Dinner Is Served HOW FAR WILL the APPETITE for MEAL KITS GO?
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Dinner is served HOW FAR WILL THE APPETITE FOR MEAL KITS GO? CONSUMER WHITE PAPER SEPTEMBER 2020 Barely 10 years old, the market for meal kits is worth USD3.5bn today. The idea of putting together pre-packaged fresh ingredients using a recipe that accompanies them in the box appeals to consumers who value “naturalness” Contents and quality alongside convenience. Although meal kits are currently favoured by a relatively niche group of high-income and urban Millennials, the segment is expected to grow 17% year-on-year, to reach USD8.9bn in 2025. And that’s before Covid, which has simultaneously boosted the home consumption and e-commerce that drive the meal kit market. The sales performance of meal kit groups A RAPIDLY EXPANDING MARKET MEETING NEW CONSUMER DEMANDS 2 such as HelloFresh and Marley Spoon has seen a sharp acceleration in Q2 2020. What is a meal kit? 2 How are meal kits positioned in the overall online food market? 3 For meal kit companies, success is all about customer acquisition and retention. With hefty promotional spending A USD3.5bn market expected to grow by 17% 5 needed in a new and competitive market, each customer costs Covid has accelerated the adoption of online across food 7 EUR70-150 to acquire, yet mid-term retention rates are only 10-12% on average. As a consequence, few players have THE SEARCH FOR EVER MORE PRACTICALITY IS DRIVING TWO NEW TRENDS: OMNICHANNEL AND READY-TO-EAT MEALS 10 been profitable – at least until Covid, which has now inflated profitability to break-even for many. However, it’s unlikely that Meal kits are unlikely to be spared by the omnichannel trend 10 this stimulus will endure, and we envisage further exits in a Omnichannel tests and partnerships are multiplying 11 market that has seen plenty of consolidation since 2018. In our view, it’s the inherent challenges of the meal kit market, Towards shorter cooking preparation times 11 rather than meal kit launches from giants such as Amazon and IT’S ALL ABOUT CUSTOMER ACQUISITION AND RETENTION 12 incumbent large retailers, that’s been behind the shakeout in Customer acquisition 12 meal kit players. Customer retention 13 In a market that’s still fragmented, we see two models Searching for profitability 14 proving successful: either international expansion driven by sophisticated data collection and analytics; or a regional THE UNAVOIDABLE DARWINIAN TREND IN MEAL KITS 18 strategy focused on operational excellence. It’s these A competitive landscape in a consolidation phase 18 approaches that may yet see the global market for meal kits mature beyond its niche and take a lasting place in the global The ramp-up of supermarkets and Amazon should be put in perspective 20 food market. Two winning and sustainable meal kit business models 21 Clément Genelot CONCLUSION 24 Analyst Equity Research Retail & e-commerce 1 A rapidly expanding market meeting new consumer demands At USD3.5bn, the worldwide meal FIG. 1: POSITIONING OF MEAL KITS IN THE ONLINE FOOD MARKET How are meal kits kit market remains a niche food positioned in the overall segment. The first meal kit offers Prepared food online food market? emerged in the early 2010s in Sweden, driven by start-ups offering In a global online food market Restaurants Meal delivery from subscriptions to boxes containing restaurants estimated at USD250bn1 (pre-Covid), a recipe and all the ingredients the meal kit is positioned half-way necessary to prepare a dish. between home delivery of shopping and home delivery of meals from What is a meal kit? restaurants. Meal kits stand out for Meal kits delivery being more practical than online The meal kit involves home delivery shopping – there’s no need to think Less convenient More convenient of pre-packaged ingredients plus about all the ingredients required instructions to cook a meal at home. to prepare a dish - with increased After signing up for a weekly/monthly “naturalness” and better quality subscription, consumers pledge to than takeaway meals. take at least one or two meal kits Online grocery delivery Grocery stores a week that are delivered to their homes. Subscription remains the 1: Online Grocery Market Size, Share & Trends Analysis Report | Grand View Research | April 2020 standard model in the industry, although terms and conditions have eased considerably since the early Unprepared food days of meal kits: today, there are no lock-in periods and customers can pause or skip deliveries at any time. Source: Bryan, Garnier & Co Each meal kit contains a recipe for several people, chosen a few days The meal kit offer is attractive in The search for recipe ideas, for