Meal kits set the table for a new food retailing boom

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Sylvain Charlebois: Meal kits set the table for a new food retailing boomMeal kits are sweeping across North America. It’s the perfect trend for consumers who want to be empowered by cooking but still need convenience.

For example, Walmart has just partnered with Gobble to deliver meal kits. In the battle over the future of food consumption in the U.S., Walmart wants a fighting chance against the industry’s new mammoth, Amazon, after the latter acquired Whole Foods a year ago.

Don’t be surprised if more grocers do the same.

Meal kit delivery services made their debut in 2012. Most companies are still considered startups. Gobble, for example, started in 2014 with its three-step, one-pan, 15-minute meal kit.

The United States now has more than 150 meal kit companies across the country. And Canada has just under 20 significant players already.

While this is a relatively new food retail segment, it represents over $1.5 billion in the U.S. alone and is growing. In Canada, the meal kit segment is estimated to be worth around $200 million and growing.

Metro made a brilliant move when it acquired MissFresh last year, allowing it to hit the ground running. And meal kitting is likely in the cards for other Canadian grocers but no great announcements have been made thus far. And why not?

Instead of takeout, consumers choose a meal kit that brings them pre-shopped, pre-measured, pre-everything, so they can whip up an appealing dish in minutes, even with little or no cooking experience.

Costs, however, are anywhere from $9 to $12 a meal, which makes this service prohibitive for many.

The other problematic issue is packaging. For assured freshness and food safety, ingredients must be thoroughly wrapped, making environmentally-conscious buyers less enthusiastic about their purchases. This is likely the biggest hurdle that meal kits must overcome: the waste is astronomical.

Another issue is profitability.

Goodfood is one of Canada’s largest meal kit providers. It has tripled its active subscribers, to 76,000, but is still losing money. Most providers aren’t making profits and that’s peculiar for a new growing segment.

But given the excitement around meal kits, most of these companies barely sweat to raise capital. The pressure to generate revenues without spending too much on marketing is the real problem. So as the market matures, only some will survive.

Those partnering or working with large retailers have a greater chance of survival and of grabbing a decent share of the market.

Grocers have never been great at food service, so uniting forces makes sense. And grocers are starting to see meal kits as foot traffic drivers, a major advantage these days. This is what Gobble is doing for Walmart.

Despite the challenges, meal kits face relatively few headwinds. The food service and hospitality sector in Canada has been booming over the last few years, with growth exceeding five per cent in 2017 and forecasted to grow more than four per cent this year. Compared to food retailing, these numbers are spectacular.

Grocers want into the food service game and meal kitting is one way to do it. What makes the meal kit case more compelling is the expected revenue for home delivery. In 2018, we expect Canadians to order $2.5 billion worth of food, an increase of 23 per cent from last year. And the industry expects double-digit growth to continue over the next few years.

People are eager to eat more at home while forgoing the worst of cooking. Canadians are still buying cookbooks in droves and watch a record number of cooking shows. But meal kits are increasingly popular.

Ghost restaurants are in vogue in North America and Europe. Unlike Uber Eats, for example, where consumers can directly connect with restaurants, there’s no interaction between a ghost restaurant and the consumer. These are virtual eateries for consumers who don’t want to cook at all. They order from these establishments through third-party applications, all for the sake of convenience.

All of these service models eliminate the inconvenience of waiting in dining rooms for your meal.

For the business owners, they solve the issues of extra labour costs, helping to mitigate risks related to higher minimum wages and, most important, the risk of choosing the right location.

But meal kits still don’t resolve one age-old issue: you still need to clean your dishes after you’re done. Technology hasn’t solved this problem yet but surely someone will come up with something soon.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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By Sylvain Charlebois

Dr. Sylvain Charlebois conducts research in the broad area of food distribution, security and safety. He has written four books and many peer-reviewed and scientific articles - over 500 during his career. His research has been featured in media outlets that include The Economist, New York Times, Boston Globe, Wall Street Journal, Foreign Affairs, Globe & Mail, National Post and Toronto Star.

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