Kroger to Buy Meal-Kit Service Home Chef for $200M
The Kroger Co. is purchasing meal-kit service Home Chef, further accelerating the move of subscription-based, mail-order-only kits into the stores and strategies of brick-and-mortar grocers. The kits will complement Kroger’s own Prep+Pared line.
Part of the Cincinnati-based grocer's own Restock Kroger strategy to modernize operations and better meet consumers' needs, the deal will cost $200 million, and future earn-out payments of up to $500 million over five years are contingent on achieving certain milestones, including significant growth on in-store and online meal-kit sales. Kroger decided to purchase the brand following Home Chef’s 150 percent growth in 2017, $250 million in revenue and two profitable quarters.
“Customers want convenience, simplicity and a personalized food experience. Bringing Home Chef’s innovative and exciting products and services to Kroger’s customers will help make meal planning even easier and mealtime more delicious,” said Yael Cosset, Kroger’s chief digital officer. “This merger will introduce Kroger’s 60 million shoppers to Home Chef, enhance our ship-to-home and subscription capabilities, and contribute to Restock Kroger.”
Following the transaction’s closure in quarter two, the kits will begin rolling out in Kroger-owned stores, as well as via its ecommerce operations platform.
Like other services, Home Chef offers meals intended to be “approachable” and fit every taste preference, providing easy-to-follow recipes for all experience levels. But unlike others, it claims to lead the industry with the most variety among companies, and has gone beyond the one-size-fits-all model to introduce such innovations as 5 Minute Lunches, Flexible Serving options, and new, easy-to-prepare meals requiring minimal prep.
Home Chef on Grocer Partnership
Earlier this year and months before Kroger's acquisition announcement, Home Chef shared with Progressive Grocer the various ways that grocers and meal-kit services can approach partnerships. Read all about them here.
Chicago-based Home Chef – which earlier this year discussed with Progressive Grocer the different ways that grocers and meal-kit services can approach partnerships – will assume responsibility for Kroger’s meal solutions portfolio. Currently employing 1,000 people, it will become a subsidiary of Kroger, maintaining its ecommerce business through homechef.com, as well as its distribution centers in Chicago, Atlanta and San Bernardino, Calif., which together reach 98 percent of all continental U.S. households within a two-day delivery window.
“As one of the fastest growing meal kit companies in the country, Home Chef is poised for even more explosive growth,” said Cosset. “We admire their focus on the customer, culture of collaboration, dynamic experimentation and demonstrated financial success. Home Chef’s combination of culinary expertise and a customer data-driven decision-making process is right in line with Kroger’s vision to serve America through food inspiration and uplift by providing meal solutions for every lifestyle.”
THINKING PHYSICAL AND DIGITAL
Home Chef kits already have been available through several other food retailers. For instance, in April, Ahold Delhaize USA-owned Hannaford Supermarkets and Home Chef introduced what they called a first-in-market partnership in which consumers can order and pick up Home Chef meals at Hannaford To Go locations the same day. Moreover, multiple sources reported late last year that Walmart had begun selling third-party meal kits online, including Home Chef offerings. What the future holds for those deals is currently unknown.
This latest merger continues the streak of grocers partnering with, or scooping up, meal-kit services as an oversaturated market forces services to seek a physical presence to stand out or die. Arguably the most similar deal to the Kroger-Home Chef transaction is Albertsons’ acquisition of Plated, announced last fall, which now has the service’s kits expected to be in hundreds of Albertsons Cos.-owned stores nationwide by the year’s end.
6 Things for Grocers to Ponder
For more information on what to consider before pursuing a partnership with, or acquisition of, a meal-kit service, check out Progressive Grocer’s 6 things grocers should ponder on the matter.
Recent research from Chicago-based Nielsen shows several reasons that in-store kits are so much more successful with shoppers: They require less commitment than those purchased via subscription-based services, and they offer more flexibility for retailers and suppliers to experiment with components and “levels” of convenience to keep customers coming back.
These advantages have led to a major opportunity: Sales of in-store meal kits grew 26.5 percent over the past year, reaching $154.6 million, according to the Nielsen report “The Meal Kit Opportunity.” At the same time, total brick-and-mortar sales for center store edibles – including shelf-stable, dairy and frozen foods – dipped 0.1 percent to $374 billion.
Other partnership and acquisition deals grocers have inked with meal-kit services include, but are not limited to:
- Blue Apron and Costco: Blue Apron partnered with Costco Wholesale Corp. to sell exclusive meal kits in the club chain’s Pacific Northwest and San Francisco Bay Area stores, with the opportunity for further integration.
- Chef’d and various grocers: Chef'd widely expanded the availability of its products through a number of brick-and-mortar grocers, including Costco, Harris Teeter, Hy-Vee and Weis Markets, following distribution agreements with upscale Southern California grocer Gelson’s Markets and Northeastern food retailer Tops Markets.
- True Chef and Bashas’, Costco – Bashas’ stores in Arizona and Costco warehouses in Texas have begun selling fresh, preservative-free True Chef Meal Kits.