Meal kit subscriptions pave the way for sustainable growth in the food and beverage category
If there’s any industry that has benefited enormously from its subscription model, and from the rise of convenient dinner-prepping, it’s the meal kits market.
These kits supply the pre-measured ingredients to make various meals, from meat and fish dishes to gluten-free vegan specialties. Recipes come with every order. Customers register for a subscription plan that lets them choose which boxes to receive when, often first lured to the service via an attractive introductory offer.
The $10 billion meal-kit delivery sector is poised to double its revenues by 2027, led by giants such as HelloFresh, Blue Apron, Goodfood, Home Chef and a host of up-and-comers such as Prairie Box.
Based on the ecommerce subscription model of customers selecting the right meal kit to suit their tastes, meal-kit delivery services have scaled impressively in the past year, due in part to lockdowns sparked by COVID-19 outbreaks. So what lessons can be learned from the subscription success enjoyed by meal-kit market leaders?
Big revenue from small intro offers at HelloFresh
In 2020, HelloFresh saw its revenue double to $4.4 billion compared to the 2019’s figures. Part of that surge in revenue is due in part to lockdowns forcing many of us to opt for meal kits instead of getting takeout once again from a local restaurant, or spending hours in the kitchen cooking for a family of four.
Also, during the height of the pandemic, meal-kit deliveries allowed us to avoid shopping at grocery stores and throngs of shoppers lining up at the checkout line.
It’s a trend that may not slow down anytime soon. According to a 2021 survey, one in 10 Canadians tried a meal-kit delivery service for the first time during the pandemic, and two-thirds of that group say they will continue to use meal-kit delivery in the next 12 months.
And in the US, between November and December last year, 45% of respondents who took a survey run by Packaged Facts said they had ordered a meal kit at some point over the previous 12 months.
Marjolein Hanssen, analyst of consumer foods at RaboResearch, told journalists that consumers may have acquired a preference for meal kits: “Once you start making use of this service, the barrier to keep using it is much, much lower.”
Brand awareness for HelloFresh and its competitors often begins with marketing, and HelloFresh was well-known for pouring millions into ad budgets to blanket TV and print ads across the US and Canada. Word-of-mouth and influencer marketing is also a key driver, but what often generates interest in meal-kit delivery businesses are introductory offers or convertible subscriptions.
You might have come across them through HelloFresh, Blue Apron or Goodfood, and they vary in what they offer, but it’s often an $80 coupon or a code for 10% off. Interested shoppers register with their credit card and often auto-subscribe with those offers, encouraging the subscriber to take an action to unsubscribe.
In a Bold Commerce video, we called this the “Netflix trick.” Staying on board long after the trial was common when Netflix first rolled out trial subscriptions or free subs. Once already signed up for the trial period, subscribers thought, “Well, this is great, and I don’t want to cancel.”
If the meal kit delivers on price, quality and convenience, the business will likely see positive returns. For Blue Apron, which caters to the more upscale market, its fourth quarter of 2020 saw a 22% surge in net revenue to $115.5 million from $94.3 million.
Blue Apron President and CEO Linda Kozlowski said in May 2020: “We believe that our digital experience is key to our success. We make it easy for our customers to plan their weekly Blue Apron meals, see upcoming menu options and engage with our customer service team.”
Ecommerce subscriptions are more competitive and more sophisticated than just a few years ago. Customers demand more value, and if they don't get it, they churn.
Optimize the flow, watch it grow
When using an app such as Bold Subscriptions to design the foundation and features of the subscription portal, businesses can strategize ways to engage their customers throughout the purchase journey. And one area that should be considered for meal-kit companies is flexibility.
For example Prairie Box, powered by Bold, simplifies the digital flow for consumers to select what meals they want delivered on a weekly basis. Easy-to-edit orders are also at the heart of what Prairie Box does: it gives subscribers the option to pause and edit their subscription from their online accounts.
This kind of ecommerce sector also fares well with upselling in the checkout flow by giving shoppers the option to add more products to their cart based on what they chose already, or offering a promo about a box with a higher subscription fee.
Variety is at the heart of meal-kit services, considering how frequently loyal subscribers require their deliveries. What should be top-of-mind for meal-kit subscription providers is ensuring a rotating menu continues month to month, while keeping the core favorites customers have continually ordered. That kind of messaging should be reflected in the subscription portal and through email marketing campaigns in order to bring more visibility to these diversification efforts.
And that attention to detail goes a long way to establish closer ties with subscribers. After all, a successful subscription approach will do more than just bring in recurring revenue.
As an Entrepreneur Magazine article writes: “The subscription model is also not about getting a project done and then moving on to the next client. It allows us as a service provider to grow a relationship with the client and cater to their business or design needs as they change.”
What do you do about churn?
When not-so-loyal customers churn out of their subscriptions, meal-kit delivery services face a steeper challenge, more so than other sectors. An independent study found that the average meal-kit customer sticks around to that service for only five months, and across the industry, yearly customer retention rates hover at just 10-15%.
For HelloFresh, they didn’t take churn lying down. Referral programs began to surface soon after they launched in 2011. You’ve likely seen them in your inbox, or forwarded from a friend. Their robust referral encouraged fans to invite others to sign up and, if they’re successful, both the inviter and the invitee earn a monetary discount. Long-term members can also send a free week of meals to a friend.
Using Bold Subscriptions, referral programs can be set up to invigorate your ecommerce subscription business, no matter your sector. That’s the power behind referrals: word-of-mouth continues to be the most dynamic way to market a business’s benefits and appeal, and online it’s made even easier using API-based ecommerce assets.
Get inspired by the meal-kit approach to subscription success if it makes sense for your products. As Bold Commerce noted in its guide 7 Subscription Models to Master, “A build-a-box model is great for any business that offers multiple products that work together, whether it’s varying flavors, colors, styles, scents, sizes, or health benefits. Give your customers the option to build an order they want and they’ll be more likely to stick around in the long-term.”
Download Bold's guide to growing food and beverage subscriptions in 2021 for more insights and ideas around setting the table for long-term growth.