How to Grow a Meal Kit Delivery Business: Success Recipes From Industry Leaders
Meal kit delivery services are reinventing the home cooking experience and offer busy consumers an increasingly popular alternative to shopping at grocery stores, ordering take-out, or eating at restaurants. The significant growth in meal kit spending in recent years has attracted a lot of new entrants into this space, forcing industry players to look for creative ways to differentiate themselves in order to acquire and retain fickle consumers. In this post, we’ll decipher the strategies and tactics the leading meal kit delivery companies use to break through the noise and stand out in a crowded market.
Meal kit delivery market: what’s cooking?
Consumer spending on meal kit services in the US increased by 236 percent from 2015 to 2016, reaching an estimated $1.5 billion, according to Cardlytics. The long-term opportunity for the industry lies in capturing a greater share of the overall grocery and restaurant markets, which have an estimated combined size of $1.3 trillion in the US, according to the Euromonitor study commissioned by Blue Apron in connection with its IPO.
The industry’s current triple-digit growth rates are hardly sustainable, however, says Susan Porjes, author of the Packaged Facts report on meal kit delivery services. Several studies found that the sector’s growth has slowed as of late. Subscriber growth for meal kit delivery companies fell to under 60 percent in the fourth quarter of 2016, on a year-over-year basis. That’s down from more than 200 percent increases in each quarter of 2015.
Two main factors are to blame for the slowdown: high customer churn and intensified competition.
High customer churn
Meal kit providers are confronted with a high customer churn rate. More than half of meal kit subscribers cancel their subscriptions within the first six months, and customer retention rates are around one in four after 12 months.
Why such high churn? For some people, once the novelty wears off they realize that they don’t want to be tied to a subscription service that may limit their flexibility and can be burdensome to manage. And with food delivery services, such as GrubHub and DoorDash, there are other options out there. Others cancel the service because of the negative environmental impact of the huge amounts of packaging waste being generated, which includes cardboard and otherwise reusable gel packs that weigh more than the food does.
Meal kit delivery services tend to give big discounts or freebies to lure subscribers. They spend $30-$80, and some as much as $100, to attract each new customer. If that upfront cost doesn’t pay off in converting trial runs into real subscribers, that overhead can really affect the company’s bottom line. In recent months, several meal kit delivery companies, including Sprig, SpoonRocket, and Maple have shut down, citing the high cost of customer acquisition amid mounting losses.
Meal kit companies are also facing an onslaught of competition from newcomers and big food brands alike, which prevents them from reaching meaningful scale. By some estimates, there are about 150 meal-kit preparation and/or delivery services companies in the U.S., including niche operators specializing in ancillary segments like smoothies, snacks, and desserts. The business model has also been adopted in international markets, with roughly 50 meal kit delivery companies in operation outside the U.S.
New competitors are springing up all the time, catering to different niches, tastes, diets, and eating patterns. The market is underpenetrated but massive, which will likely incentivize new entrants to try to get in on the action.
Meanwhile, grocery stores are arguably better positioned to develop their own meal kit solutions than pure play meal kit providers, since they have greater buying power; reduced packaging, delivery, and customer acquisition costs; and can potentially offer greater meal variety.
Kroger and Publix recently entered the meal kit business. Several food companies, such as Hershey, Conagra, and Campbell Soup, have entered the space as well, and many manufacturers are starting to partner with grocers on meal kits.
What’s next for meal kit delivery services?
With intensifying competition, the next few years will likely see a significant shakeout in the meal kit industry. Who will be the winner and who will fall by the wayside?
On one hand, there is a race to amass the national scale necessary to bring costs down and make the business models more sustainable over a longer horizon. With major VC dollars subsidizing their operating losses, many leading companies have essentially been buying market share. Yet, profits are still elusive. Blue Apron’s recent IPO filing reveals declining revenue per customer, growing acquisition costs, and shrinking gross margins.
On the other hand, there are companies offering a more customized, differentiated approach that are fighting for their share of the pie and seem to be quite successful.
