That said, the challenges for retail meal kits are also easily under-estimated. For a start, the addressable market for heavy users of these kits may not be as large or as extendable as many operators assume. Specifically, the addressable market that will generate a profitable, repeat-purchase business may not be as large as many assume.
Luckily, at $9-$12/serving and 4-6 servings a week, it doesn’t take many heavy consumers to create a very large business.
The key to cracking the retail meal kit code will be deploying a highly focused, NOT a mass market, go-to-market strategy. Blowing cheap kits out fast at Walmart will only teach Walmart to launch them quickly under their Marketside label. Then what? Now you’re an overpriced meal kit at Walmart.
The key to cracking the retail meal kit code will be deploying a highly focused, not a mass market, go-to-market strategy
If I were the new owners of Chef’d, here is how I would go about thinking through the future.
First of all, there are some baseline market realities that meal kit providers need to appreciate:
• Private Label dominates packaged foods in the store perimeter (from Walmart to your local supermarket); retailers with a decent level of trust in their fresh offerings from their core shoppers should be able to swiftly launch their own store label meal kits (and already have).
• Retailers are starting to see meal kits as traffic drivers, which means they will be more than willing to launch mediocre ones aimed at a mass audience for next to no net margin. A branded supplier can’t compete for shelf space easily in this environment, without a truly unique offering the retailer just can’t pull off. Plan on store label eventually capturing 20-30% market share in this space as it develops (above average and less than their share of bagged salads). Branded suppliers must build product line that cannot be matched by the major chains.
• As the Hartman Group and other consulting firms have consistently reported in recent years, it is the cheap/low price and the premium offerings driving all the growth at retail food/beverage. Brands with middling pricing and middling quality are not growing and most are in decline (except in the e-commerce channel). Most of these very old, dated name brands offer neither a bargain nor great quality.
• Trying to offer an inexpensive retail meal kit is a dubious strategic idea for many reasons, the most important of which is that margins are already bad enough in this category. Trying to compete at Jack-n-the-Box $/serving prices would likely be unsustainable for a branded supplier. Plus, the lower you go, the more the target audience would rather just go to Jack-n-the-Box anyways or whip up some cheap mac-n-cheese. There is no shortage of cheap meals one can cook at home already.
Premium is the only logical positioning for retail meal kits
So premium really is the only logical positioning for retail meal kits in my view. To pull it off, though, brands must launch with:
- A highly focused set of UPCs (i.e. not 1,000).
- A very tight culinary focus. Consumers of premium brands do not for one minute believe a brand can credibly be expert in ALL of the world’s cuisine. Chef’d put out some rather mediocre Asian meals, for example, even for its retail launch. The audience who would have accepted that level of quality isn’t generally interested in paying $9-10 per meal on a regular basis to cook it for themselves, when take-out costs the same.
- Deep authenticity and a compelling story of expertise. This is how meal kit brands can out-compete powerful store labels like Simple Truth (which will no doubt enter this category imminently).
Target upper middle class, Gen X consumers
Given all of the above, Chef’d should seriously look at the following go-to-market strategy (or a variant of it):
• Pick a powerful marketing foil (i.e. not frozen food or cheaper than a Deli meal). Here’s one: elite urban restaurants that cost a fortune to get in and out of (mainly due to the over-priced wine and cocktails) and that most upper middle-class consumers living in the suburbs find annoying to get to (or to get reservations at). These are concept restaurants with creative cuisine and local/seasonal ingredients. Plan to take make some of this food more accessible to a predisposed audience by eliminating the most costly, but not sensorily crucial, elements. After all, little of this ‘elite’ urban cuisine requires the bewildering technical complexity and kitchen stamina of Indian, Thai or haute French cuisine. Ever try making your own chicken biriyani?
