Originally printed in the April 2018 issue of Produce Business.

By Daniel Granderson

Read Jim Prevor’s Commentary below

Meal kit delivery services, although a relatively niche part of the food industry, have exploded over the past few years and are playing a disruptive role. This applies to both the retail and foodservice sides of the industry because they allow people to have restaurant-quality meals at home without going to the grocery store for ingredients or to a foodservice establishment for a prepared meal. Through the use of specialized electronic programs — apps — consumers have access to almost everything they could want without leaving their home and without even speaking to another human being. Hence, the times — as they say — are a changing.

The retail food industry was already in a state of disruption, and meal kits are just one more element in a complex situation in which grocers and foodservice operators are being forced to adjust rapidly to changes in technology, demographics and consumer attitudes and expectations.

The heart of the matter is how food gets to consumers. The norm has been for consumers to go and get food — either shopping for their groceries or going to a foodservice establishment. Of course, home delivery of both groceries and prepared meals was taking place at the same time, but these represented a relatively minor part of the overall food/consumer connection.

The ever-growing demand for more convenience translates to both the retail grocer and the foodservice operator bearing more of the burden of getting food to the consumer and to the table. This trend is typically attributed to consumers being pressed for time because of work and/or parenting demands, though discretionary time devoted to home entertainment, internet browsing and social media is surely part of the story. In addition, younger consumers have not necessarily been schooled in how to prepare meals, which has been an important element in the acceptance of meal kits delivery services.

Packaged Facts data in the report Meal Kits Delivery Services in the U.S., 2nd Edition reveal that one-third (33 percent) of adults have had groceries, fresh meal kits and/or prepared meals that are part of a dietary management program delivered to their homes in the past month. Grocery delivery is the most common of the three, named by 21 percent, five percentage points ahead of delivery service fresh meal kits (17 percent). Age is the strongest predictor of the use of fresh meal kit subscription services, with subscribers more than twice as likely than average to be between 25 and 44 years old, a fact that correlates with the higher tendency by younger adults to rely on smartphone apps for shopping — be it for food or other products.

The shift in focus has created what food industry observers refer to as an “omni-channel” environment in which consumers can:

• shop in a brick-and-mortar store to select and purchase the foods they want;
• go to a brick-and-mortar foodservice establishment and order what they want to eat there or to take home;
• select and order online grocery items from a grocery store to be purchased, then pick them up in person at the store or have them delivered;
• order online grocery items and have them delivered by a specialty delivery service;
• order ready-to-eat takeout food online or by phone, to pick up or have delivered, from a foodservice establishment by that establishment itself or by a specialized delivery service;
• order frozen meals for home delivery from a food delivery service.

Additional variations are developing as the channels merge, notably the increase in foodservice operations within retail groceries and the expansion of convenience stores into both foodservice operations and a broader array of offerings, notably fresh foods.

Packaged Facts a division of MarketResearch.com publishes market intelligence on a wide range of consumer market topics including consumer demographics and shopper insights consumer financial products and services, consumer goods and retailing, consumer packaged goods, and pet products and services. Packaged Facts also offers a full range of custom research services.

Future Leans Toward Delivery

By Jim Prevor

It is hard to imagine this today, but back in the 1940s my mother lived in Brooklyn and her grandparents lived in Manhattan. All alone, my mother would take the subway from Brooklyn to Manhattan, where she would be met at the station by her grandfather. Today, this would be considered child abuse, but, in the 1940s, nobody thought it particularly risky. The world has changed.

When her grandfather would take her by the hand and walk to his apartment, they would pass numerous grocery stores. It was quite common for many of these stores, such as Gristedes, to offer same-day delivery using boys running or on bicycles. There was no Internet, of course, but people could shop themselves at the store and leave the groceries for delivery — a big advantage in urban New York where few people had cars. Or they could call up on the phone and give an order — not very dissimilar from Amazon’s Prime Now service or Fresh Direct’s Foodkick service.