So how are companies driving growth in this competitive market? Here are the insights on how successful meal kit delivery companies position and market their businesses.
Crafting the right value proposition
1. Diversified offering
Providing a diversified meal offering allows meal kit delivery players to appeal to the widest possible audience and drive order volume to cover their operational costs. This is the strategy pursued by Blue Apron, HelloFresh, and other large players, which cater to various tastes by offering meat, seafood, vegetarian, and other meal options.
Diversification strategy also involves expanding beyond dinner into breakfast, lunch, and snacks. Both HelloFresh and Chef’d, in partnership with Quaker Oats, have recently branched into meal kits for breakfast.
Offering products that are complementary to the meal experience enables meal kit delivery companies to drive greater revenue from an existing user base.
That’s why Blue Apron launched Blue Apron Wine, a direct-to-consumer wine delivery service, which has quickly become one of the largest wine clubs in the country. It also sells a curated selection of cooking tools, utensils, and pantry items through Blue Apron Market, an e-commerce marketplace.
Chef’s Table by Plated sells specialty cuts of meat and seafood, while Home Chef also offers options to purchase snack, fruit baskets, and kitchenware.
2. Niche focus
Meal kit delivery companies are finding a way to gain traction in a competitive market by focusing on a particular food type or cuisine or a geographic market. Instead of a mass market appeal, they craft a unique value proposition to corral a specific customer segment.
Sun Basket offers discrete meal plans for Paleo, gluten-free, vegetarian, and Lean & Clean (its new weight management plan). Purple Carrot is exclusively vegan. PeachDish specializes in Southern food recipes. Niche players are also emerging in categories like smoothies, snacks, and desserts. Customers of these services tend to be more loyal and willing to pay more than other food shoppers.
Meal kit delivery services serving a specific geographic market offer consumers a strong alternative to the national providers. An example of a company successfully pursuing this strategy is Meez Meals, which caters to the consumers in the Chicago area.
With local services, your meal kit is prepared in a local kitchen without being shipped cross-country and stored in a warehouse overnight. Local service also allows for a higher degree of meal customization and a more intimate customer experience. And 5-star ratings on Yelp are there to prove it.
3. Convenience and flexibility
Value proposition in the meal kit industry has traditionally been focused around convenience. With so many players out there, companies have to go an extra step to stand out on this dimension. Some companies, like FreshRealm, take one of the pain points out of the home cooking process: they do the prep work by chopping, grating, and peeling the ingredients. Others, such as Gobble, offer kits that can be prepared into a meal in one pan in 10 minutes. Martha & Marley Spoon differentiates itself by offering same-day delivery through AmazonFresh.
Flexibility has been another selling point for companies in the meal kit space. While subscription model seemingly provides greater predictability for the business, its efficacy seems questionable if you look at the churn rates. Customers routinely complain about restrictions imposed by a meal kit subscription plan, such as having to purchase the same number of meals each week or having to give an advance notice to skip time on the plan.
Companies are adjusting their offering to cater to consumers who value flexibility in every aspect of their life. PeachDish, Chef’d, and Salted are a few examples of companies that do not lock customers into a subscription and allow them to order on a per-meal basis. Others, such as HelloFresh and Home Chef, strive to make it as easy as possible to pause the subscription at any time.
Blue Apron offers both a 2-person plan and a family plan, each with flexibility in the recipe selection. You can also choose a combination of both vegetarian and carnivore meals in an order and plan your orders online up to a month in advance.
While value proposition in the meal kit industry has traditionally been focused around convenience, it runs into heavy competition against local delivery options from grocers and restaurants that compete on the same premise. Facebook’s recent roll-out of a new food delivery option on its platform is a sign of tougher times ahead for the meal kit players.
The real opportunity for meal kit delivery companies lies in personalization of meals based on data. People don’t want a cookie cutter meal. They want a customized approach that takes into account their family taste preferences, allergies, medical needs, and weight management considerations.
