In the fall of 2016, Amazon.com, Inc. inked an interesting partnership with Tyson and launched Tyson Tastemakers “a line of chef inspired meal kits.” Come 2017 and Amazon is entering the ring for a food fight. This July, retail giant Amazon forged a partnership with Martha Stewart, where Marley Spoon-prepared meal kits will be made available to Amazon Fresh’s customers in New York, San Francisco, Philadelphia and Dallas. The tagline of Amazon’s new kit is quite similar to Blue Apron’s business model: “We do the prep. You be the chef.”
As the news of Amazon Fresh meal kits broke, Blue Apron’s went into a tailspin at an all-time low of $6.45 within the trading day – down 35 percent from its $10 IPO price. The growing trend of start-ups selling meal kits went unnoticed until recently when Amazon launched its own meal-kit competitor. Companies like Blue Apron, Chef’d, Hello Fresh and Planet have been in this business for long, offering customers a box of ingredients along with easy to follow cooking directions. The beauty of this business is that every meal kit comes with ingredients perfectly measures to each recipe. It is quite labor intensive and is mostly done by hand. The meal-kits delivery market in the U.S. is big and is growing at an unparalleled rate. It made approximately $1.5 billion in sales in 2016 and is expected to grow to $5 billion over the next five years, according to a recent report by market research publisher Packaged Facts entitled Meal Kit Delivery Services in the U.S.
Let’s not completely forget that the meal kit industry has attracted a sizeable fanbase of Millennials and Generation Z who are a perfect audience for this kind of offering. Analysts believe, meal kits have the potential to be disruptive. The market for pre-prepared food is too small right now, and is estimated to have reached only 5 percent of U.S. households.
We are now spending less time in the kitchen than ever. According to a recent Harris Poll, less than a third of all age groups from Millennials to octogenarian and older cook every day, and only 44 percent cook a few times per week. The meal kits industry is teaching people the value of food, nutrition and cooking in a world where we only see more marketing done for pre-made junk food.
Now, there’s the issue of cost. Each meal from a meal-kit delivery service costs around $10 t $16. The meal kits on Amazon Fresh are priced between $8 to $14 per serving. It’s only affordable for families with a certain amount of disposable income. If meal kits are intended to replace meals, shouldn’t they be a little cheaper? Besides, people can always order a meal from a restaurant or a deli and pay much less.
The only sticking point right now is convenience. Meal kits come with pre-portioned ingredients and display step by step instructions. That goes without saying that some of the recipes require more than sixty minutes of preparation and clean up.
Let’s not deny that these meal kit companies are based on an economical model that is far from sustainable. Then there’s the issue of sustainability – Millennials who are concerned with environmental sustainability might not agree with the kind of packaging used and its impact on the environment. Besides, when you pre-order what you’re going to eat tomorrow or in the future, it removes some level of excitement and fun at meal time. Many of these meal kit companies offer services which require a subscription, or multi-meal purchases, which is another big downside. Very offer discounts such as “get 2 meals free” or “get 50% off your first order” when you sign up – and it makes one wonder how long will it take before these service earn some real profit.
The meal kit industry is poised for unparalleled growth. Consumers report that pre-portioned meals are helping them eat healthier, others feel the step-by-step instructions is a good way to learn cooking, and others simply love sharing the cooking experience with their loves ones. According to a research conducted by BSR on food waste by Blue Apron, it was found that the facility threw 5.5% of food, while grocery stores threw out 10.5% of food. The study, however, did not include the shipping and packaging waste footprint.
There is strong evidence that points out that the meal kit industry is gaining momentum. Analysts at The Food Institute estimate the market could tap $3 billion in 2018, and an even bigger number by the time we reach 2020. Today, more Americans care about the nutrition from the food they eat than ever before. Getting the Millennial generation to cook is going to be a challenge, nonetheless it may be worth the effort. We cannot expect schools to reinstate cooking education as a part of the syllabus, it might still be easier to instill the value of food and cooking to ensure people know the basics, to say the last.
It may be some time before we see meal kits available across all of the U.S. states, but the competition is already feeling the feat. Before Amazon Fresh was Blue Apron, one of the largest meal kit provider in the U.S., followed by HelloFresh. The question is, how can Amazon Fresh stand out from a company like Blue Apron or others – Plated, Marley Spoon, Peach Dish, Green Chef, Sun Basket, Gooble, HelloFresh, Chef’d, and even traditional grocers. For all we can say right now, Amazon isn’t too concerned about making a profit on meal kits – and that’s one big issue many competitors are dealing with right now. Right now, Amazon’s short-term goal is to take a loss on meal-kits to draw more Prime members. For a $5 billion profit before 2020, it’s worth it, isn’t it?