within a two-day delivery window, according to the company,” reports Max Filby for the Dayton Daily News.

Cincinnati-based Kroger, “the largest U.S. supermarket chain by stores and sales, is quickly pushing to shake up its business model as its faces competition on all fronts,” writes Heather Haddon for the Wall Street Journal. “We are not blind or ignoring what is going on in the space,” Yael Cosset, Kroger’s chief digital officer, tells her.

Last week, you’ll recall, Kroger announced a partnership with U.K.-based Ocado that will bring the latter's advanced digital and robotic capabilities to about 20 warehouses over the next few years.

Amazon’s integration with Whole Foods — with more discounts and benefits on the way — is the shadow hovering over all retailers’ futures. But Kroger executives say that are “pursuing new ways to sell food in response to customer demand, not Amazon, and that talks with other companies about deals were continuing,” the WSJ’s Haddon continues.

“Founded in 2013, Home Chef develops meals and delivers the ingredients and preparation instructions to its customers. The company said it delivers about 3 million meals a month. Last year, it made $250 million in revenue. It also receives more than 100,000 reviews every month, giving it insight into consumers’ needs and desires that Kroger likely can learn from,” Cosset says, reports Ally Marotti for the Chicago Tribune.

They’re also keeping up with the Joneses — and the Albertsons and the Walmarts.

“Rival grocer Albertsons acquired Plated, another meal kit company, last summer. It plans to roll out the kits to hundreds of stores by the end of the year,” CNBC’s Angelica LaVitowrites.

“Walmart in March said it will make meals-in-a-box available at 2,000 stores this year,” Financial Times’ Adam Samson reminds us. 

“Blue Apron has had a rough run since its initial public offering almost a year ago. It priced its shares at $10 each, but they have since plummeted under $3, with investors concerned about the costs it faces to garner new customers and mounting competition. HelloFresh, Blue Apron’s larger rival, has had a stronger run, rising 16.1% since its flotation in November 2017,” Samson adds.

Recode’s Jason Del Ray observes that “Blue Apron’s struggles, in addition to Amazon’s acquisition of Whole Foods, appear to have dissuaded several other smaller players in the space from continuing on a path as an independent business, where distribution typically comes with high customer acquisition costs. Big grocery companies can give these startups a way to reach mass audiences by selling their meals a la carte in brick-and-mortar stores.”

Indeed, “we've long believed that the future of our industry is omni-channel and bigger than just meal kits sold online. We want to be where our customers are and want to help make cooking at home easier, more accessible and even more enjoyable,” Pat Vihtelic, Home Chef's founder and CEO, states in the release announcing the deal.

Meanwhile, “practically overnight, Kroger has transformed themselves into a serious player in the omnichannel food retail market,” writes McMillan Doolittle partner Neil Stern for Forbes.

You might even say they’ve taken Restock of themselves.

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