Companies that can provide consumers with highly personalized and tailored meal plans have a greater chance of building a loyal customer base. Some companies, like Home Chef and Meez Meals, already offer an opportunity to specify your dietary preferences during the order process and they will make an alternate version for you.
In the future, personalization will go beyond amending existing recipes. Platejoy offers a glimpse of what such personalization should look like with custom-designed meal plans for each family member based on over 50 data points about them. It doesn’t offer meal kits though and instead sends customers a shopping list, which it used to fulfill via Instacart.
5. Environmental impact
It’s no longer sufficient to offer organic food in order to appeal to today’s health and environment conscious consumers. Companies need to become eco-friendly in every step of their operation. Things like efficient water and electricity usage in the operations and composting all food waste are a good start.
The biggest opportunity for meal kit companies to have a greener footprint lies in packaging, however; and more and more companies are including this point in their value proposition message. There are few different approaches on how to reduce packaging waste.
Plated ships meals in a packaging made from recycled jute plant fiber that can be composted and represents a big cut in CO2 emissions over polyurethane traditionally used by meal kit companies. Sun Basket also uses boxes, bags, and insulation that are one hundred percent recyclable and compostable.
Just last month, HelloFresh announced it has teamed up with Cascades Inc. to provide sustainable packaging with an insulated container designed for ease of end-of-life recycling.
Terra’s Kitchen, FreshRealm, and Meez Meals deploy re-usable insulated containers to ship meal kits. Kind of like the milkman did in the old days, these containers are then picked up from your door and sanitized before they are used again.
Acquiring and retaining customers
1. Brand positioning
While younger growth hackers view the concept of brand positioning with scepticism, more experienced marketers know that strong brand is an important growth driver because it helps consumers create an emotional connection with you.
Blue Apron is now smartly positioning its brand around building a better food system and transforming the way food is produced, distributed, and consumed. The company is going for awareness on food quality and sourcing and extends its brand message beyond the meal kits. Blue Apron’s CMO Jared Cluff notes:
The marketing problem in the early days of Blue Apron was explaining to people really what a meal kit is and what Blue Apron does. We felt like it was really the right moment to move the narrative a little bit further along.
As part of brand positioning, several meal kit companies make a concerted effort to demonstrate their social and environmental impact, showcasing their relationship with family farms and support for regenerative agriculture. Adds Greg Fitzgerald, director of acquisition marketing at Blue Apron:
I hope with each box, we make the planet healthier as opposed to neutral and we’re cutting out the middleman between farms and consumers and telling that story is something none of our competitors are trying to do – they’re focused on pure acquisition.
2. Referral marketing
Leading meal kit delivery companies are experimenting with different approaches to drive referral growth and are seeing strong results. For HelloFresh and Home Chef, referrals represent the largest acquisition channel.
At Home Chef, when a subscriber refers a new customer, both the existing and the new customer each receive a $30 credit that can be applied to their next order. This tactic reportedly accounts for over 50% of new signups, adding more business than all of the company’s paid advertising combined.
Friend referral marketing by gifting has proven to be a powerful marketing tactic for Blue Apron. Giving to someone a month’s worth of Blue Apron meals to cook on their own time makes for a pretty special gift. It also creates a ton of brand excitement that spills over onto social media.
With perennial “limited time offers” providing free meals with your first order, companies entice new customers who could share these free meals with their friends. Although free samples are costly, these kinds of customer-chooses free samples are well targeted since customers know how likely their friends and family are to like the service and thus can tailor their invitations accordingly.
3. Paid ads
Meal kit delivery providers use display advertising, both standard and native, as one of their main marketing channels. In addition to the traditional long-form landing page format, they experiment with ads that drive traffic to short-form pages, blog posts, and pages with YouTube videos. Given the nature of the business, they use geo-targeted ad copies to call out to the specific areas.
Check out this in-depth review of paid advertising strategies of the leading meal kit companies.
