Strategy Lessons From the Meal-kit Wars
This Pitchbook article about the rise and fall of Blue Apron caught my eye today. It details the story of the meal-kit delivery market, which has cratered in the last year. Blue Apron, the most well-known, has spiraled down from a $2 billion market cap in mid-2015 to less than $100 million today. While that trajectory is surprising, I don’t find it shocking. In thinking about my own experience, I always found the idea of subscribing to meal kits as intriguing, but I never actually got around to trying it out. As a busy family in Silicon Valley with two kids, you’d think that we would fall into their target market. However, no matter how many offer codes I heard on my podcast rotation, I just never pulled the trigger…I never saw the value. Perhaps they haven’t found product-market fit, or maybe it’s just me. Unfortunately for Blue Apron and its kind, I would guess that far too many other potential meal-kit customers fell into the same camp with me.
When I read a story like the one about Blue Apron, I wonder how so many smart people got it so wrong. Hundreds of millions of venture dollars went up in smoke, investing in this industry. It would seem that, like in so many cases when an industry gets overheated, there was a lot of hype but poor fundamentals.
When I think about the meal-kit market from a Porter’s Five Forces perspective, there are many soft spots in the business model, and it is easy to see why the valuations were unsustainable. There are:
- Low barriers to entry — roughly 150 meal-kit companies were founded from 2013–2018.
- High levels of buyer power — Individual consumers and a price-sensitive segment — the cost of food and ingredients is very well-known and established and buyers have a lot of options.
- A very high level of threat from substitutes — Blue Apron wasn’t just competing against Plated and HomeChef over the last few years, but also the ever-expanding constellation of delivery apps (DoorDash, GrubHub, UberEats, etc.) as well as the good, old-fashioned grocery store, which typically has massive cost efficiencies that are nearly impossible for a startup to match.
I find that, consistently, companies think too narrowly about who their real competition is, and it often comes back to haunt them. For Blue Apron, threading the needle between a vast and growing array of food-on-demand options, and the low-cost, but time-consuming, activity of simply going to the grocery store may have been just too narrow of a space to carve out a truly differentiated value proposition.
It may seem like meal kits have a dark future. However, I think a compelling opportunity could still remain. I found this excerpt from the original Pitchbook article quite interesting — “As the two co-founders told it to Konrad, they settled on meal kits after Papas spent hours hunting down the ingredients for and preparing a steak dinner and — in classic startup fashion — realized there must be a better way.” When I read this quote, I immediately understood their challenge. There are few food-related experiences more frustrating than running from store to store looking for the final ingredient for a special dinner, especially when people are waiting. Meal-kits, however, do not seem to be a solution to that problem whatsoever. Instead, they seem more like a solution in search of a problem.
Perhaps what seems like an elusive product-market fit can still be found for the meal-kit companies. With the rise of allergy-specific and other restricted diets, the right ingredients for one’s lifestyle aren’t always at the local grocery. Having a meal-kit that is specific to my dietary choices show up on my doorstep may be a service worth paying for. Altough diet-specific meal-kits do not seem like an idea that scales, it could be a more honest way of fulfilling Blue Apron’s origin story and it could also create lifetime customers for the meal-kit companies — a happy improvement for an industry that regularly loses more than 70% of their new customers within the first six months. Although the sky-high valuations would seem unlikely to return, perhaps serving a more niche audience can help some of these companies chart a path toward a sustainable business model after all.
