Meal-kit delivery companies flourished early in the pandemic, but are struggling now

Meal-kit delivery giants like HelloFresh, Sunbasket and Blue Apron are faring worse or dealing with much slower growth, especially compared to 2020 record highs, partly due to fierce competition from more than a dozen newer companies like Freshly, EveryPlate and others. Plus, several grocery stores, like Kroger, are also getting in on the action, with its purchase of Home Chef. Competition is also coming from fully reopened restaurants hustling to regain customers, as well as delivery companies like DoorDash and Uber Eats.

At the same time, rising inflation across most categories of food has meant more families are increasingly budget-conscious, which means cutting back on meal kits.

Meal-kit delivery services may also have contributed to their own obsolescence, providing the training wheels for far more people learning how to cook during the pandemic, some experts say. It’s a twist on the adage: Give a man a fish and you feed him for a day. Teach a man to cook a fish, you feed him for a lifetime — and he probably doesn’t need step-by-step instructions on laminated cards anymore.

“It was incredibly important in [the] early days of [the] pandemic, a tool to help people cook something that wasn’t in their repertoire, maybe something global,” said Emily Moquin, food and beverage analyst for Morning Consult, a survey firm. “It was skill-building and safe experimentation. But then people learned how.”

For Dolen Perkins-Valdez, a creative writing professor at American University in D.C., meal-kit delivery was a godsend during the pandemic for her household of five.

“I hit this wall where I had exhausted my repertoire, and I was also spending a lot more time planning. And there was a lot more demand, because the kids were virtual schooling and they were hungry all the time,” she said. She would order four different dinner meals each week for around $140, appreciating that it reduced “decision-making fatigue.” Plus, the kids weren’t tired of what was for dinner.

As the months went on, Perkins-Valdez got better at tossing vegetables in a little olive oil and roasting them. She used her oven more, and she learned tricks for putting together family meals quickly. She paused her subscription, then canceled.

Back in 2020, the U.S. meal-kit market surged by 68.5 percent, reaching $5.8 billion, a greater increase than any recent year, according to Coresight Research, which analyzes data in retail, technology and fashion. Americans missing their pad thai and pining for pappardelle had the time and a need for shared family activities — stuck at home, “entertainment” often amounted to a paint-by-numbers approach to a fancy dinner.

“Many people had greater disposable income and more time on their hands. Dinner choices were severely limited, and consumers were left with this gap to fill,” said Mo Dezyanian, a marketing professor at Centennial College in Toronto. “All of that is being reversed right now. Most of these companies have dropping share prices, and that is obviously a big problem.”

Blue Apron, one of the first meal-kit delivery companies, reported a $26.4 million loss in the fourth quarter of 2021, with revenue down 7 percent from the previous year. And although recently Berlin-based HelloFresh, a top performer in the category, reported strong revenue growth of 61.5 percent for 2021, that was eclipsed by its explosive 2020 revenue growth of 102.3 percent. HelloFresh’s stock price dropped 55 percent in the past year; Blue Apron dropped 29 percent.

When asked about the recent financial challenges, Blue Apron chief executive Linda Findley said being first “comes with its own set of challenges.”

“When you’re the first to do something, you might be making a lot of decisions that wind up challenging the business,” she said, explaining why some industry experts say Blue Apron hasn’t fulfilled its early promise.

HelloFresh in a statement said that it anticipated a “normalization” of the rate of growth moving forward, but that some of the drivers of 2020′s unprecedented growth (increased working from home, price sensitivity and focus on sustainability) will become permanent.

“The food market is only at the very beginning of a digital disruption and we see a lot of potential for future growth as people are spending an increasing amount of their weekly food budget online,” the statement read.

Sunbasket chief executive Don Barnett said his company has been on a “roller coaster.” At the end of 2020′s first quarter, demand spiked — existing customers skipped subscription meals less often and a surge of new customers poured in. Sales were strong through 2020. In early March 2021, sales started to slow down, he said.

“It wasn’t so much a loss of users, although there is natural churn, but we saw more people skipping. We expected that. We started to slow and see the pullback, then got into May, June and July when people wanted to go on vacation,” Barnett said.

Barnett predicts that the crowded playing field will settle out and that companies that lack innovation will “go by the wayside or be consolidated,” he said.