4. Content marketing
Blue Apron is crushing it with content marketing. Its content marketing strategy is an interesting take on a freemium model. The company is making all their recipe information public – including instructions, videos, and user comments about how to make each dish – you don’t have to sign up for their service or even give them your information to get access to it. But you need to pay if you want the actual food delivered.
The company’s philosophy with content marketing is not to sell, but to creating long-lasting relationships with its visitors. Rani Yadav, senior director of marketing at Blue Apron says that education is the key:
We want people to cook because it’s fun. So we equip them with knowledge on our website–even if they don’t use our service. We find this to be the best way to build trust and loyalty.
Another focus of Blue Apron’s content strategy is to generate excitement about a dish before it’s ever delivered to the door. The content team creates engaging articles about the dish, where it came from, and traditions surrounding it. So when subscribers finally do cook it, they’re extremely knowledgeable about their creation and naturally want to show it off to their social networks.
5. User-generated content
Sharing user-generated content results in much higher engagement on social networks, and meal kit companies are putting this practice to good use. Blue Apron, whose users frequently share photos of their meals on social media, publishes timely content, like the one below, on its social media pages.
The company has also run UGC-style video ads in which it asks customers to film themselves cooking Blue Apron recipes.
The Blue Apron Beef Ramen Video: Cooked by You!
In the words of Greg Fitzgerald, director of acquisition marketing at Blue Apron,
It’s super engaging for the customer and a side benefit is we get an awesome asset – a 30-, 60- second version of people cooking a ramen meal at home with the kids and people are hitting the talking points themselves. There’s way more engagement [and higher] completion [rates] than something that looks like a traditional TV ad.
6. Email marketing
Email marketing is a perfect way for meal kit delivery companies to introduce potential and new customers to the company and demonstrate the value proposition of the service. Most companies collect customer emails by asking for an opt-in on a subscription of free recipes.
With consumers being bombarded with information, the email message must be clear, compelling, and visually appealing. This is exactly what you get from Blue Apron in the first email once you sign up – a simple, easy-to-read listicle with beautiful images, minimal copy, and key points on the brand’s messaging.
The email does not overwhelm the customer, so she feels more inclined to open the second and becomes even more familiar with the brand story.
With mobile traffic overtaking desktop, any meal kit delivery company serious about building scale needs to have a companion mobile app. HelloFresh and Home Chef have both Android and iOS versions, while Blue Apron and Plated only have an iOS version.
These apps let you set your menu, manage weekly deliveries, view past recipes, watch videos, and change your subscription, largely duplicating the desktop features.
Blue Apron’s app also lets you snap pictures of your meals, add caption and filters, and then share them with family and friends. Apple named Blue Apron’s app one of its top 25 apps in 2015.
Anyone can download the Blue Apron app, not just subscribers to the service. In fact, around 25 percent of the app’s users aren’t subscribers, but rather home chefs who enjoy Blue Apron’s recipes. Blue Apron could make the app exclusive, but allowing user engagement from non-subscribers means increased brand awareness. In the words of Ilia Papas, Blue Apron’s CTO:
The app is a channel to acquire new customers, a channel to engage with our product and order more frequently.
Partnerships are a great way to amplify your marketing reach. The most common approach centers on partnering with traditional grocers to distribute meal kits. For example, Purple Carrot started selling a downsized version of its meal kits in select Whole Foods stores in late 2016. Peapod, which offers both online grocery delivery and meal kits in select markets, has a relationship with traditional grocers, like Stop & Shop.
Salted has ditched the traditional direct-to-consumer model for meal kits and is instead teaming up with Whole Foods and other grocers to sell meal kits inside physical grocery stores. HelloFresh has partnered with Sainsbury’s in London.
Chef’d has partnerships with 90 chefs and companies. Among them is The New York Times, which provides opportunities for the fans of its food section to order meal kits based on the recipes it publishes.
9. Influencer marketing
Meal kit companies leverage influencers – typically celebrity chefs and pro-athletes – to gain the attention of audiences that they may not be able to reach on their own.