In time, grocery delivery faded from the scene. The population became more suburban, which meant we didn’t have the population density that made delivery economical. And the move to the suburbs meant that cars became more common, so it was easy to put groceries in the trunk. Delivery posed many problems of coordination as people had to somehow be at home to receive deliveries, especially, of frozen and refrigerated foods.

In any case, disaggregating costs — in this case, removing the cost of delivery from the grocery bill — allowed consumers to replace those costs with their own labor, and this was seized upon by consumers.

The renewed interest in delivery now is attributed to many things. Daniel Granderson mentions time pressure because of two-income households but also due to a desire by consumers to spend more on leisure and family pursuits. There is also some indication that the interest in online ordering has other motivations and that delivery options may be less important than we believe. Many retailers are now offering drive-through pickups of pre-ordered items — and that seems to be growing in popularity.

It also is true that retailers are beginning to experiment with offering Meal Kits and Specialized Weight Control Boxes, Local Farm Boxes and similar things for either pick-up or sale-in-store. This all makes sense because the ecosystem of Internet ordering, delivery and other things related to, say Meal Kits, involves lots of different things that consumers value in different ways and to different degrees.

One reason that the pursuit of scale in delivery is a high priority for companies such as Walmart and Amazon is that it becomes less expensive as the number of packages delivered on each drop-off increases.

Daniel McCarthy, an Emory University professor, studied public customer data and estimated that only 28 percent of Blue Apron customers and just 17 percent of Hello Fresh customers were using the services after six months! And new acquisition is expensive. Professor McCarthy estimates it costs Blue Apron $125 to acquire each new customer.

A lot of this falloff probably relates to the aggressive offers made to get people to try the various services — non-sustainable discounts, etc. And some relates to dissatisfaction with a particular offer ­— consumers want a service that uses more or less prepared foods, organic foods, etc. It is likely, however, that the very nature of subscription services for fresh foods is not really compatible with the lifestyle of many people today.

People get called away on business, are stalled in the office, are invited to a friend’s barbecue, run through fast food when the kids’ sporting activities run late. In the meantime, there is a relentless march as delivery services keep dropping off boxes to cook based on a wishful decision made six months ago. No wonder people get fed-up and cancel.

But they may still like the concept — if they can order or pick up the box when they want it!

Delivery is likely to change soon and become both faster and less expensive: Autonomous vehicles may be coming soon, but already you can go to certain Aloft brand hotels, and if you call the front desk and say you forgot your toothbrush, the front desk will send up “Botlr” — an autonomous delivery vehicle — with a new one.

It is well known that Amazon, Walmart and others are experimenting with drones. One reason that the pursuit of scale in delivery is a high priority for companies such as Walmart and Amazon is that it becomes less expensive as the number of packages delivered on each drop-off increases. Indeed, one reason you will see these giants look to move to their own delivery services rather than use UPS, the Postal Service or other common carriers is that these giants believe, correctly, that their volume is making it affordable for smaller companies to have these common carriers deliver their products.

Of course, the very notion of shopping is bound to be transformed by more advanced technologies. Already you can set Amazon to deliver a bottle of your favorite shampoo every other month; soon RFID chips may let your refrigerator recognize that you are out of milk and order a replacement, and people may respond to advertising differently if one can watch an ad on TV and just tell Siri or Alexa to order one of those things.

Well over 95 percent of the items in a typical shopping cart are items the consumer has bought before. If these are ordered automatically through a replenishment service, perhaps driven by an app that will perfectly assess the least expensive way to get that basket, margins in the industry will compress. Retail store square footage will collapse as these items come delivered via specialty distribution channels and, for many consumers, it will become increasingly difficult to find stores selling these staple products, and sales will migrate even more on line. On the positive side, retail stores will increasingly become foodservice- and fresh-oriented — with perhaps depots for easy consumer pickup.