Meal Kits Fight to Maintain Momentum

Meal Kits Fight to Maintain Momentum

Denis Storey
June 21, 2021

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The meal kit business survived COVID-19, with over a third of American consumers saying they buy them and have no plans on stopping as life returns to normal. 

Although the industry continues to grow, there are challenges ahead. The costs for distribution, ingredients, packaging, and labor continue to rise, and with low barriers to entry and zero switching costs, competition is fierce.

Meal kit companies are expensive to operate. Beyond standard retail food business expenses, customer acquisition costs are high, and retention rates are low, hovering below 12%.

Meal Kit Operators Rebound

The global meal kit industry grew to $10.26 billion in 2020, with analysts predicting it will grow 13% per year, reaching $24.14 billion by 2027. Meal kits eliminate the hassle of recipe preparation, reduce food waste, and are convenient, making them a consumer favorite. And with limited dining out options throughout the pandemic, more people chose meal kits.

U.K. meal kit operator Gousto saw its sales double during the pandemic and turned a profit for the first time in April. The company focused on improving operations over customer acquisition by streamlining procurement and order fulfillment while implementing best practices for product quality.

German market leader HelloFresh made its first profit in the U.S. market in January 2020. According to analysts at Bryan Garnier & Co, the company implemented digital processes to anticipate weekly demand, adjusting procurement accordingly while tailoring recipes to specific regions.

Challenges Persist

While analysts expect the industry to take a hit after consumers return to restaurants in more significant numbers, others insist the meal kit business is well-positioned for continued success. But challenges remain:

  • Small customer base: The typical meal kit consumer is married—with children, already cooking regularly, and falls in the middle to upper-income brackets. For the industry to thrive, it must draw from a larger pool of customers.

  • Price: High subscription prices remain a barrier to entry. According to market research firm Mintel, nearly two-thirds of U.S. consumers say price is the main reason for avoiding meal kits.

  • Changing tastes: Meal kit companies must deliver the best quality ingredients at the best price. But a rapid infusion of competition into the market has artificially depressed prices, cutting profit margins, and reducing customer loyalty.

  • Quality compliance: Customers want to order from a meal kit service where every supply chain player is accountable, from the ingredient supplier to the delivery driver. Providing this level of transparency is easier said than done. 

Secrets to Meal Kit Success

The meal kit business has done well for a niche that’s less than ten years old. So what does success in this burgeoning industry look like?

“In a market that’s still fragmented, we see two models proving successful: either international expansion driven by sophisticated data collection and analytics; or a regional strategy focused on operational excellence,” Bryan Garnier & Co. Equity Research Analyst Clément Genelot explained. “It’s these approaches that may yet see the global market for meal kits mature beyond its niche and take a lasting place in the global food market.”

Simply put, meal kit teams that want to succeed must build their business on data analytics, flawless operations—or both.

To survive – let alone thrive – in an increasingly competitive marketplace, meal kit companies must:

  • Maintain a tight grip on ingredient costs: Meal kit companies must streamline and automate the time-consuming process of finding and qualifying suppliers, ingredients, raw materials, and items. Teams need options when it comes to suppliers for leverage to negotiate ingredient costs.

  • Eliminate costly manual document management systems: Manual document management is no longer an option for companies that want to compete. The amount of disruption in today’s supply chain requires businesses to respond in real-time. The promise of digitization is enormous, and nowhere is its potential to transform greater than in the meal kit business.

  • Speed up product development: One of the biggest mistakes meal kit companies make is accepting slow product development or putting it on hold altogether. A static product portfolio will never outperform a competitor’s proactive one. Because your competition is making progress, standing still in NPD and R&D portfolio management isn’t an option.

With TraceGains, meal kit companies can transform a tangled web of manual and disconnected supply chain and product development steps into a highly automated digital workflow that’s easy to manage.

Find out more about how TraceGains solutions for retail can help meal kit companies overcome supply chain challenges here. One of the biggest mistakes meal kit companies make is accepting slow product development or putting it on hold altogether. A static product portfolio will never outperform a competitor’s proactive one. Because your competition is making progress, standing still in NPD and R&D portfolio management isn’t an option.

With TraceGains, meal kit companies can transform a tangled web of manual and disconnected supply chain and product development steps into a highly automated digital workflow that’s easy to manage.

Find out more about how TraceGains solutions for retail can help meal kit companies overcome supply chain challenges here.

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