As Digital Food Slows, What's Ahead For D2C Meal Kits?

Safer Plate, a new meal kit company, just launched with 30 menus, all free of major allergens. Blue Apron is offering boxes called Pass the Love w/ Waffles + Mochi, a new collaboration with the Partnership for a Healthier America. And Hello Fresh recently stunned investors by adding 1 million new U.S. customers in the first quarter.

Observers say these are all signs that even as Americans gallop back to restaurants, meal kits will still have a place at the table. Interest in cooking at home remains high, along with consumer enthusiasm for healthier choices and specialty lifestyles. Sun Basket, for example, offers paleo, gluten-free and even pescatarian menus.

Financial reports from both HelloFresh and Blue Apron, two publicly traded competitors, hint that there’s even more profitability in the notoriously high-churn industry. HelloFresh, based in Germany, says its U.S. business turned a profit for the first time in 2020. And Blue Apron, which back in 2017 got tagged as the “most disappointing IPO of the decade” by some experts, managed a profitable quarter last year before slipping back into losses.



A new report from Coresight Research points to a vastly changed landscape for the category. The report estimates that the pandemic caused a 69.3% increase in sales in 2020, reaching an estimated $5.8 billion. And while a significant decline in the growth rate for this year is expected -- just an 18.2% gain -- that still marks meal kits as a remarkably fast-growing segment of the U.S. grocery market.

Yet reading food’s digital tea leaves is tricky business these days. Even as restaurants report continued strong demand for digital orders and delivery, consumers are less interested in online groceries. The latest monthly information from Brick Meets Click, a grocery research firm based in Barrington, Illinois, shows a continued decrease. June’s online grocery sales in the U.S. fell 23% from a year ago and a  dropped 3% from May.

Grocery pick-up continues to dominate digital orders, “and the degree of online grocery cross-shopping between grocery and mass retail services remained near all-time highs.”

Coresight’s analysts believe consumers are still exploring the ways digital food shopping works in their lives. That includes such factors as changed workday schedules, new enthusiasm from older consumers, and an overall commitment from about 70% of Americans to continue cooking more at home. That all bodes well for meal kits.

“Increased adoption of grocery ecommerce is also a positive sign for the meal-kit market—we expect pandemic-induced channel stickiness to support strong sales for meal-kit providers going forward,” the report says.

HelloFresh, Sun Basket, Home Chef (owned by Kroger) and Blue Apron lead the market, Coresight says. But it also points out that many of the category’s ongoing challenges -- including the high marketing costs of winning new subscribers -- haven’t gone away. And as well-known restaurants, like Chick-fil-A and Denny’s, enter the category, competition is increasing.

“We expect meal-kit providers to focus on driving customer retention and establishing long-term consumer habits out of the pandemic-induced demand,” Coresight says. “This will involve re-evaluating their strategies through brand expansion, strategic partnerships or acquisitions, as well as investing in innovative digital marketing to maintain brand awareness.”

Both HelloFresh and Blue Apron are expected to report earnings early next month.


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