Purple Carrot enlisted Tom Brady and other pro-athletes to tout its vegan fare and “performance meals”. Martha Stewart has lent her name to Marley Spoon. Blue Apron works with a range of influencers, from bloggers to the Olympic gold medalist Michael Phelps.
HelloFresh partnered with celebrity chef Jamie Oliver to craft recipes. It also has a well-orchestrated influencer marketing strategy that uses authoritative food bloggers to showcase its product offering in an authentic way. Influencers use specific hashtags, such as “#freshfriends” and “#HelloFreshpics” when posting about the brand, which encourages others to do the same. HelloFresh provides most influencers with a promo code, which enables it to track the effectiveness of specific collaborations.
Home Chef is trying to work through YouTube influencers with large audiences to amplify its pay per referral program.
10. Community building
Communities on social networks are a great way for customers to feel invested in and get engaged with a brand. Blue Apron’s senior director of marketing Rani Yadav says:
The engagement on social is what’s most astounding. You can’t buy people to comment and talk about your brand with the love and enthusiasm that our community does. And these are people, who would never talk to each other in the real world, but on our social-media channels they’re sharing tips about cooking bok choy – it’s so fun to see!
Meal kit companies are pouring a lot of effort in building their communities on Facebook and Instagram. How are they doing it?
Blue Apron, for example, reached out to photographers, illustrators, and other creative professionals with large social media followings. These artists then took photos and video of Blue Apron meals and ingredients and posted them on their own social channels. The company bet that more elegant imagery would result in better engagement and more subscriptions. And that’s what happened. Before this campaign, Blue Apron had 5,000 followers across its social media accounts. Today it has more than 1 million members on Facebook alone.
Blue Apron recipe cards have social calls to action – because a meal is not complete until there’s an Instagram post to prove it – encouraging the home chefs to share their creations with the Blue Apron community and their friends and creating virality.
Plated is also placing great value on a highly engaged community. It searches for advocates among its community by engaging with customers who shared their meal photos. It also makes a habit of engaging with comments on their own posts and giving thoughtful, non-bot responses, which also goes a long way in building a loyal consumer base.
11. Offline advertising
Traditional offline advertising still offers value for companies looking to reach large audiences and communicate their brand story. Just look at Facebook, which spent more than half of its advertising budget last year on TV ads.
Blue Apron and HelloFresh, the two industry leaders, are also taking their battle offline. Blue Apron aims for greater awareness of what the brand is about with TV ads like this one.
Blue Apron: Building a Better Food System from Scratch
HelloFresh is going for the cooking and eating experience in its TV spots. The “Get Cooking” campaign shows how the process works and incorporates a bit of cheer into the dinner preparation process.
We really are trying to communicate the kind of positivity that cooking and eating brings to people’s lives,
says Matt Fitzgerald, VP Marketing at HelloFresh.
Tonight We Cook
Podcasts have become another important growth channel for Blue Apron. The brand plays up different messages on different shows to better target that specific audience. On NPR podcasts, for instance, the message is about the broader food system, whereas on a WWE podcast, the host talks about the benefits of a healthy, home-cooked meal.
Blue Apron is also using subway ads to communicate its value proposition. To measure the effectiveness of subway ads, Blue Apron adds an offer discount code to the ad, which – when accessed – it could attribute back to that respective campaign.
Companies in the meal kit space have raised over $650 million to fund their growth. Having funding is an important part of being able to grow the business, but it comes down to using those resources wisely. The players are hiring growth marketers to scale their meal kit delivery business efficiently by deploying a rigorous experimentation process across different marketing channels.
With the battle for consumer wallets in full swing, meal kit delivery services have to navigate significant headwinds and fend off competition from other delivery services and grocers. The market is now crowded and ripe for a shakeout. The recipe for success is tried-and-true: craft a unique value proposition, use growth marketing to acquire and engage customers, and delight them by delivering on the promise.
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