The Inconvenient Truth About Meal Kits

Does a 30 percent drop in share price since going public on June 28th mean an IPO was overvalued or market conditions have suddenly changed? 

In the case of Blue Apron, probably both factors lead to the haircut in value.  The opening share price was already a third less than Blue Apron initially hoped to get.  Amazon's industry-changing deal to buy Whole Foods weighed heavily on the sector, mostly because Amazon offered very little strategic vision for the deal. Like a Rorschach business case, Amazon watchers have been left to provide their own interpretation of the deal…leading to uncertainty.  Causing more turbulence in the meal-kit market, this week Amazon filed a ‘meal kit’ trademark further treading on Blue Apron’s turf.

Amazon is only partly to blame for spoiling the Blue Apron IPO.  Meal kit providers are founded on the premise that customers want the convenience of fresh ingredients delivered to their door and the gratification of preparing their own meal at home.

As it turns out, ordering meal kits is much like making a New Year’s resolution.  Customers start off with the best of intentions to eat healthy and expand their cooking skills but their commitment fizzles as soon as the discounted subscription period ends. Within six months, the majority customers have walked away.  

One of the biggest hurdles for meal kit companies is shipping costs.  The delivery of fresh food requires extra packaging to keep it chilled and short delivery windows to reach consumers without spoilage.  The minimum plan offered by Blue Apron consists of three meals per week for two people and costs $60 per week.  Presumably, any order smaller than 6 meals would break the company’s $10 per meal price threshold. 

Even among the customers who can afford meal kit delivery, that price is a sticking point. Consumers also complain about the volume of packaging and the inconvenience of having to receive deliveries, most of which occur on preset days of the week.  Cancellations must be made several days in advance.   

After stumbling home at 8 pm after a long day at work and collecting the kids from soccer practice, the last thing most of us want to do is spend an hour making dinner.  In a perfect world, healthy dinner options would be readily available and meal prep would relieve the day's stress, not cause it. Many meal kit customers find that the cooking process is more complicated and takes longer than advertised.

Incorporating prepared, shelf-stable components into meal kits is a great way to tweak the meal kit business model.  Complementing fresh ingredients with pre-roasted vegetables, prepared sweet potato hash or wild rice is a way meal delivery services could speed up meal prep. Packaged sides and even main entrees are much cheaper to ship, require less packaging and can be stored in the pantry instead of the refrigerator. 

By being less reliant on fresh ingredients and including more packaged foods, Blue Apron could boost its margins by reducing the nearly 30 percent food wastage they currently experience.  For the customer, an assortment of packaged food components means greater choice of meals that they can pull together on any given night.

Focusing on the customer and their need for convenience will lead meal kit companies away from the cooking experience and toward meal assembly. When you can have chef quality shrimp coconut & lemongrass wonton noodles on your table in less than 10 minutes, it will be hard to go back to making it from scratch.     

With people growing weary of meal delivery kits, Blue Apron and similar services in this space must tackle the customer convenience challenge and tap into the modern consumer’s desire for meal customization.  Chef-quality, nutritious, prepared meal components delivered to your door with an extended shelf life are the best way to do that.