Why Are So Many Customers Vanishing?

Meal kits, remember when they first popped up? They were everywhere, promising to change how we cook at home, you know? Well, they definitely made a splash! There are now 382 meal kit companies in the US, a massive 300% jump compared to just 13 a decade ago. It really felt like a revolution in the kitchen, didn’t it?

Despite all this growth, the meal kit model is facing a pretty big hurdle, and here’s the surprising part: it’s you, the customer! It turns out, a huge number of people who tried one of the five major meal delivery services in 2022 canceled their subscription by the end of the year. We’re talking about a high abandonment rate, over 90%! It’s a bit of a head-scratcher, right? Human behavior can be a little unpredictable, especially when it comes to what we eat.

When meal kit companies try to win you over and keep you around, they often focus heavily on the price per meal, you know? They see offline grocers as their main competition. In fact, companies like HelloFresh and Home Chef actually say that buying meal kits can be cheaper than doing your own grocery shopping. It makes you wonder, is it really about getting the best deal?

Here’s the thing, they can sometimes compete on price with grocers thanks to economies of scale. The bigger companies, especially, are better positioned to offer lower prices because of the sheer volume they handle. However, even with that advantage, buying ingredients yourself from the grocery store still tends to be cheaper on a per-meal basis. You have the flexibility to buy fewer ingredients or pick cheaper options, which you don’t always get with a meal kit. Plus, there’s often a minimum spend with meal kits; for example, HelloFresh and Blue Apron have a weekly minimum of around $60.95 before any discounts. This makes you think about the real cost beyond the initial price.

One big reason for that high churn rate might be the discounts. Companies rely on incentives as a key part of their strategy to get you to try their service in the first place. But here’s the kicker: when the discount goes away and you have to pay the full price, it might not feel worth it anymore. Customers do their own mental math, and a

$12 meal feels very different from a$12mealfeelsverydifferentfroma$12 meal feels very different from a $4 meal you got with a promotion. Americans, you know, we don’t really like big price changes. Companies sometimes try to get you back by offering discounts again, hoping that will entice you to return.

Beyond price, meal kit companies also heavily emphasize convenience and variety. They want to make cooking at home easier, right? The biggest selling point is definitely the convenience factor. They ship everything right to your door and give you pre-portioned ingredients with fairly simple recipes. It sounds pretty great on paper, doesn’t it?

But here’s the surprising twist: the overall value proposition has actually diminished quite a bit when you look at all the other options out there now. Think about it: restaurants and even grocery stores offer delivery right to your door these days. This makes it tough for meal kits to offer that unique convenience that they once did. While getting pre-portioned ingredients is convenient if you do want to cook, the reality is that Americans only cook an average of 4.5 meals at home per week. This suggests that cooking every night isn’t a top priority for everyone.

This is leading to a big shift in the industry. Meal kit companies are starting to expand their offerings, and guess what? One common addition isn’t a meal kit at all – it’s pre-made meals. You’re seeing companies like Factor where chefs actually cook the meals for you and deliver them fresh. Others offer oven-ready meals or fast and fresh options that take just 15 minutes. Offering more choice tends to make customers spend more, you know? However, it’s still up in the air how much these new pre-made options will actually boost those retention rates across the board.

It’s interesting because while the barriers to entering the meal kit industry are fairly low, which explains why there are so many companies now, the barriers to scale and build a truly big business are actually really high. This means that for companies to survive, they really need to find a way to differentiate themselves. It’s not enough just to offer a similar service to the big players.

Take Methodology, for example. This is a smaller meal delivery company that started back in 2015, and here’s the counterintuitive part: they don’t offer meal kits at all! Instead, they send out four or five days’ worth of pre-made meals. What makes them stand out is they use ingredients you’re less likely to find in other kits, like nopales or purslane.

Methodology caters to a specific audience: people who are really time-starved and don’t have time to cook healthy meals on weeknights. Their customers are often making several hundred thousand dollars or more. While most other companies compete in the

$8 to$8to$8 to $15 per serving range, Methodology is priced much higher, around

$17 to$17to$17 to $30 per meal. Their sweet spot is actually men who often live on takeout, as they’re already spending around $35 per meal multiple times a week. They also don’t rely on deep discounts; their average discount is just 10% off a customer’s first week. This model has actually allowed them to be profitable since their second year, which is pretty remarkable, isn’t it? They even have customers who have spent over a hundred thousand dollars with them because they’ve become a lifestyle for their target customer.

So, what’s next for the meal kit world, you know? We’re operating in a massive category: food at home. Because of that, you’re always going to see new business models and new companies entering the space.

Forecasts suggest that the revenue for the US meal kit industry could reach a whopping $64.27 billion by 2030. Now, some folks in the industry think those numbers might be a little too optimistic. It’s hard to say exactly what the food industry will look like in five or ten years, but meal kit companies definitely believe they can play a significant role in shaping that future.

Looking ahead, the prediction is that in about ten years, we’ll likely see just one or two major players left in the traditional meal kit space. It’s also expected that some companies will either go bankrupt or get acquired by those larger players. This suggests a period of consolidation and a shift in the landscape as the industry matures.