Meal kits, or recipe boxes, have surged in popularity in recent years. Meal kits provide pre-portioned ingredients and recipes that consumers use to cook at home, with kits typically sold as a subscription service. Meal kit delivery services offer a wide variety of recipes and ingredients, enabling consumers to customise their meal plans based on their dietary preferences, as well as choose how frequently they want to receive kits.
Growing demand
Convenience has been a strong contributor to growth, as increasingly busy lifestyles are leading to consumers to opt for quick and easy-to-cook meals without sacrificing taste. These kits save consumers the hassle of having to plan what to eat and the sometimes stressful and time-consuming task of grocery shopping.
Many consumers, particularly those from low-incomes households, may avoid meal kits, as they are often sold at premium prices, costing more than groceries from supermarkets. Some may also not want the commitment that comes with a subscription model and rather opt for spontaneous and cheap fast-food options that are widely available for delivery, constraining demand and lowering subscriber retention.
However, meal kits can also be more affordable than restaurants, particularly given the quality and freshness of ingredients. For example, two recipes for two people per week from Gousto cost £25, while three recipes for two people per week start from £30 at HelloFresh.
In a 10-week comparison study in the United States, meal kit delivery service HelloFresh states that its service costs 23% less per person versus supermarkets and 78% less than restaurants.
Due to rising competition, operators regularly offer discounts to new customers to incentivise them to subscribe.
Moreover, meal kit providers have been able to expand their product offerings to cater to changing consumer tastes. An increasing number are offering healthy ingredients to satisfy growing health consciousness and introducing a greater range of vegetarian and vegan recipes.
According to estimates from the Vegan Society, there were 600,000 vegans in the UK in 2019, equating to just over 1% of the population, and up from 150,000 in 2014.
A key driver of growth has been the boom in online food ordering. According to the Office for National Statistics, 96.6% of UK households have internet access, while smartphones have become a necessity in everyday life and provide a quick and easy way of ordering meal kits.
The internet has helped businesses to reach a wider consumer base, reducing marketing fees. However, this also means that meal kit providers are facing greater competition, with takeaway and fast-food restaurants and supermarkets increasingly investing in improving their online channels to satisfy changing consumer preferences.
Coronavirus boost
The coronavirus pandemic has accelerated the trend towards online food ordering, propelling demand for takeaways and food delivery services. This has allowed meal kit delivery service operators to thrive while many other food-service firms have struggled over the past two years.
Coronavirus restrictions that forced the closure of hospitality and leisure establishments for long periods of time over 2020-21 reduced household expenditure. Many consumers replaced dining out with takeaways and meal kits.
According to Cardlytics, spending on meal kits and grocery boxes in the United Kingdom increased by 114% year on year in April 2020, with 11 million out of the 22 million UK bank accounts in the sample purchasing recipe boxes.
Additionally, amid the stay-at-home guidance, people spent more time at home and many are likely to have turned to cooking at home, partly due to boredom, supporting demand for meal kits. Prevailing health fears have also resulted in consumers avoiding to go out, even to supermarkets.
According to data from Barclaycard Payments from April 2021, 10% of the British population ordered a meal kit for the first time during the national lockdown at the start of 2021. Moreover, 9% of people had spent more on meal kits since the first nationwide lockdown in March 2020.
Fresh competition
The UK meal kits industry is still in its infancy, with a limited number of operators solely providing meal kit delivery services. However, internal and external competition is rising. There has been some merger and acquisition activity in the industry, though mostly involving global expansion, while investors have poured money into firms to reap the benefits of direct-to-consumer growth opportunities.
Founded in 2012, the largest meal kit provider in the world is Berlin-based HelloFresh, which was the first meal kit delivery service to launch in the United Kingdom in 2012. It operates in 12 countries, boasting nearly seven million active customers in September 2021, up from 5.3 million in December 2020. HelloFresh has been at the forefront of merger and acquisition activity in recent years, acquiring meal kit rivals in the United States and Canada. In the United Kingdom, its workforce more than doubled to 634 people in 2020.
