Cost of Delivery Forces Many Meal Kits to Shutter

The meal kit sector’s difficulties may have more to do with logistics than consumer demand.

In an interview with PYMNTS, Ragoth Bala, co-founder of direct-to-consumer (D2C) meal kit subscription company The Cumin Club, argued that the industry’s recent challenges are a result not of a lack of demand on consumers’ part but of leading players’ costly business models.

“Some of the meal kit services have shut down, some of them have decided to fold. … It’s very expensive [for them] to acquire a customer, and it’s very expensive to ship the frozen box to each and every customer,” Bala said. “Usually, they are running their own line hauls, their own trucks, so the business model seems to be the problem — not necessarily the customer need itself. They are finding it harder to attract more customers, new customers, and that’s something we haven’t faced as a problem.”

Troubled Times for Meal Kits

Indeed, PYMNTS research finds that demand for meal kits if anything is on the rise. The study “12 Months Of The ConnectedEconomy™: 33,000 Consumers On Digital’s Role In Their Everyday Lives,” which draws from responses from tens of thousands of U.S. consumers over the course of a year, notes that meal kit subscriptions were on the rise throughout 2022. Specifically, the share of consumers who reported purchasing from online subscription services that deliver meal kits rose from 25% in December 2021 to 31% in November 2022.

Yet the sector has been facing challenges. Blue Apron, for instance, announced in December that it was laying off about 10% of its corporate staff and looking to dramatically reduce its expenses, intending to shave $50 million off its annual spending this year relative to last. The company only recently regained compliance with the New York Stock Exchange continued listing standards.

Plus, earlier this year, Berlin-based multinational meal kit company HelloFresh pulled out of Japan less than a year after entering the country. And prepared meal subscription company Freshly stated around the same time that it is halting D2C meal deliveries as economic challenges rack the company and the broader meal delivery industry.

The Shelf-Stable Approach

The Cumin Club, for its part, has seen success with its model of sticking to freeze-dried vegan foods which are less costly to ship than frozen and refrigerated items. Consequently, the company has also been able to offer consumers a lower price point (around $37 for five meals, about $60 for 20 and around $100 for 20) such that sales are not as dramatically impacted by customers’ inflation-related belt-tightening behavior as they might be if it were a more expensive product.

“We have a core group of customers who have enjoyed this over the pandemic and after the pandemic,” Bala noted. “Now with inflation going up, they still see it as a core part of their weekly meal routine.”

Certainly, consumers are cutting back on food-related splurges. For instance, research from PYMNTS’ study, “Consumer Inflation Sentiment: Inflation Slowly Ebbs, but Consumer Outlook Remains Gloomy,” for which we surveyed more than 2,100 U.S. consumers, revealed that, in response to inflation, 78% of restaurant customers are eating at home more rather than ordering from restaurants.

The Road Ahead

Looking ahead, Bala expects that some demand will remain for frozen and refrigerated meal kits, but not enough to make the economics of the D2C subscription model work. Rather, he predicts that more shelf-stable goods will take over the D2C space, while chilled meal kits will find their place as non-subscription offerings available for purchase at supermarkets.

“We think there will be more and more of the non-frozen meal kits on the market, and frozen meal kits will find their place in supermarkets,” Bala said. “Shipping frozen is extremely difficult. … So, we see more of the shelf-stable meal kits being on the rise while the frozen ones go toward retail stores.”