The COVID-19 outbreak has brought suffering to most nonfood retailers. But for the meal-kit industry, all of those restaurant closures and stay-at-home mandates offered a fresh burst of revenue and a new sense of optimism after a period of doubt and investor frustration.
Take Home Chef, the meal-kit service bought by The Kroger Co. in 2018. “Sales have increased materially since the start of the pandemic and have remained high week after week,” Brian Irwin, VP of marketing for Chicago-based Home Chef, told Progressive Grocer in late May. “We have had greater sales both from existing customers as well as new customers. Customers continue to buy more meals per delivery, and order more often.”
- The pandemic has offered meal-kit companies a fresh source of revenue.
- The industry’s broader issues are acquiring more affluent customers, holding onto existing ones and finding the right products for their customers.
- Expect more innovation in the meal-kit space in the coming months.
Home Chef isn’t alone.
In May, Berlin-based HelloFresh posted a 66.4% year-over-year global revenue increase, to $754.8 million, along with an 82.3% U.S. revenue increase. Its active customer base grew by 88.6% year over year, to 2.64 million, and the number of orders jumped by 82.2%, to 8.95 million.
“2019 saw the first year of profitability at the global level, and also marked the first full year of profitability in the U.S.,” HelloFresh CEO and founder Dominik Richter told PG at that time. The company just revised its full-year revenue guidance and now expects revenue growth of up to 50% in 2020 instead of the previous estimate of up to 27%. “Meal kits are a growth category, one that is seeing rapid maturation,” added Richter.
He continued: “Our investments in technology, infrastructure and our brand have paid off — allowing us to focus on providing a variety of product options, innovating on packaging and materials throughout our supply chain to become more sustainable, and demonstrating that meal kits can be both a sustainable and profitable business model.”
Nearly a decade on, the meal-kit industry is making fresh gains with consumers stuck at home during the pandemic, and with new and revised product selections that reflect pre-pandemic shifts in how people eat and prepare meals. Now the leaders of that industry are looking to the back half of 2020 to gain even more traction, boost revenues and recapture some of the optimistic energy experienced closer to the dawn of the meal-kit era.
Race for New and Richer Customers
For the better part of a decade, meal-kit commerce has offered what amounts to an ongoing master class in how consumers can be merciless when it comes to earning their loyalty, sustained interest and dollars. While 35% of U.S. consumers have tried a meal kit within the past year, according to recent data from Mount Pleasant, S.C.-based Piplsay, only 18% of those consumers have subscribed to a meal-kit service. Moreover, 64% of meal-kit subscribers have cancelled those subscriptions in that same period of time.
But even if some of those pandemic trends continue into 2021 — and there is good reason to believe some will — meal-kit providers can’t place all of their bets on that possibility. Among the longer-lasting methods of dealing with subscriber churn is to offer products that more precisely mesh with particular consumer segments. Such efforts, often planned and deployed well before the COVID-19 outbreak, are certain to play even bigger roles for the meal-kit industry in the second half of 2020.
During the pandemic, some meal-kit providers had to temporarily reduce menu variety to keep up with demand and increase fulfillment center capacity. But that’s not where the meal-kit industry seems to be headed.
Home Chef is navigating a similar path, and also using a similar product to win back old customers. As Irwin describes it, the pandemic has given the company the chance to “show lapsed customers how much Home Chef has evolved from just one product line [kits] into a broader meal-solution business featuring products such as Oven-Ready, 15 Minute Meals and Grill-Ready Meals.”
Broadly speaking, the industry — while certainly beset with significant churn challenges — still appears to be on a respectable growth path, even without the impacts of the pandemic.
About 5% of U.S consumers bought meal kits in 2019, up from 3% in 2016, according to The NPD Group, in Port Washington, N.Y. — not huge growth, perhaps, but still a juicy opportunity for those companies. Globally, the meal-kit industry is on track to hit $8.94 billion in sales by 2025, a compound annual growth rate of 17% since 2017, according to Hexa Research, a Felton, Calif.-based firm whose areas of focus include food and beverage.