Meal Delivery Services: You’ve Got to be Kitting Me!
Meal kit delivery services are great for consumer convenience and health. But their supply chain complexity can cause plenty of heartburn.
Busy families, working couples, and singles who want to eat home-cooked meals but don’t have the time to plan and shop are flocking to meal and meal kit delivery services. Consumers who subscribe to these services typically receive a shipment of fresh, prepared ingredients for one or several meals, along with the corresponding recipes, once a week. As the sector continues to grow, so does the supply chain flexibility and agility meal kit delivery services demand.
“The everything-in-a-box kits promise convenience by eliminating the need to plan meals, find recipes, and shop for groceries,” according to Packaged Facts’ April 2016 report, Meal Kit Delivery Services in the U.S.
Each ingredient in the shipment is sized to the recipe—if the instructions call for two scallions, two scallions are in the container. As of June 2016, consumers could choose black garlic-shoyu ramen from Blue Apron or herbed hanger steak with green beans, red onions, and grits from PeachDish. Veestro, which delivers frozen vegan meals to consumers’ homes, offered veggie empanadas.
The idea of a company delivering meal ingredients to consumers’ homes has been around for a while. “Fifteen years ago, companies located outside Los Angeles and New York didn’t have the density required to make such services feasible,” notes Paul Steiner, vice president of strategic analysis with Atlanta-based Spend Management Experts.
The growth of residential deliveries changed the equation by reducing the distances between stops for carriers, and increasing the number of items delivered to each stop. This “has lowered the carrier’s cost structure to support residential deliveries,” Steiner says.
Even so, most subscribers reside in urban areas. Nearly three-fourths of users are between the ages of 25 and 44, and more than three-fifths live in urban areas, according to Packaged Facts.
While operators who succeed will need to offer tasty meals and an engaging, intuitive user interface, their supply chain management skills also will be key. That’s because many services promise some mix of local, fresh, reduced-calorie, gluten-free, or organic products. “Each meal kit service offers a certain hook,” says Chris Caplice, executive director with the MIT Center for Transportation and Logistics.
The attention lavished on the ingredients is great for consumers looking for healthy, tasty meal alternatives. It’s also often a boon for local farmers, who gain a source of ongoing demand for their goods.
Yet it also makes for more complicated supply chains. The companies often work with dozens—and sometimes hundreds—of smaller suppliers. PeachDish, an Atlanta-based meal kit delivery firm, sources seasonal herbs, vegetables, and meats directly from 75 farms and producers, 75 percent of which are local. “Purchasing local, organic, and at the season’s peak is the best way to achieve the most flavor and nutrition,” says President Judith Winfrey.
PeachDish ships 20,000 meals each month throughout the contiguous United States. Customers can choose from at least eight meal options each week. Four change seasonally, while the remaining change weekly. At least three meals are vegetarian.
Ensuring ingredients are what they’re supposed to be can be a challenge for all companies. “If a food company promises locally grown ingredients, and that’s a strong part of its brand proposition, it needs to make sure all the food it uses is locally grown,” says Katy Jones, vice president of marketing with FoodLogiQ, a provider of food traceability solutions. For organic items, “companies want to know their suppliers have their certifications locked and loaded,” she adds.
What’s more, it’s difficult to promise local ingredients without opening local kitchens, or transporting all the ingredients to a single distribution center, says Brian Fugate, associate professor in the department of supply chain management at the University of Arkansas. At the same time, companies may struggle to obtain sufficient quantities of different ingredients if they limit themselves to local sources of supply. One solution may be networks of distribution centers that pull from farmers located within several hundred miles of each one, Fugate adds.
Once ingredients arrive at the food companies’ facilities, they need to be divided, prepared, packaged, and assembled into meal kits. “Meal kit companies need sophisticated systems to get materials in, reassemble them, package them, and keep them hot or cold and secure,” says William McLaury, assistant professor in the department of supply chain management at Rutgers University. In addition to the multitude of moving parts, all functions have to occur at an extremely expedited pace, he adds.
8 Million Meals Monthly
New York-based Blue Apron ships more than 8 million meals per month to customers across the country. To make that happen, regional farms and suppliers deliver ingredients to fulfillment centers in New Jersey, California, and Texas at the beginning of each week, explains spokesperson Nisha Devarajan. The company’s farm sourcing team works directly with a network of 150 farmers, who grow seasonal varieties of produce, such as honeynut squash, watermelon radishes, and fairytale eggplant, that the company’s chefs use in their recipes.
