I’ll be the first to admit that I am not much of a cook; which is why when my roommate started her subscription at Blue Apron, who according to FoodDive is the leading meal kit service by an estimated 17 percent, I thought it was a genius business venture. Meal kit services are convenient, healthy, and can be more cost effective than going out to dinner every night so why are they not performing as well as expected? And why are we seeing companies like Blue Apron flop when it comes to stocks and IPO’s?
First of all, what started out as an explosive growing business is now starting to temper. In a CNBC article author Nick Wells states that more than half of meal kit subscribers cancel their subscriptions within the first six months primarily because consumers treat their food service subscriptions a lot like their New Year’s resolution to go to the gym, short lived. In fact, according to a study done by Cardlytics, in 2016 nearly three-quarters of new subscribers gave up on their service within a year. These cancellations are a huge deal for meal service companies like Blue Apron, HelloFresh, and Plated because they tend to give big discounts or freebies to draw customers in in the first place, and when that upfront cost doesn’t actually amount to a real subscription the company is at risk to lose a decent amount of money. Another aspect of the meal service kits that is having a slightly negative effect on the business is price. Yes, meal services are good for consumers (like me) whose first instinct in the kitchen is to leave and go to a restaurant, but for consumers who like to cook it is actually much more cost effective to go out and buy ingredients at a grocery store. According to a CNBC trial run, meal delivery service meals cost about $9.99 to $13.50 a portion; while shopping for the same meal at a grocery store would only cost $3.98 to $11.90. Lastly, with mergers like Amazon and Whole Foods it is really hard to predict what is in store for the future of online groceries and how that will effect meal service companies. Data shows that people who use meal kits also often utilize other on-demand purchasing habits, like Amazon Prime, UberEats, etc. so with the growth of that industry it is safe to predict that smaller independent meal service companies will have to fight to stay alive against giants like Amazon.
Although the premise of this post focused on why meal service companies are not doing as well as predicted, we should not count them out too quickly. There are still a ton of loyal customers using Blue Apron, HelloFresh, Plated, etc. but if these companies want to stay relevant going forward they are going to have to think outside the box and come up with ways to keep their customer subscription rates up.