Kroger will purchase Home Chef for an initial transaction price of $200m with future earnout payments of up to $500m over the next five years contingent upon achieving specific milestones. Home Chef registered 150% growth in 2017 with $250m in revenue and two profitable quarters so far this year.
After the deal closes, Home Chef will operate as a subsidiary of The Kroger Co., maintain its e-commerce business on homechef.com, and assume responsibility for Kroger's meal solutions portfolio.
"We've long believed that the future of our industry is omni-channel and bigger than just meal kits sold online. We want to be where our customers are and want to help make cooking at home easier, more accessible and even more enjoyable," Pat Vihtelic, Home Chef’s founder and CEO, said.
“Kroger's expansive retail footprint will allow us to serve millions of more customers across the country with simple, convenient and enjoyable meal solutions."
According to Home Chef PR and corporate communications director, Susan Oguche, Vihtelic will continue to lead the meal kit company and it will maintain all of its current distribution centers, which reach 98% of the all US continental households within two days.
“We also expect that there would be synergies as it relates to transportation, sourcing, and manufacturing,” Oguche told FoodNavigator-USA.
Home Chef CEO Pat Vihtelic: "We're thrilled that we will be part of the Kroger family and plan to maintain our relentless focus on innovation that meets customers' evolving food needs."
“We’ll explore other opportunities to collaborate after we close.”
Meal kits focused on simplicity and convenience
The meal kit company has differentiated itself by targeting the everyday, convenience-seeking shopper, making a logical expansion to Kroger’s current Prep + Pared refrigerated offering found in the deli section of its stores.
One of the prevailing consumer critiques of meal kits is that the recipes, ingredients, and directions can be a dizzying experience sometimes defeating the purpose of being a convenient meal option.
“Our customer-centric approach is what really sets up apart. While many other meal kit companies take a chef-centric approach to their meals, we're really driven by our customers' taste preferences and needs,” Oguche added.
“We've designed a menu that's delicious and approachable while also featuring recipes that take a unique twist on familiar favorites.”
A deal that is ‘uniquely Kroger’
Speaking to FoodNavigator-USA, Kantar Consulting VP of retail and shopper insights, Diana Sheehan, said that Kroger has been aggressively notching up its e-commerce presence over the past two weeks – having previously struck a deal with Ocado, a British online supermarket that has no physical stores but an extensive direct-to-consumer warehouse grocery shipping network.
“Kroger has illustrated that it is playing to win in the ecommerce space. This paired with the Ocado partnership really sets the stage for a true showdown in the online grocery wars, while continuing to reinforce the importance of the physical store,” Sheehan said.
And the decision to merge with Home Chef out of the plethora of meal kit companies on the market options was, according to Sheehan, “a uniquely Kroger” move as Home Chef meal kits are the best way to connect with its 60 million shoppers.
“While competitors focus on the foodie, Home Chef has targeted families with kids and other none traditional targets as well. Home Chef not only gives Kroger logistical expertise in consumable ecommerce, but also allows them to bring the offer to the store and more effectively appeal to all shoppers,” she added.
“They waited to find a company that not only succeeds in the meal kit space, but does so in a profitable and sustainable way. It’s the perfect partnership for a retailer that has built its success on acquiring assets that are very good at something innovative, but also good on the bottom line.”
Future of the meal kit space
There has been a great migration of meal kits entering physical retail, diversifying from online subscription-based models, in an effort to meet consumers at the moment they’re making their meal decisions for the week or that evening.
For instance, popular meal kit company Chef’d can be found in more than 1,000 stores including Kroger’s Harris Teeter banner, and Blue Apron recently announced its plan to stock its meal kits in Costco stores.
To keep up with demand in the off-line retail space, Chef’d has opened a $10m production facility in California that specializes in producing meal kits for retail.
While still underpenetrated in terms of number of households, meal kits are the fastest growing channel in the entire US food industry, outpacing other channels since 2015, according to Nielsen data.
“Kroger's acquisition of Home Chef is a further signal that the meal kit market is undergoing a period of rapid transformation,” Chef’d SVP of retail, Sean Butler, said.
“Consumers don't want to lock in orders a week early, commit to a $70 spend, and have very limited choice. Recent announcements by Plated, Blue Apron, Home Chef, and others that they will aggressively chase the pioneers into the non-subscription space are welcome confirmations that the meal kit opportunity is stronger than ever.”
Butler added that further consolidation and partnerships are likely on the horizon as the meal kit evolution accelerates to provide consumers with more meal options through more channels.