Once ingredients arrive at the fulfillment centers, they’re portioned, packed, and shipped, all within the week, to customers across the country. The inventory turns almost completely each week. Also each week, Blue Apron’s culinary team creates 10 new recipes, which aren’t repeated for another year, Devarajan says.
For most meal kit ventures, picking and assembling the right mix of ingredients into containers that can keep them clean, fresh, and safe typically is done manually, and is an expensive part of the entire process. “While automation can play a role in meal kit delivery, I think it’s far down the line,” Steiner says.
Finding packaging that can keep ingredients clean, safe, and temperature-controlled provides yet another challenge. While meal kit services cut food waste by delivering the exact amount consumers need for their meals, “the packaging is ridiculous,” Caplice says. “It’s not unusual to find each item individually wrapped.”
Mark Fachler, co-founder of Veestro, a plant-based meal delivery service (see sidebar), continually scouts more eco-friendly packaging options. The hunt has proven challenging, especially when it comes to insulation. One potential, albeit surprising, option may be denim. “It’s more expensive, but it’s holding up,” he says.
With any food delivery, safety is always a concern. Should an ingredient in a meal kit later prove to have carried a health risk, such as listeria contamination, the company behind it needs to be able to quickly trace both its source and destinations. This is critical not only to cut the risk of illness or death, but also to protect the business. The more targeted a safe recall, the less of an impact it will have on the bottom line. “Traceability needs to be robust,” Jones says.
Even though companies such as FoodLogiQ provide traceability solutions, more than half of food recalls cost U.S. companies more than $10 million, according to research published in 2015 by insurer Swiss Re.
And while the services offer convenience, they also require consumers to plan ahead by at least a few days. At some point in the future, customers may be able to place a meal kit order and have it delivered within one or two hours, but that isn’t yet the norm.
In addition, many meal kit services strive to make cooking “an event,” Caplice says. They eliminate the need for consumers to shop and plan their meals, so they can focus on the cooking itself. While the growth of these services is testament to their appeal, preparing the meals still requires more effort than, say, pouring a bowl of cereal.
Devouring the Challenges
While the challenges are difficult, they’re not insurmountable. To start, the meal kit delivery business model can enhance demand planning. “Subscription models enable the most accurate forecasting and planning,” says Susan Porjes, author of the Packaged Facts report on these services. Because subscribers usually choose their meals several days in advance, the food companies know how much of each ingredient to order.
Engaging directly with consumers also provides the companies with “direct demand signals,” Caplice says. The leading ones should be able to respond and adjust their supply chains to shifting signals more quickly than grocery stores or restaurants.
Blue Apron plans its menus one year in advance. It can predict demand for each ingredient, and work directly with its network of farmers to grow the crops that will end up on its menus. “Providing a source of predictable demand for these farms allows them to net a better yield and produce what’s most effective on their land,” Devarajan says.
Even services that offer broader menus or some ordering flexibility can forecast their supply needs more precisely by analyzing customers’ order histories. They also can feature the top-selling products prominently on their websites, further driving customers to them.
Robust software will be key to help meal kit companies effectively order, source, assemble, pack, store, and deliver their products. As companies grow, it becomes difficult to tackle these functions “with spreadsheets and phone calls,” says Jones.
Blue Apron developed a “bespoke warehouse management software” that allows it to purchase, apportion, and ship approximately 100 unique ingredients each week, Devarajan says. The company’s operational teams can efficiently track and manage ingredients and deliveries across its fulfillment centers.
The companies also need scheduling tools that tell the kitchen staff how many of each meal to prepare, as well as efficient ways to communicate with suppliers.
Technology can also help companies transport meals to their customers. Small meal kit services or startups might engage an outside delivery service, such as Uber or Amazon. “Uber can transport products as easily as it transports passengers,” McLaury notes.
Most companies will bring the function in-house as they grow, Caplice says. That means investing in a routing system.
While technology will be key to the success of meal kit delivery companies, the personal touch remains important. Many of the companies, for example, feature their suppliers on their websites. PeachDish subscribers can learn how Aluma Farm is converting 20 miles of industrial railway into working farmland, or how King of Crops Farm grows natural and sustainable popsicle ingredients for King of Pops.
