Are Meal Kits The Answer To Grocery Retailers' Woes?
Updated: Jun 15, 2020
When Oprah Winfrey featured cake company We Take The Cake on her Favourite Things list in 2004, it took them from the verge of bankruptcy to sales of over $1,000,000 a year. That is the Oprah effect - an effect that saw Weight Watchers shares soar in 2015 when Oprah invested in the weight loss programme. Oprah's stamp of approval is worth something. If Oprah is involved, it must be a good thing. In the case of Weight Watchers latest venture however - in-store meal kits - Oprah's influence may not even be the biggest seller. Meal kit sales grew by $4.5 billion between 2016 and 2017, and 90% of US meal kit subscribers would recommend the service to a friend. Despite this, the meal kit space has had its fair share of issues, particularly when it comes to fostering loyalty amongst online subscribers.
While online subscription-based meal kits have some drawbacks, the non-subscription in-store model that Weight Watchers is adopting may have benefits for both meal kit companies and grocery retailers.
Lower customer acquisition costs for meal kit companies
Source: Blue Apron
Established meal kit companies face a massive cost per acquisition. Recode estimated that Blue Apron's CPA over a 12 month period was approximately $460. Although Blue Apron disputes this, it's fair to say that the cost of acquiring meal kit subscribers and more importantly, ensuring loyalty, is high. Meal kits offer a convenient but not necessarily cheap option to consumers, and heavy discounts are offered to new customers to draw them in. By placing meal kits in-store, meal kit companies are appealing to customers in search of fresh, delicious, convenient meal options and lowering customer acquisition costs substantially. Albertsons' acquisition of Plated is an example of an omnichannel approach to meal kits, placing meal kits in-store while continuing to offer an online subscription-based service.
Fresh revenue streams for grocery retailers
Albertsons' acquisition of an already established meal kit company is just one approach retailers are taking. Kroger's decision to offer private label meal kits is another. Whichever approach is favoured by grocery retailers, meal kits open up fresh revenue streams and help drive consumers into the store. This is important because meal kit subscribers are incredibly valuable to grocery retailers, spending 28% more per trip than the average grocery shopper. By offering meal kits in-store, grocery retailers are giving meal kit subscribers a brick and mortar option that may be more convenient than home delivery.
Faced with 'retail apocalypse', grocery retailers are understandably turning to e-commerce. Grocery e-commerce is undoubtedly growing, with 70% of grocery shoppers set to shop online by 2024. However, brick and mortar remains vital, and grocery retailers are employing various strategies to win and retain customers in a competitive market. Walmart has issued a patent for a robot shopping cart, and while there are benefits, and the novelty will certainly drive customers into the store, the grab and go aspect of meal kits has the potential to makes a difference where it matters: sales.
Weight Watchers is not the only company making to move towards in-store meal kits. Meal kit giant Blue Apron announced this week that they will adopt this strategy by the end of the year, in a move that they hope will make their meal kits more accessible. In conversation with Forbes, a Blue Apron spokeswoman summed up the benefits of in-store meal kits best, commenting that they are "optimizing for convenience."
The popularity of in-store meal kits has yet to be truly measured, but there's no doubt that the convenience associated with them makes it a mutually beneficially strategy for grocery retailers and meal kit companies.