Four big ideas for securing the future of meal kits.

Just a few years ago, meal kits were the hot, new trend in food. Investors were throwing checks at the startups in the space, consumers were buying them en masse, and hordes of new companies with niche areas of focus were popping up to cater to specific dietary needs.

Well, a lot has changed since then. Blue Apron, the industry leader, lost more than 200,000 customers between September 2017 and September 2018. They’ve also seen their stock price tumble from $10 at the time of their IPO in June 2017 to around $1 today. Their CEO left to “pursue other opportunities” earlier this month. Several of Blue Apron’s competitors, like Chef’d, have shuttered.

Where have they gone wrong? And what can meal kit companies do to turn it around? What can we all learn from this experience? Today, we’ll share our four big ideas for securing the future of meal kits.

1) Stop Enabling the Discount Chasers

Meal kit companies have gotten discount-happy. Blue Apron, for example, offers a trial of three boxes at $40, compared to the normal price of $60. That’s obviously an enticing deal, and so it gets a lot of new buyers in the door. But then those same people finish up their trial, skip the renewal, and discover an incredible loophole: Blue Apron reaches back out to offer another three boxes at the $40 rate. Some consumers have signed up for trial promotion after trial promotion and never progressed to paying full price.

This discounting strategy doesn’t work for any membership program over the long run. Looking across our clients, we’ve found that price sensitivity for the most successful membership businesses is around 0.2-0.3. That means that if you offer a 10 percent discount, you’ll only get a two to three percent increase in volume. The math doesn’t add up; sure you get a few more customers, but you’re giving the discount to everyone—including people who were qualified leads and would have paid full price.

Resist the temptation to cast a wide net by getting new customers in on the cheap. They won’t retain well, and you’ll end up with a negative customer lifetime value.

Is there a place for discounts? Yes, if done strategically. If you’re able to offer them to prospects who otherwise signal that they’re quality leads, you can sometimes get them to sign up impulsively. But you want to save discounts for “warm” leads that you know are interested in what you’re offering. Have a one day flash sale to play on the sense of urgency. Don’t “batch and blast,” offering the deal to complete strangers. Only make the offer if you know for sure that they have the potential to become a great long-term subscriber.

2) Avoid the Pile-Up Effect

In the meal kit space, subscribers set a cadence for meal delivery. Most companies allow you to suspend a shipment, but it’s easy for customers to forget to do this, and soon enough, they find the boxes piling up in their refrigerators. Then, the contents start to go bad and end up in the trash. Members begin to feel like they’re not getting their money’s worth and cancel their subscription.

We see this in other industries, too. One of our publishing clients has amazing content, but the renewal rates are strangely below industry benchmarks. When we conducted a survey, we learned that many subscribers loved the material, but issues kept piling up, and they canceled because they didn’t want to add to the backlog. For this company, digital-only subscribers retained better because they didn’t have the physical reminder of hard-copy issues they were paying for but not reading.

What if meal kits could take a page out of this publisher’s book and marry the physical and digital world? What if there was a light option to receive just one box per month that taught you a new skill, but then you also got digital meal plans, recipes, and shopping lists for the rest of the month? And what if those meal plans were developed so that you could repeat ingredients, thereby reducing food waste? Sure, this model doesn’t eliminate shopping time like the kits do. But it certainly makes the shopping experience more streamlined and puts the member in control.

3) Focus on Intermediate to Advanced Skills

Meal kits are fun at first because you’re learning new things. But after a while, many members report that the excitement wanes. As they master beginner level cooking skills, they outgrow the recipes they started on. And the new recipes don’t afford them the opportunity to advance their knowledge.

Meal kits should have beginner, intermediate, and advanced options to retain customers as they progress skill-wise. You wouldn’t major in economics and take Econ 101 ten times, would you? No, you want the challenge of building more advanced skills as you grow.

4) Understand the Psychographics, Not Just the Demographics

Many meal kits have been focused on the busy urban Millennial. At the surface that makes a lot of sense. These Millennials didn’t grow up with grandma teaching them how to cook. They have high-pressure jobs, leaving them with little time to shop. They live alone and don’t need family-sized goods.

All of this is true, but the meal kits are forgetting an essential component of the Millennial way of thinking. They are highly environmentally conscious. Yes, they have tangible pain points around skill building, time, and food waste, but they also want to be environmentally responsible.

Meal kits generate a ton of paper and plastic waste. They’re delivered in large cardboard boxes with ice packs. Every ingredient inside has its own little wrapper or plastic cup. The trucks and vans that deliver the boxes generate air pollution. For a group that’s worried about carbon emissions and ever-expanding landfills, these kits create some major concerns!

Some of the meal kit companies are beginning to respond to this worry by creating products for grocery store shelves. These kits have less superfluous packaging and are delivered in batches to the store, rather than individually to homes, which addresses some of the key environmental concerns. Meanwhile, they still offer consumers the convenience of pre-measured ingredients and set recipes in a grab-and-go format.

Insider Take:

What’s happened in the meal kit space is a cautionary tale for all businesses and industries beginning to move towards subscription models. Membership programs can generate incredible returns and secure long-term success when established properly. But if you don’t understand the essential needs and wants of your customers, you can end up with a broken system.

Rob Ristagno, Subscription Insider Guide to Digital Product Management, is the founder of The Sterling Woods Group and previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing technology and analytics to spur strategic growth. 

He and the team are passionate about helping clients understand their best customers through data, and developing new product and marketing strategies that exceed expectations - and generate impressive revenues. 

Committed to spreading this message, Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday. He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College. 

Email: rob.ristagno@sterlingwoodsgroup.com
Website: www.sterlingwoodsgroup.com
Twitter: @SterlingWoodsGr

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