Blue Apron’s sourcing team has developed relationships with more than 150 farmers located near its distribution centers in New York, Texas, and California. “We work with these farmers to plan their crop rotations around our menus,” Devarajan says. “We also help minimize food waste by providing farmers a predictable outlet to sell their produce.”
What’s Cooking for the Future
The long-term prospects for meal and meal kit delivery services appear positive. The market hit $1.5 billion in sales in 2016, a number that’s projected to grow to multiple billions over the next five years, according to Packaged Facts.
Meal kit companies also have the potential to disrupt both the restaurant industry and the grocery industry, says Packaged Facts. Their customers look forward to cooking restaurant-quality meals at home, yet with none of the planning, shopping, or other prep work most home-cooked meals require.
Yet, it’s unlikely all the 150 meal kit companies currently competing for a slice of the market will stay around. The largest ones will go public, Packaged Facts predicts, while some smaller competitors will consolidate or go out of business.
“Consumers are notoriously fickle and could tire of meal kit delivery services once the novelty wears off,” Porjes says. After they acquire a few cooking skills and become familiar with a wider range of ingredients, some customers might decide they don’t need the services, she adds.
As a result, “the industry’s current triple-digit growth rates are not sustainable,” Porjes says. “The rates are predicated largely on geographic expansion, and few marketers have the wherewithal to scale nationally.” Among other qualities, the survivors will have strong management teams and differentiated marketing thrusts, she adds.
At least one company will figure out how to create these kits and deliver them to consumers within one hour, likely with the help of drones, McLaury says. Drones would also reduce the need to plan around traffic jams.
Despite the unknowns and challenges, many analysts see the meal kit service industry surviving. Consumers of all ages are more comfortable using technology to make purchases. The meals provide a lower-cost alternative to eating out, and the services leverage many consumers’ growing preference for fresh, local food.
Frozen Meals Turn Up Heat on Logistics
The term “frozen meal” no longer connotes humdrum pot pies and pizza. A new meal kit service called Veestro—the name is an amalgamation of “vegan” and “bistro”—provides “healthy, convenient, great-tasting meals.” The company currently ships about 35,000 frozen meals monthly across the nation. Entrees run between $9 and $12, and average order size is $200.
While meal kit services eliminate the shopping and preparing required to pull off most home-cooked meals, they still require some thinking ahead. Moreover, subscribers who don’t use all the meals they receive each week can end up wasting them. With many meals costing $8 to $12 per serving, that can add up.
Frozen meals can be more convenient, says Mark Fachler, who co-founded Veestro three years ago. Customers store them in the freezer, and can eat them whenever they want, although Veestro recommends consuming them within eight weeks to ensure best flavor.
At the same time, the meals are fresh. “We make the products as customers order them,” Fachler says. “They don’t sit there for months.”
Shipping frozen meals also makes it easier for Veestro to cultivate customers across the nation, Fachler adds. And, the recipe for Veestro’s logistics model is simpler than the meal kit delivery companies.
Fachler started the company in a small commercial kitchen. He headed to the farmer’s market each morning, as produce comprises about 90 percent of ingredients Veestro uses in its recipes.
As the company grew, it became more difficult to obtain the larger quantities of produce needed. To simplify its supply chain, Veestro now works with a consolidator that buys from local farmers.
The company also moved to a larger kitchen that allows for more efficient meal assembly, as it provides easier access to the shipping boxes, dry ice, and other materials. As a result, Veestro has been able to ship three times as many meals, with just double the number of employees. Fachler has taken other steps, some as small as pre-printing the labels affixed to the meals, to streamline the assembly process. “You save a minute here and there and it adds up,” he says.
Every Monday morning, Fachler provides the chef the orders for the week, based on his forecast. The kitchen is in full production mode Monday through Thursday. On Friday, the meals are put into trays, labeled, and frozen. They remain in the freezer over the weekend, so they’re frozen solid when they ship. Orders placed by Friday are guaranteed to ship Monday or Tuesday.
The meals are vacuum-packed and shipped in an insulated container, lined with recycled expanded polystyrene foam. Veestro uses FedEx to ship the meals.
Each shipment includes a label that customers can use to return the insulating foam. The company gets back about 20 percent of the insulation it ships.
Fachler and his team are implementing an ERP system scheduled to be operating by summer 2016. It will replace the manual calculations Veestro currently needs to compute inventory levels, ordering quantities, and other information.