Innovation in Food: Dinner Kits Delivered

by Adam on February 24, 2013

As I’ve written about in the past, the food space is undergoing tremendous change right now, especially as when it comes to innovation and entrepreneurship. Some of this innovation is need-based, other parts of it are more novelty (but still interesting). I’ve been following some new start-ups in the space and have been once again amused (but not surprised) to see that the old adage is indeed true: “where there is one, there are many.”

In this edition of “Innovation in Food” (which may even become a recurring post series, hopefully), I’m looking at, and pointing you towards, companies that provide weekly dinner kits to consumers. Plated, Blue Apron, HelloFresh, Chefday!, GrubKit and others are all starting up, delivering to consumers the ability to search for recipes, choose their meals, and have all the ingredients (with the original recipe) delivered fresh to their door.

The idea itself came out of two separate companies operating in Sweden with tremendous success. And then, The New York Times wrote about the importing of the trend to the US, and it seemed that overnight, dinner kit delivery has become the next micro-trend in the food space. And, before you know it, Blue Apron has raised $3 million from Bessemer Ventures, First Round Capital and others. Things seem to be heating up.

What’s there to like about this model? Certainly a few things (in no particular order):

  1. These companies actually sell something (besides ads), which makes for a clear path to monetization, if they can work through customer acquisition.
  2. While by no means a way to ensure success, the model has been successfully proven overseas.
  3. Consumers are becoming much more savvy about eCommerce in general. In food specifically, the jury is still out. The acquisition of Foodzie can be argued either way as to whether it validates the model for buying food online, but as more consumers continue to come online and use the internet to learn about food, having a way to connect them with those food products is going to be important.
  4. For consumers who either don’t know what to cook, don’t have the time to cook, or are looking for ways to become more adventurous in the kitchen, these companies can service them quite well.

And what about the potential issues with the company? Again, there are a few, though none are insurmountable:

  1. The competitive barriers between market entrants don’t seem to be huge. I will identify price point, content diversity and ingredient quality as the main differentiators. The latter two are not that difficult to get right with the right relationships, so this could easily devolve into a pricing competition.
  2. On that same note, whether consumers are willing to pay $15-20 per person for a dinner you still have to cook is unclear. I think for some, it could be a fun novelty item, but any good food product has to get beyond that in order to succeed.
  3. The logistics around putting together and shipping dinner kits can be a nightmare, depending on the capabilities of each company. Ideally, “just-in-time” inventory management would be key, but outside of that, there’s really no way to avoid having a warehouse to stock product. But, absent that, supplier and distributor partnerships will be key and could help to drive down cost.
  4. Related to the above, shipping speed and cost need to be thought about carefully. You could craft a pretty easy straight line graph going from the top left to the bottom right, where, on the y-axis you’d plot cost to ship and the x-axis you’d plot freshness of ingredients. You cannot sacrifice freshness, so cost to ship needs to be considered as a big piece of the financial models.
  5. Lastly, this is a customer service business in some ways. If a recipe doesn’t work right, or ingredients show up and are not fresh or top quality, the company needs to be prepared to handle that. My sense is that a lot of start-ups fall very short on customer service, or outsource it to companies that are not equipped to handle it. So, again, this has to be thought through carefully.

As a way to test the model, I have ordered from one company in particular and will report back soon with thoughts, feedback and findings. I’m interested in this model because it definitely can get people back into the kitchen, if the companies can get past some of the issues above.

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