Flexibility will distinguish winners from losers in the meal kit category, says Terra's Kitchen CEO
At Baltimore-based Terra’s Kitchen (which launched on the west coast in summer 2015 and the east coast in March 2016), flexibility and agility are at the heart of the company's business model, which keeps costs down by tapping into existing infrastructure, McDeVitt told FoodNavigator-USA.
“Most meal kit companies do everything themselves from scratch, so they’re buying massive warehouses, hiring all these employees, forecasting, buying food to order, so they are having to raise a lot of money.
“But when I started looking at this market, I felt that there were already companies out there supplying food, so why not just plug into infrastructure that’s already there?” added McDevitt, who works in partnership with FreshRealm, a subsidiary of fresh prepared food/produce company Calavo Growers, which compiles meals at Calavo facilities across the country on Terra's Kitchen's behalf, leaving McDevitt to focus on acquiring – and keeping - customers, and constantly improving user experience.
“So in New Jersey for example, we take up 5,000 of Calavo’s 100,000 sq ft facility and they already stock most of the fresh components we use in our meal kits apart from meat, which comes in frozen.
"So we're just pulling from their inventory and then adding in meat from the freezer," added McDeVitt, who had tried a plethora of meal kits himself but was left frustrated by the lengthy prep time and mounds of packaging waste.
Health and convenience
One other obvious difference between Terra’s Kitchen and most rivals is that the meal components are delivered to consumers’ doors in climate-controlled, reusable shipping containers (created by FreshRealm), which are collected, sanitized and re-used, eliminating the mounds of packaging waste associated with rival offerings.
Aside from the fact that you’re not responsible for dealing with tons of waste/recycling every time your meals are delivered, the vessel “ensures that everything inside remains at the exact same temperature for up to three days,” said McDevitt.
“You put the vessel back on the front porch and we [via FedEx] come and get it and use it again. The plastic containers inside the vessel can be recycled.”
Terra’s Kitchen meals also feature pre-prepped ingredients such that meals can be prepared in less than 25 minutes.
“I loved not having to think about what to have for dinner, but several of the meal kits I tried were taking me well over an hour to make dinner, which isn’t very convenient, plus there weren’t enough healthy options or options for different diets and lifestyles," he observed.
"So at Terra’s Kitchen, we offer Paleo, gluten-free, vegetarian and low-calorie plans. We listen to customer feedback and tailor our offerings accordingly.”
While meal kit ads often feature young affluent Millennals, Terra’s Kitchen’s heaviest consumers are slightly older, says CEO Mike McDeVitt, while the company also has more traction in the suburbs than some rival companies, which attract urbanites.
The average Terra's Kitchen customer spends about $95 per week, while the minimum order for a weekly delivery is $64.99. Shipping is free.
Options include single-serve grab-n-go items ($3.99 to $9.99) and dinner items/meals that serve two ($9.99 to $17.99 per serving),says McDeVitt, who served as CEO of weight-loss brand Medifast between 2007 and 2012 and went on to co-found Tandem, which helps small businesses access legal, financial, operations and marketing support.
“We use variable pricing; we’re not going to charge the same for a New York Strip and a vegetable pasta.”
Subscriptions are flexible and users can customize, skip a delivery or cancel subscriptions, adds McDeVitt, who co-founded Terra’s Kitchen in 2015, secured additional investment from KiwiVenture Partners II in 2016, and is currently embarking on a new funding round:
“We are currently looking at the outside world to say who are the right strategic partners to take us to the next level, and when I say 'strategic,' that could be from the world of food or the world of finance.”
He added: “Today we cover about 85% of the country and we’re looking to open up facilities in the first half of this year that will give us access to the final 15%.”
This is a new industry that’s growing like wildfire
So how does McDevitt feel about the evolving meal kit landscape?
Right now, he said, there is a costly arms race going on between providers who are falling over themselves to give product away in order to acquire customers, which has made some investors jittery.
“This is a new industry that’s growing like wildfire, but there’s also caution from the private equity world because they don’t know how this is going to land, what the next version of this industry is going to look like.
“But I feel pretty confident [that Terra's Kitchen will remain standing after any shakeout] because we have a differentiated proposition from a consumer standpoint [more healthy choices and meal plans, reusable delivery containers, faster prep times] and a more flexible, partnership-based business model, which means we can adapt to market needs and really focus on what our customers, want, not on running the day to day operations.”
It's a two nights a week thing
As for customer retention and engagement, early figures are encouraging, he said: “Some people have totally integrated Terra's Kitchen into their lifestyles and routines and they swear by it.
"From what our customers are telling us, we’re often replacing trips out to restaurants during the week – say Tuesdays and Thursdays - rather than home cooking, so it’s even saving money in these cases.
“It’s not an every night of the week thing; it’s typically a two nights a week thing.”