Meal Kits Move to Grocery Stores — And Walmart, Whole Foods and Kroger are Taking the Lead

Meal kits, which took the food and grocery industry and business media by storm two years ago, are migrating from their direct-to-consumer online subscription origins to the humble grocery store.

"There’s been a massive shift with meal kits into the in-store space in the last year," said Meagan Nelson, associate director for fresh growth and strategy for Nielsen, the global research firm.

Sales of meal kits in grocery stores and other retail outlets rang up $93 million in sales in 2018, according to a March 2019 Nielsen report, as 2.2 million new U.S. households purchased meal kits in 2018, up 51% from 2017.

Retail stores accounted for a whopping 60% of all meal kit user growth in 2018, according to Nielsen, buoyed by the introduction of 187 new meal kit items by retailers.

The meal kit business is, in fact, undergoing a profound change, with America’s food retailers — who didn’t even offer meal kits in their stores two years ago — taking the lead in the category.

America’s two leading grocery chains by annual sales, Kroger and Albertsons, have acquired subscription meal kit companies outright, buying Home Chef (Kroger) and Plated (Albertsons) in 2018. The grocers continue to sell the meal kits online but also are offering them in some of their stores, with plans to add more kits to stores this year.

A who's who of food retailers — Walmart, Amazon (at Whole Foods), Publix and others have introduced meal kits in their stores. Even drug chain Walgreens is offering Hello Fresh meal kits in some locations.

Shelley Balanko, senior vice president at consultancy The Hartman Group, said the migration of meal kits from their online subscription model origins to the grocery store will continue.

“One big thing retail grocery has going for it is real estate,” Balanko said. “It’s so convenient for consumers to pick up a meal kit along with everything else they need at the store …There’s no waiting for delivery, no having to subscribe to a service.”

In its “Foodways of the Younger Generations” study, The Hartman Group found that 71% of millennials would prefer a home-cooked meal over any other option.

Echoing that finding, an NPD Group study found that 83% of millennial consumers are cooking more at home and making fewer restaurant visits.

This is where the opportunity for meal kits truly presents itself, Balanko said.

“Millennial and Gen Z consumers want to cook at home but need a little help with cooking,” she said. “Meal kits can help improve their cooking skills and expose them to new ingredients and cuisines. Meal kits are a lifestyle product. They can be part of the food adventure millennial and Gen Z consumers are craving.”

Blue Apron’s woes highlight subscription model flaws

Based on the Nielsen data, the meal kit industry appears to be primed for steady growth. But the meal-in-a-box business is actually struggling for the most part, largely because the online subscription model hasn’t worked as well as meal kit companies and their investors believed it would.

For example, once high-flying online subscription meal kit company Blue Apron, which in 2017 was touted as having the potential to join the billion-dollar valuation club as a unicorn, has been grounded.

Blue Apron, which is publicly held, has become a penny stock company. Its CEO, Brad Dickerson, stepped down in April 2019 and was replaced by Linda Findley Kozlowski, the former COO of online craft retailer Etsy, from which Dickerson also hailed.

Blue Apron doesn't currently have any of its meal kits in retail stores. It did a brief test with Costco last year, but the kits were removed by the retailer and haven't returned.

Albertsons-owned Plated also is going through a period of reevaluation. Albertsons recently pulled the meal kits from its stores in Idaho, where the grocery chain is headquartered. Lynda Friesz-Martin, director of integrated communications for the supermarket chain, told CO— that the removal is part of a "strategic reassessment" of the Plated meal kits.

Additionally, Albertsons has stopped or slowed the launch of Plated meal kits into new stores pending the arrival of its new CEO, Vivek Sankaran, who's leaving his position as CEO of PepsiCo Foods North America to take the helm at Albertsons, Friesz-Martin said.

The Hartman Group’s Balanko said the online subscription business model has actually been an impediment to the growth of the meal kit category. “Having to be committed to a subscription is a problem for consumers. It eliminates choice,” she said.

‘Cracking the code’ of retail-based meal kits

Because the online subscription model is faltering, meal kit companies are looking to retail distribution and sales as a lifeline.

For example, Chef’d, which ceased operations in 2018 and was acquired by Los Angeles-based True Food Innovations, has repositioned the meal kits as a retail brand. It recently launched a selection of meal kits including chicken masala, truffle butter steak and saffron tomato chicken in Gelsons Markets and Stater Bros. supermarkets in Southern California, and Tops Markets on the East Coast.

"Grocery stores are the most promising home for meal kits," said Robert Jones, president of True Food Innovations, which also owns the True Chef meal kit brand. "Meal kits, like food in general, sell best in grocery stores,” he said. "They serve as a place to shop as well as inventory for delivery to consumers, which is an advantage over the traditional online subscription model."

Jones likens meal kits today to when the now-popular fresh salad kits first started out. "They didn't catch on at first, but once food retailers got behind them, they became a great success," he said.

Jones said the number one impediment to retailers offering meal kits has been the short shelf life of the products. "Most retailers want a 40 to 50 day shelf life minimum. Today's meal kits don't come close to that," he said.

But True Food Innovations has "cracked the code," according to Jones. "We've been able to create a technology that gives our meal kits a 55-day shelf life,” he said. “This is opening the door to us with numerous food retailers, including Target, which will soon start selling our meal kits in some of its stores.”

Indeed, “The future of meal kits is omnichannel, offering them for sale in both grocery stores, where they’re going to do best, and online,” Balanko said.

Kurt Jetta, founder and CEO of research firm TABS Analytics, agreed. But the jury is still out on their success in grocery stores, he said. "Meal kits have a narrow consumer target and a small base. It's tough to get the kind of scale needed in retail grocery with products with those characteristics,” Jetta said. “Is there enough demand for grocers to devote the needed shelf space to meal kits? Are the margins on meal kits high enough to do so? We don't have the answers to those and other questions yet, so I think, although grocery is the most logical place for meal kits, success is far from guaranteed."

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