Meal-Kit Sector Attracts Some Big Names

Everyone from Amazon to Tom Brady

Author: Andria Cheng

July 17, 2017

Amazon signaled an interest in the meal-kit delivery business, joining a wide variety of retailers and brands looking to take a bite out of the market. And there’s a good reason for that widespread interest.

The meal-kit category will grow at an average of 20% a year over the next five years to a total of $11.6 billion by 2022, more than double an estimated $4.65 billion this year, according to market research firm Packaged Facts in its second annual meal kit service study, published this month. In fact, the market has grown faster than Packaged Facts had projected last year, when it was expecting 2016 sales in the market to total just $1.5 billion.

“The rise of meal kit delivery services is a disruptive force in the food industry” despite the fact it’s only a small percentage of the $800 billion grocery industry, said Packaged Facts.

Amazon, whose grocery ambition is perhaps best illustrated by its $13.7 billion deal to acquire Whole Foods, made its meal-kit plans known in a trademark filing on July 6 with the United States Patent and Trademark Office, where it registered the trademark: “We do the prep. You be the chef.”

A move to meal-kit service makes sense: Packaged Facts consumer survey data showed that meal-kit delivery subscribers already are “heavier users of Amazon-based commerce” and they favor shopping at natural food grocers like Whole Foods.

“The grocery market is increasingly about fresh rather than packaged/branded, which explains a big part of fresh food delivery meal-kit success,” said Packaged Facts Research Director and Publisher David Sprinkle in an email to eMarketer Retail. “Fresh is the sticking point for online groceries, and there is a lot of synergy between WFM and meal-kit customers. Amazon/WFM meal kits could tackle several market challenges at once.”

Amazon isn’t the only one eyeing the market. In its 2016 study, Packaged Facts estimated there were already more than 150 meal kit delivery services, including HelloFresh and Plated besides market leader Blue Apron. For its part, supermarket chain Kroger recently unveiled Prep+Pared pilot meal kits, which it said are restaurant quality and only take about 20 minutes to cook, in its Cincinnati home stores. CEO Rodney McMullen said in a June conference call the company can’t keep the kits, currently only available for in-store pick-ups, on store shelves. He said Kroger’s foray reflects its recognition of the consumer “demand for convenience, high quality and best value.”

Chicken, pork and beef producer Tyson Foods also has its own Tyson Tastemakers meal kits that consumers can buy in some stores or opt for home delivery through Amazon Fresh, Prime Now or Walmart’s

There is also no shortage of celebrity tie-ups. New England Patriots’ Tom Brady, through his TB12 brand, has partnered with vegan meal delivery service Purple Carrot to deliver a TB12 Performance Meals subscription service targeting athletes and “active individuals.” Martha Stewart also has a meal kit service called Martha & Marley Spoon.

All the newer entrants are likely only going to pressure relatively more established players like Blue Apron, which Hitwise data has showed is the No. 1 most-visited subscription box service in the country by traffic. Indeed, Blue Apron, which recently became a publicly traded company, counts “increased competition” as “an ongoing threat to the success” of its business. The company, founded in 2012, said in its recent S-1 filing that it has lost money each year as it has spent significant amount of money on TV and other marketing spending, totaling 18% of its 2016 sales, to acquire new customers and keep and engage existing customers. That’s despite the fact that its sales had surged more than 10 times to $795.4 million in 2016 from $77.8 million in 2014. 

So far, the overall market pie looks to still be growing for many to share. Meal-kit services fit within the growing online grocery market. In 2016, online grocery sales represented only $9.7 billion, or about 1.2% of the $781.5 billion US grocery market, Blue Apron said in its filing, citing a Euromonitor study it commissioned. Online grocery orders are expected to rise on average 8.5% each year between 2017 and 2020, far above the 1.3% average annual growth rate Euromonitor projected for the overall grocery market during the same period.

Meanwhile, online restaurant sales represented only 2.2%, or $12 billion of the $543 billion US restaurant market, and are expected to rise an annual average of 22.6% through 2020, compared to the broader sector average of 1.6%, according to the same Euromonitor study Blue Apron commissioned.

“We believe that our business is poised to capture share from the overall $1.3 trillion grocery and restaurant markets and to benefit from shifts in consumer preferences,” Blue Apron said.