Disruptors at the Door
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\"blueAnother batch of disrupters is eyeing the retail food industry. And, strange to say, they’re knocking on your door in a cardboard box.

These disrupters are meal kits. The meal-kit business is a fledgling form of retail food distribution that features the direct-to-home delivery of the precise measure of raw ingredients needed to prepare home-cooked meals. Each shipment contains the makings for several meals, generally six or more.

Meal kits are not to be confused with the home delivery of groceries available from providers such as Peapod, Amazon or Fresh Direct. Nor are they deliveries of prepared meals that are ready to heat and eat. Meal kits require that meal components be chopped, mixed, cooked and composed. Each meal kit includes detailed recipes replete with photos of ingredients and step-by-step preparation, making them all but foolproof.

There are a number of competitors in the meal-kit space, notably Blue Apron, Plated, Hello Fresh and several regional players. A few freestanding retail stores offer kits too. Blue Apron is several times larger than its competitors and claims to ship in excess of three million kits per month, far more than its competitors ship.

To be sure, this form of business is minuscule compared to the sales volume done by conventional supermarkets and restaurants. Indeed, several good-sized supermarkets could produce the sales volume generated by the entire meal-kit segment in a week’s time. Yet, any new competitor to supermarkets and restaurants warrants a peek.

To do that, let’s consider Blue Apron as a proxy for the meal-kit business. Blue Apron was founded about three years ago, shortly after its CEO, Matt Salzberg, graduated from Harvard Business School. It’s interesting to note that the founder of Plated was his classmate. Blue Apron apparently won the race to a funding source, with a recent additional $135 million in funding, and so it got the quicker start. Both were doubtless inspired by a similar form of business started a couple of years earlier in Sweden, which was a case study at Harvard. There’s nothing like a successful example to set the mind in motion.

Blue Apron is entirely Internet based. Customers are required to register with a credit card and accept a weekly delivery (day specified by the customer) unless they specifically opt out for one or more weeks. Each shipment costs about $60, or about $10 per cooked meal. There’s no additional charge for shipping. Often, some sort of cultural-fusion theme is used. The company has three fulfillment centers in the U.S. giving it nearly national reach.

Full disclosure: I have been a subscriber to Blue Apron for a while now.

In general, the experience has been a good one with meal results proving to be more than satisfactory. Customer service is good. On a couple of occasions, when some meal component proved to be missing, Blue Apron was immediately responsive, reducing the price of the next order.

As much as I am a fan, this concept has a few basic flaws:

  • Although the meals to be prepared change with each shipment, in time they start to look similar. More often than not, the meals feature a protein-based, stew-like component.
  • The recipe cards with each shipment stipulate an estimated preparation time, generally, about 25 to 35 minutes. Unless there are two cooks in the kitchen, preparation time will usually prove to be more than twice the estimate.
  • The meals are more costly than they seem because tiny portions of each ingredient are used for each recipe for clarity and to eliminate food waste. So every carrot, celery stick or handful of spices is in a plastic sleeve and labeled. It would be much cheaper and less wasteful to provide a week’s worth of spices or vegetables that could be used for several purposes, than to package in miniature containers.
  • The amount of overall packaging waste produced by each meal kit is astounding. The shipping weight of the box is about 25 pounds, of which I would estimate three-quarters is packaging. Heaviest by far are packages of coolant used to chill perishables, probably as costly as the food itself. This is not a great practice based on the pervasive environmental-friendly attitude among most consumers.
  • Finally, it’s too easy to forget to cancel a shipment, resulting in an unneeded box of food at the door. They could use a better reminder/alert system.

Nonetheless, Blue Apron has big plans for its future. Blue Apron executives boast that they represent a big threat to supermarkets because they can buy directly from farmers and get fresher product. Of course, supermarkets and Fresh Direct market on just that concept.

Although the sales volume of the entire meal-kit segment is very tiny, these disruptive innovations can become game changers.

Clearly, supermarkets and even restaurants could get ahead of whatever competitive threat meal kits might eventually pose by offering their own kits to their customers. Supermarkets especially could probably offer a much better price point than the companies that have to ship boxes. More broadly, as is true of competitors to all forms of business, the sooner heritage retailers realize that something new is happening and get ahead of what it represents, the better off they’ll be.

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