Between family life, busy careers, long commutes, social commitments, and (if you’re lucky) some much-needed down time, it’s no surprise that convenience has become the top motivating factor driving purchase decisions. Consumers are time-crunched, and the brands that find innovative ways to add a few minutes back to customers’ hectic schedules stand the best chance to win their loyalty.
Subscription meal kit providers have established themselves as one of the fastest-growing trends to come out of this convenience economy. With brands like Blue Apron, HelloFresh, and a host of others, customers get pre-portioned ingredients and recipes delivered straight to their doorsteps. Packaged Facts estimates the US meal kits market hit $3.1 billion in 2018 and is expected to rise to $5.5 billion by 2023. While that lags overall e-commerce growth rates, it’s significant enough to warrant the attention of grocery brands everywhere.
In a previous blog, I explained why fresh-and-prepared options represent the best opportunity for grocery brands to earn more “share of stomach” and drive profitable growth. Now I’ll dive a little bit deeper into how that opportunity compares to subscription meal kits specifically.
Meal kits appeal to key demographics—but they’re struggling to establish sustainable growth models
It’s estimated that 17% of adults receive meal kit delivery services, and the demographic data from our grocery industry report shows that they over-index with higher-income households consisting of millennial-aged parents with multiple children. While the usage rate is high for a relatively new service and the demographic is a top-targeted group for all types of food retailers, not all signs are positive.
More than half of subscribers cancel their subscriptions within the first 6 months, and nearly 75% cancel within the first year. Like many subscription services, customer acquisition costs are high and providers often have to offer discounted introductory rates to inspire consumers to try the service. Once those discounts expire (and perhaps the novelty wears off), consumers seem to be less enthused about renewing their subscriptions. In fact, an article from eMarketer explains that customers cancel meal kit subscriptions because the service isn’t quite convenient enough, with the top-cited reasons being:
Fresh-and-prepared food strikes the right balance between convenience + value
Interestingly enough, the complaints listed above align almost exactly with the reasons consumers choose to purchase fresh-and-prepared food items at the grocery store—with 5 of the top 6 reasons relating to convenience.
When you consider it from the perspective of a customer with an empty fridge and a hungry family, it makes a lot of sense. At that point, it boils down to two options: 1) go out to eat and avoid the trip to the grocery store for another day or 2) bite the bullet and go to the store, buy the ingredients, come home, and prepare dinner. Fresh-and-prepared food offerings offer a “best of both worlds” option where customers get the convenience of a prepared meal and can still do their weekly shopping in a single visit.
When fresh-and-prepared options hit the mark, customers spend more + return sooner
While fresh-and-prepared options are ideal for customers, they present even more exciting opportunities for grocery brands. Traditional brick-and-mortar food retailers have adapted to the convenience economy by adding several options, including home delivery and curbside-pickup. But those tend to be focused on “center aisle,” pre-packaged goods (where profit margins are razor-thin) and require stores to either add or re-allocate labor to do the in-store shopping.
Fresh-and-prepared options, on the other hand, have more lucrative profit margins and—when done well—can have considerable impact on the customer experience and loyalty behaviors. Our research shows that customers who are highly satisfied with fresh-and-prepared items spend more per week on average at the grocery store and return 4.4 days sooner than non-satisfied customers.
That said, as fresh-and-prepared offerings continue to evolve, customers are raising their expectations. To gain loyalty and make that one-stop-shopping experience part of a weekly routine, brands need to offer more than just rotisserie chickens next to the checkout.
Staying competitive in the age of convenience
There’s no question that time-strapped customers are willing to pay more for convenience. But with more dollars up for grabs, there are a lot of options to compete with. While fresh-and-prepared options offer an immediate opportunity, grocery brands will need to continue to innovate to drive in-store traffic.
To learn more about how grocery brands can compete in the convenience economy, check out our full report: How the grocery industry can earn “share of stomach” with fresh-and-prepared food
Zach Brown | VP, Customer Engagement