ahead by the client online from a list that it provides an answer to several people looking for inspiration and that is generally updated every week, trends in food: variety in their meals. and all the necessary ingredients to prepare a meal at home A desire to “eat well”, contrasting Reduction of food waste, as within 30-60 minutes. with the “fast food” nature of ingredients are already weighed take-away meal deliveries from according to the recipe. restaurants. The increasing number of The search for practicality and people following strict diets or convenience, which is a genuine suffering from allergies, who have need in city lifestyles where difficulties shopping for the right time is lacking. ingredients. 2 | DINNER IS SERVED 3 A USD3.5bn market FIG. 3: A USD3.5BN MARKET EXPECTED TO expected to grow by 17% GROW BY 17% PER YEAR OUT TO 2025 (IN USDBN) According to Hexa Research, meal 10 kits represent a global market worth 8,9 USD3.5bn, half of which is generated 9 The price of a meal kit is 20-30% This leads some meal kit companies customers are well-off, city-dwelling in the US (USD1.7bn) and around a 8 7,6 higher than an equivalent supermarket to say that they are price-aligned with couples or young millennial families. third in Europe (USD1bn). 17% CAGR 7 2 shop and 10% higher than having supermarkets if only the amount of Nielsen noted that people with annual 6,5 shopping delivered. It is worth food actually consumed is considered. income of more than USD70,000 Pre-Covid, Hexa Research expected 6 5,6 noting that the price gap versus a represented 65% of the US meal average annual growth of 17% over 5 4,7 16% CAGR supermarket is also the estimated Meal kits are a form of culinary kit market and the 25-44 age group 2019-2025, which didn’t imply any 4,1 4 amount of food wastage education as well as a delivery service. represented 56% of the market. slowdown relative to recent years, 3,5 3,0 3 by households. So, it is not surprising to see that their where with average growth has run 2,5 2: Will Shoppers’ Enthusiasm for Meal Kits Remain Strong in 1,9 2,1 2019? | Nielsen | 3 April 2019 at 16% from 2015-2019. This growth 2 rate is in line with expectations FIG. 2: MEAL KIT CONSUMER: WHO ARE YOU? in the global online food market. 1 The penetration rate of meal kits is 0 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e 2024e 2025e Meal kit consumer profile A wealthier and more family profile expected to increase in households vs other segments of online food in Western countries, where it is Income level currently 5% in the US and less Lifestyle Source: Global Meal kit Delivery Service Market Size And Forecast, By Type (Fresh Food, Process Food) And Trend 1 Cooks on a regular basis than 5% in other Western countries. Growth may be revised upwards Analysis, 2015 - 2025 | Hexa Research | February 2019 Meal kits delivery post-Covid, although too early for Marital status market intelligence agencies to 2 Married with children update their projections. / married / committed relationship Online grocery Age delivery 3 30+ Meal delivery Income level from restaurants3 4 Upper-middle to high income Residence 5 Urban, suburban Single Married 3: With disparities among some countries such as the Nordics and Germany, which face higher prices for meal delivery than groceries or meal kits. Source: Bryan, Garnier & Co 4 | DINNER IS SERVED 5 However, there are limits on Consumers want to maintain Covid has accelerated of food consumption from in-home to post-Covid era, the share of in-home the extent to which the meal kit a degree of spontaneity in the adoption of online away-from-home has reversed. The food consumption could sustainably business can expand relative to preparing their meals and across food catering industry is under pressure and increase by 15 points to 55% in the the rest of the food market: cannot always anticipate what the trend towards teleworking has United States and by 10 points in they would like to eat several Covid has had two favourable been accelerated. Estimates from Europe to 75%. Prices are prohibitive for a days in advance, especially effects on the development of food HelloFresh and Piper Sandler’s 2H20 large share of the population. during the summer holidays. e-commerce. First, the slow transition outlook report suggest that in the The majority of current Home delivery can prove to subscription offers do not be restrictive. FIG. 4: FOOD WALLET SPENDING address people who live alone. Single meal kits are Excess packaging of 100% developing in the US (Freshly ingredients in the meal box 25% 35% and Factor 75) and in the could put off consumers who 80% Nordic countries (Godtlevert, are concerned about the 45% 60% a brand of Linas Matkasse).