During 2020, the coronavirus pandemic boosted demand and helped the company deliver over 600 million meals, with orders per customer reaching 4.2 in 2020, up from 3.6 in the previous year.
HelloFresh reported group revenue growth of 107.3% over 2020 and revenue growth of 67.1% year on year over the nine months through September 2021.
Other large players include Gousto and Mindful Chef, while smaller ones include Simply Cook and Abel and Cole. London-based Gousto was founded in 2012 and managed to double its monthly meal deliveries during 2020, from 2.5 million to five million, recording its first profit. It has stated that lockdowns have attracted new customers to the service, while existing customers are buying more meals, resulting in the company having to hire an extra 400 people.
Gousto’s revenue surged by 129% to a record £189 million in 2020.
The company also achieved ‘unicorn’ status, having gone through five funding rounds and raising over £155 million in equity from investors. In January 2022, it raised a further £110 million, bringing its value to £1.25 billion, as reported by UK Tech. The company is also tipped for a potential initial public offering in the coming months. To meet rising demand, Gousto has announced plans to double its workers in the United Kingdom to 2,000, mainly in technology roles, and open two new distribution warehouses.
Mindful Chefs, which launched in 2015, recorded a 452% rise in orders during the spring lockdown in 2020. Overall, it has delivered over 20 million meals to more than 287,000 customers. In November 2020, Nestlé acquired a major stake in the company, beating competition from Waitrose.
Sustainability concerns
Meal kit providers face sustainability issues, amid rising climate concerns and consumers paying more attention to supply chains. They have been scrutinised because of their use of excess packaging and freezer gel packs that keep ingredients refrigerated during shipping but are difficult to recycle.
Operators have been trying to reduce their environmental impact in their packaging and supply chains. For example, HelloFresh uses recyclable paper kit bags and also states that the carbon footprint of its kits is 25% lower than meals made from store-bought groceries, due to its streamlined supply chain. Moreover, it is the UK’s first meal kit provider to become Red Tractor-licensed, due to its commitment to animal welfare and sustainability.
Gousto reduced its consumption of single-use plastics by 50% in 2020. It also uses algorithms to predict supply needs at its manufacturing sites, which it claims cuts food waste to 2%, compared with 40% of food wasted in traditional supermarket supply chains, while precise portion sizes mean less waste in the home. By 2022, all Gousto own-brand packaging will be either recyclable, reusable or compostable. Other operators are expected to follow suit.
Continuing to deliver
The industry is tipped to continue to grow robustly in the coming years, with changing consumer habits set to sustain demand above pre-pandemic levels, though growth is expected to slow from the lockdown-induced boom.
According to a survey by Mindful Chef, seven in 70% of customers stated that they would continue using the service after the pandemic. Moreover, Barclaycard found that 24% of consumers ordering meal kits expected to continue doing so once hospitality establishments reopened in May 2021.
Growing demand for healthy meal recipes and high-quality, domestically-sourced ingredients offer opportunities to operators. Intensifying internal competition is expected to encourage operators to expand service offerings to target niche markets, driving revenue growth. Meal kit providers are also likely to continue to collaborate with restaurant chains — for example, Mindful Chef has partnered with Nando’s and Leon — as well as with fitness influencers and reputable chefs to improve offerings and draw in consumers.
Investment is likely to continue flowing, as the industry shows great growth potential, and merger and acquisition activity is likely to intensify, with larger operators acquiring smaller ones in order to win market share and be profitable.
However, meal kit delivery service providers are expected to face some challenges. As products can be sold at premium prices, it can be unappealing to lower-income households, with consumer retention potentially being a problem once again after the pandemic.
Operators also face stiff competition from supermarkets, takeaways and restaurants, which are increasingly rolling out ready-to-eat and frozen meals for time-poor consumers, hindering the growth of meal kit delivery service providers. To retain customers and lure others to subscribe, the industry has to keep investing in innovating to add more value.
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