Barely 10 years old, the market for meal kits is worth USD3.5bn today. The idea of putting together pre-packaged fresh ingredients using a recipe that accompanies them in the box appeals to consumers who value “naturalness” and quality alongside convenience.

Although meal kits are currently favoured by a relatively niche group of high-income and urban Millennials, the segment is expected to grow 17% year-on-year, to reach USD8.9bn in 2025. And that’s before Covid, which has simultaneously boosted the home consumption and e-commerce that drive the meal kit market. The sales performance of meal kit groups such as HelloFresh and Marley Spoon has seen a sharp acceleration in Q2 2020.

For meal kit companies, success is all about customer acquisition and retention. With hefty promotional spending needed in a new and competitive market, each customer costs EUR70-150 to acquire, yet mid-term retention rates are only 10-12% on average. As a consequence, few players have been profitable – at least until Covid, which has now inflated profitability to break-even for many. However, it’s unlikely that this stimulus will endure, and we envisage further exits in a market that has seen plenty of consolidation since 2018. In our view, it’s the inherent challenges of the meal kit market, rather than meal kit launches from giants such as Amazon and incumbent large retailers, that’s been behind the shakeout in meal kit players.

In a market that’s still fragmented, we see two models proving successful: either international expansion driven by sophisticated data collection and analytics; or a regional strategy focused on operational excellence. It’s these approaches that may yet see the global market for meal kits mature beyond its niche and take a lasting place in the global food market.

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