“We’re going to continue to see a bunch of start-ups,” but the most successful meal-kit companies will be those that go beyond being perceived “as a convenience play” and find new ways of personalizing the experience and connecting to individuals’ needs, he said.

While HelloFresh and Sunbasket together serve more than half of American meal-kit subscribers, according to Coresight Research, there are now more than 150 companies in the industry. For example, in December, Sunbasket merged with keto supplement manufacturer Prüvit, to boost its high-protein, low-carbohydrate meal offerings. Freshly has partnered with celebrity chefs to offer limited-time meals.

Restaurants have also gotten into the mix — Chick-fil-A and Denny’s have each launched make-at-home meal kits. And grocery stores are gaining ground in meal kits, said Melanie Bartelme, global food analyst at market research firm Mintel. Kroger’s purchase of Home Chef and Plated’s purchase by Albertsons brought more meal kits to the deli and freezer aisles. And Walmart, Whole Foods and Publix beefed up meal-kit offerings in their stores.

“Meal kits came onto the scene around 2011 and they were soaring, everyone was wowed, people wanted the experience. But that didn’t last long,” said Phil Kafarakis, chief executive of the International Foodservice Manufacturers Association. “Then here comes covid, and everyone is home and on the e-commerce kick. Still, their bottom lines were horrible and it costs a lot to source products, with transportation and logistics killing them. They couldn’t make any money, now along comes inflation and losses are mounting.”

Also, it’s hard for meal-kit subscription services to thrive, because so many offer deep discounts for signing up, said Barb Renner, vice chair and the U.S. consumer products leader at professional services network Deloitte. Discounts like $130 off your first order; or the first 16 meals free, make the cost to sign up new subscribers high. And some consumers are looking for the one-time bargain, with no intention of converting to a long-term subscription.

Meal-kit companies are also being hit by inflation pressures, with many consumers tightening their food budgets. For many people, meal kits are being reframed, going from being a “convenient” option for a time-strapped household to a “luxury” item that is a treat in these difficult times, Dezyanian said.

“The number one reason people stop using meal-kit services is the cost,” said Darren Seifer, food and beverage industry analyst for NPD Group. Although many companies offer steep discounts on first orders, Seifer said, they generally price out at about $10 per meal per person, “which is starting to get close to a fast-food restaurant where they do all the work for you.”

While some meals go as low as $5 per serving, “premium” ones such as Green Chef and Martha Stewart & Marley Spoon are more like $12 or $13. Many services have tried to keep their per-meal price down, but to accommodate higher food, labor and shipping costs, they added or raised flat shipping rates of between $7.99 and $9.99 in 2021.

Blue Apron, for example, is also trying to offer a slightly different kind of meal-kit experience to differentiate itself. Findley said that Blue Apron has focused on added offerings during the pandemic — craft burgers, “butcher bundles” of meat and seafood, and premium bundles of slightly more sophisticated recipes.

“We focused on product innovation. We went from a total of 17 option to 53 options,” she said. Post-pandemic, she anticipates many Americans will go into the office less frequently and re-prioritize time spent with family, including meal times, and that with “a larger group of people that are actually very comfortable with cooking, they are really looking for new ways to show that off.”

Young urbanites who leaned heavily on restaurants had a crash course in feeding themselves at the start of the pandemic, ears cocked for the sound of meal-kit boxes hitting their stoops. It was a swift education in the early days of the pandemic, said Moquin of Morning Consult, but now many have “graduated.”

For Rebecca Diem, 34, an author who also works for the Word on the Street Toronto Literary Festival, meal kits were the right thing at a crucial time, when she was separated from her Australian partner for 377 days at the beginning of the pandemic.

“I lost 15 pounds just from grief. I could not put on weight, and it was hard to summon the desire to put together a wholesome meal. I started doing meal kits every week because it lowered the barriers I was feeling mentally and physically to preparing a whole meal. I had a friend who would come over for Sunday dinners — we were both living alone — it became a lifeline, just come over and let me make dinner.”

She began feeling more confident, making sauces from scratch, cooking different kinds of vegetables together, using different grains. She bought fancy Le Creuset cookware, what she called “an investment in my joy.”

“I’m so grateful to HelloFresh for providing that education and support, and I still use it once every two months,” she said. “But my relationship with it has changed. I now I look to it for inspiration, almost like a personal assistant. It lightens the mental load.”