• Target audience: Upper middle class, Gen X consumers (who have the highest incomes right now) who are very good home cooks already (20+ years of independent cooking), but who easily lack the creativity of today’s top urban chefs. They still feel they have to go out and ‘buy’ that creativity. The kit exists to make reproducing that coveted urban menu item more accessible, not to hold their incompetent cooking hand through the process. Condescend and you’ll lose them faster than you can say ‘delisted.’
- Build the brand around urban, elite restaurant cuisine (not classic ethnic recipes); think affordable versions of recipes found in Eater.com’s top restaurants around the country
- Launch with no more than 10-15 UPCs, while permanently rotating a small portion of the slots within that total to keep things ‘fresh’; the business could actually function as a laboratory for scalable recipes that could sustain ingredient supply chains for at least five years
- Explore getting licensed recipes from top urban chefs directly. They’ll see it as revenue-generating marketing and brand-building. No one loses.
- Everything in the kit has to be very high quality, not just the meat or just the produce or just the sauces/spices. Chef’d, for example, made a bewildering decision to partner with Smithfield Foods, the largest commodity pork producer in the world. This is not a company that understands the level of quality the above target consumer wants. Nor do they care, I’m sure. They aren’t Niman Ranch. In premium branded businesses, your suppliers have to be aligned to the same notion of quality you are focused on delivering. Claiming to have upscale recipes from a chef and then executing with commodity meat (and slapping that commodity brand on your pack) makes no marketing sense in today’s very sophisticated marketplace.
- Premium brands succeed when they begin with highly focused, sophisticated niche consumer audiences who are price insensitive compared to the mainstream shopper in the category. They build excitement and legitimacy for the non-mainstream, causing others to try it.
- Price these kits to frighten off the casual lazy home cook - $9-10 per serving or even slightly more. The other reason to price as high possible is that it provides a gross margin pad that can be ever so slowly eroded at the shelf as the business scales and COGS come down. If you start with Walmart pricing, you have nowhere to lower your pricing when you do reach Walmart…and they will still make you do this, if you built your brand to scale first elsewhere
- Upmarket retailers are key to making this work, but only in highly limited regional launches (e.g. Costco in the pacific northwest, Whole Foods market in southern California) that focus on key stores/zips in major metro areas.
- Only certain metro areas will generate initial, profitable repeat volumes. Take a lesson from organic produce companies such as Earthbound Organic farms, which spread way too far, too fast with a highly sensitive, super-perishable product offering that became easily undercut by store label organics.
- Fast national roll-outs would most likely repeat the financial shut down we just witnessed at Chef’d. Meal kits from a branded supplier will always be low margin items, with a constant threat of being ripped off by store label offerings that offer the retailer better margins. Go slowly and build an incredibly loyal following. This is what Sun Basket has done for those who insist primarily on organic levels of purity in their dinners. They found a niche for folks stuck with poorly run local supermarket produce departments.
- To ensure the right audience is buying premium meal kits, avoiding TPRs (temporary price reductions) is key. The big e-commerce brands have provided a textbook example of how to manufacture churn in a CPG business: offer people 50% off their first week, then under-deliver on quality anyways. The big subscription meal kit brands have built businesses weighted too much toward trial-based volume. Literally, this is a worst practice in fast moving consumer goods.
- I can’t think of a better category for high energy, store-demos…very creative ones…this is fresh food after all…not a Pop-Tart. Humans are viscerally drawn to the act of cooking. And retailers simply don’t do it enough in-store.
The bottom line
All told, the extended shelf life technology Chef’d has access to through True Food Innovations should provide an excellent foundation for a re-launch.
The trademark is good. However, the original concept was vague, unfocused and not coherent in its level of quality or implied target audience. If they go slowly, focus and build deliberately on a 5-7 year curve, this could be a very successful business.
James F. Richardson, Ph.D. – formerly senior VP of knowledge and innovation at Hartman Group - is a growth strategist for emerging food and beverage brands and founder of Premium Growth Solutions, a consultancy for entrepreneurs and investment firms focused on the premium end of retail food and beverage.