Just a few years ago, meal kits were the hot, new trend in food. Investors were throwing checks at the startups in the space, consumers were buying them en masse, and hordes of new companies with niche areas of focus were popping up to cater to specific dietary needs.
Well, a lot has changed since then. Blue Apron, the former industry leader, lost more than half a million customers between 2017 and 2019. Competitor Hello Fresh surpassed them as the biggest meal kit brand. And they’ve seen their stock price tumble from $10 at the time of their IPO in June 2017 to around $5 today. Several of their competitors, like Chef’d, have shuttered.
Where have meal kit companies gone wrong? And what can they do to turn it around? Today, we’ll share our four big ideas for securing the future of meal kits.
Stop Enabling the Discount Chasers
Meal kit companies have gotten discount-happy. Blue Apron, for example, offers a trial of $20 off each of your first four boxes. That’s obviously an enticing deal, so it gets a lot of new buyers in the door.
But then those same people finish up their trial, skip the renewal, and discover an incredible loophole: Blue Apron reaches back out to offer another discount! There have been lifestyle pieces written by folks who game the system and play various meal kit companies off each other, all in the name of getting a month’s worth of free food.
Discounting strategies can easily go wrong, if they aren’t carefully considered. And competitors in the meal kit space clearly haven’t figured out how to discount properly.
Offering a blanket discount to everyone means you’re differentiating yourself solely on price, not on quality or uniqueness of offerings or anything more substantial. Instead, you’re creating an environment where, the second a competitor undercuts you with a steeper discount, your customers will go running into their open arms.
Looking across our clients, we’ve found that price sensitivity for the most successful membership businesses is around 0.2 to 0.3. This means that if you offer a 10 percent discount, you’ll only get a two to three percent increase in volume.
The math doesn’t add up! Sure, you get a few more customers, but you’re giving the discount to everyone—including people who were qualified leads and would have paid full price.
Is there a place for discounts? Yes, when done strategically. If you can offer them to prospects who otherwise signal that they’re quality leads, you can sometimes get folks to sign up impulsively. But you want to save discounts for “warm” leads that you know are interested in what you’re offering.
Have a one-day flash sale to play on the sense of urgency. Don’t “batch and blast,” offering the deal to complete strangers. Only make the offer if you know for sure that they have the potential to become a great long-term subscriber.
Avoid the Pile-Up Effect
In the meal kit space, subscribers set a cadence for meal delivery. Most companies allow you to suspend a shipment, but it’s easy for customers to forget to do this, and soon enough, they find the boxes piling up in their refrigerators. Then, the contents start to go bad and end up in the trash. Members begin to feel like they’re not getting their money’s worth and cancel their subscription.
We see this in other industries, too. One of our publishing clients has amazing content, but the renewal rates are strangely below industry benchmarks. When we conducted a survey, we learned that many subscribers loved the material, but issues kept piling up, and they canceled because they didn’t want to add to the backlog. For this company, digital-only subscribers retained better because they didn’t have the physical reminder of hard-copy issues they were paying for but not reading.
What if meal kits could take a page out of this publisher’s book and marry the physical and digital world? What if there was a light option to receive just one box per month that taught you a new skill, but then you also got digital meal plans, recipes, and shopping lists for the rest of the month? And what if those meal plans were developed so that you could repeat ingredients, thereby reducing food waste?
Sure, this model doesn’t eliminate shopping time like the kits do. But it certainly makes the shopping experience more streamlined and puts the member in control.
Focus on Intermediate to Advanced Skills
Meal kits are fun at first because you’re learning new things. But after a while, many members report that the excitement wanes. As they master beginner level cooking skills, they outgrow the recipes they started on. And the new recipes don’t afford them the opportunity to advance their knowledge.
Meal kits should have beginner, intermediate, and advanced options to retain customers as they progress skill-wise. You wouldn’t major in economics and take Econ 101 ten times, would you? No, you want the challenge of building more advanced skills as you grow.
This is an important lesson for anyone creating a subscription service. Offering a variety of products at different price points allows you to create a product pyramid.
Your customers will likely start on the bottom tier, with low-cost introductory products. If they like your brand and begin to outgrow those basic offerings, they’ll be open to trying something new. They’ll even be willing to pay a bit more for it, if what you’re providing allows them to get something new from your business.
Every business needs a product pyramid. This strategy keeps existing customers satisfied and grows revenues without needing to acquire brand new customers constantly.
Understand the Psychographics, Not Just the Demographics
Many meal kits have focused on the busy, urban Millennial. At the surface, that makes a lot of sense. These Millennials may not have grown up with grandma teaching them how to cook. They may have high-pressure jobs, leaving them with little time to shop. Many live alone and don’t need family-sized goods.
Meal kit companies, however, are forgetting an essential component of the Millennial way of thinking. They are highly environmentally conscious. Yes, they have tangible pain points around skill-building, time, and food waste, but they also want to be environmentally responsible.
Meal kits generate a ton of paper and plastic waste. They’re delivered in large cardboard boxes with ice packs. Every ingredient inside has its own little wrapper or plastic cup. The trucks and vans that deliver the boxes generate air pollution. For a group that’s worried about carbon emissions and ever-expanding landfills, these kits create some major concerns!
Any brand could fall into this trap. So concerned with the basic demographic signifiers, they completely lose sight of the bigger ideals driving their ideal customer. No matter what business you’re in, understanding your customer fully by creating detailed personas for your various segments can help you avoid these errors.
Some of the meal kit companies are beginning to respond to these environmental concerns by creating products for grocery store shelves. These kits have less superfluous packaging and are delivered in batches to the store, rather than individually to homes, which addresses some of the key environmental concerns. Meanwhile, they still offer consumers the convenience of pre-measured ingredients and set recipes in a grab-and-go format.
What’s happened in the meal kit space is a cautionary tale for all businesses and industries beginning to move towards subscription models. Membership programs can generate incredible returns and secure long-term success, when established properly. But if you don’t understand the essential needs and wants of your customers, you can end up with a broken system.
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.