Nestle, HelloFresh Give Meal Kits Second Wind In Stay-at-Home Economy

Meal Kits Get New Life In Stay-at-Home Economy

With restaurant dining rooms closed and Americans forced to rely on their own abilities as home chefs over the last eight months, meal kits have caught a second wind in the pandemic economy. As it turns out, the average person only has so many recipes stored in their mental cookbook, and within a few weeks of eating them on repeat, consumers rapidly found that they needed the kind of outside guidance that meal kits provide.

But for an industry that has increasingly become a staple of the “stay-at-home” economy, a question waits in the wings: What happens when the economy can open back up and consumers aren’t forced to stay at home anymore? It’s not a question that will be answered tomorrow. Given the rapid rate at which COVID-19 infections are spiking nationwide, it seems the stay-at-home economy is at no risk of coming to a conclusive end before early 2021. But as the media keeps floating the possibility of 90+ percent effective vaccines coming to the market in the not-too-distant future, it’s becoming increasingly apparent that the end – although maybe not quite near just yet – is visible on the horizon.

That reality has, in recent weeks, made the stock market a bit more nervous about those so-called “stay-at-home stocks,” as investors are questioning just how long consumers will hold onto those habits once the necessity has passed. Will consumers keep ordering cookable meals when the easier option of dining out returns?

Consolidation in the Market

As the market for meal kits has spent so many months getting hotter, competitors in the field seem to be moving toward consolidation as they gear up for what comes next. HelloFresh announced it has entered into an agreement to acquire Factor75, Inc., a Chicago-based ready-to-eat meal startup, for $177 million.

The deal will expand HelloFresh’s presence in the United States, and Factor75 will be the fourth U.S. brand to enter HelloFresh’s portfolio: HelloFresh, EveryPlate and Green Chef are the other three.

“Direct-to-consumer, ready-to-eat meals are a nascent food vertical that we believe has the potential to grow into a multibillion-dollar category over time,” said Uwe Voss, chief executive officer of HelloFresh U.S. “We have four high-growth food brands in our group, all benefiting from our strong growth engine, technology and supply chain infrastructure.”

And HelloFresh isn’t the only firm investing in the perceived big future of D2C prepared meals. CPG brand Nestlé announced that it has closed a deal to acquire Freshly, a U.S. meal delivery service, for $950 million, and could pay an additional $550 million if Freshly hits certain growth targets and benchmarks. Freshly currently ships more than a million meals per week.

“Consumers are embracing eCommerce and eating at home like never before. It’s an evolution brought on by the pandemic but is taking hold for the long term,” Nestlé Chairman and CEO Steve Presley said about the deal.

The acquisition, according to Nestlé, marks its official move to directly compete with meal kit subscriptions startups like Blue Apron and HelloFresh, though Freshly doesn’t require any of the preparation or cooking that those kits require.

The terms of the deal will leave Freshly’s business operations unchanged, and the acquisition will not change the company’s meals, pricing or subscription rates. The buy comes three years after Nestlé first bought a 16 percent stake in Freshly in 2017.

“With the acquisition of Freshly, we are strengthening our position in the U.S. and expanding our ability to deliver a wide variety of delicious food to our consumers when and where they want,” Nestlé CEO Zone Americas Laurent Freixe said in a statement following the announcement of the sale.

But meal kits, while attractive, are not without risk or difficulties, as Blue Apron’s ongoing struggles demonstrate. Though the meal kit delivery firm has seen its sales pick up during the pandemic, it has struggled to keep up with consumer demand, generating many complaints of undelivered meals throughout the year. Blue Apron has also had trouble meeting labor demands, according to reports. It is currently working to temporarily reopen its Arlington, Texas plant in an effort to keep up with demand.

“The company decided to temporarily reopen the Arlington fulfillment center to allow it to focus on utilizing existing assets as one of its operating initiatives to help supplement labor quickly, as the company believes there is a more readily available labor pool in and around the Arlington fulfillment center,” Blue Apron noted in an SEC filing. “The company believes that this temporary reopening initiative will enable the company to leverage existing assets to meet forecasted demand while it continues to identify and implement other operating efficiencies.”

An Increasingly Crowded Field 

Meal kit providers have more to worry about going forward than competing with each other, or even with CPG brands like Nestlé. Grocery retailers and restaurants hit hard by the pandemic have also looked to meal kits as a potential business to pursue during the shutdowns. Whole Foods, Kroger and Walmart have all jumped on board the trend. And with the veritable explosion of grocery delivery options seen in 2020, those new entrants are getting very competitive.

And as Kroger’s recent announcement with NBC/Universal makes clear, the grocery giant is being aggressively competitive. With this first-of-its-kind deal, consumers will get $60 off HomeChef, Kroger’s meal kit brand, plus one month of access to NBC’s Peacock, when they sign up for HomeChef before the end of November.

Will meal kits stick around, even after the pandemic is done? Whether they’ll see their customer bases shrink post-COVID remains to be seen. What seems certain is that the race will be both tighter and more competitive than ever.

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