Meal kits — a $3 billion market in the US

It all started back in 2007, in Sweden. A meal kit delivery service could offer busy customers the chance to save a lot of time, have access to a wide variety of food choices, eat healthily, improve their cooking skills and limit the amount of food waste. The concept was successful and expanded into Germany, Austria, the Netherlands, Belgium, the United Kingdom, Asia, Australia and North America.

Now stores are offering meal kits as ‘products’ rather than as a service and demand is still increasing, albeit not at the same rate as initially.

Meal kits only reached the US a bit more than five years ago but they have already become a fast growing billion-dollar business there. Market research firm Packaged Facts has released a report, Meal Kits: Trend and Opportunities in the U.S., 3rd Edition, which forecasts the industry will continue to expand and grow healthily through 2023.

Packaged Facts estimates the US meal kit market had sales of $2.6 billion in 2017 and will grow almost 22% by the end of 2018 to reach $3.1 billion. Growth is forecast to steadily decline from double-digit gains over the next few years to single-digit gains by 2023.

Packaged Facts anticipates that the market for subscription meal kit delivery services will mature rapidly as other methods of meal kit sales become available and even preferred, such as one-time online orders from a meal kit website or app, online orders from a grocery store website or app, and in-store sales. As a result, future growth in the market will require industry leaders to continue pivoting and adjusting their business models to retain current customers and reach new clientele. Long-term, Packaged Facts concludes that as more traditional stores offer meal kits as a product rather than as a service, the market will stabilise and become similar to other convenience grocery items that sell for a premium, such as pre-cut fresh produce that is ready to eat.

“The meal kit market is highly dynamic and prone to fluctuations, with the top meal kit providers falling in and out of favour since their introduction in the past few years,” said David Sprinkle, Research Director for Packaged Facts. “Further complicating things, market expansion is expected to be much more reliant on alternative purchase venues than the traditional subscription delivery model due in part to the convenience and flexibility of online shopping.”

The advent of online grocery shopping has made customers more comfortable than ever with ordering fresh food online and has contributed to the expansion of the online market for meal kits. However, the problem for the traditional subscription model is that the ‘on-demand’ nature of online shopping through companies such as Amazon and the evolution of e-commerce over the past few years has led to consumers expecting convenience and near-instant gratification.

The subscriptions most meal kit delivery services provide often clash with the ‘on-demand’ mentality of potential meal kit customers, who want to be able to buy the products they want whenever they want. Subscriptions attempt to entice more purchases, and even when flexible, can lead to customers purchasing more than they want to buy at a given time to avoid increased fees. People who have felt these pressures are more likely to cancel their subscriptions, and many consumers never become customers because they do not like the idea of being ‘locked in’ by a subscription.

“It is unsurprising that many meal kit companies have been struggling to attract new customers and maintain existing ones under the subscription model. Paired with the retention problem is the struggle with attaining profitability due to the high costs of shipping fresh ingredients directly to consumers,” Sprinkle said. “These challenges demand that meal kit companies tweak their business models and find alternative ways to reach customers, as the potential market for meal kits as a product is much larger than the interest in meal kit delivery services as they currently exist.”

Meal Kits: Trend and Opportunities in the U.S., 3rd Edition forecasts market size and growth (2018–2023); examines new product availability; surveys retail channel trends including cross-channel shopping vs customer loyalty; and analyses trends and shifts in the needs of today’s meal kit shoppers. This report also examines the competitive environment in which meal kits companies compete with other convenient food options such as premade meal delivery and grocery store-developed fresh meal kits.