Can Meal Kits Work In Full-Service?
Chuck Sillari remembers the first time he looked at a meal kit box. He saw a tomato wrapped in bubble wrap and a package of spices. “Where’s the personality?” he wondered.
Sillari and his partners at the Boston Burger Company imagined a different reality that spurred the August 2016 debut of BurgaBox, a meal-kit service sharing the indulgent burgers, fries, and mac ’n’ cheese dishes core to the Boston Burger Company brand.
Promoting BurgaBox in its restaurants and to an extensive email database, Sillari and his partners were soon shipping upward of 1,200 meal-kit boxes per month. “It was fun and the numbers were working,” Sillari says.
By early 2018, however, BurgaBox began feeling an unanticipated pinch. A rise in West Coast orders combined with BurgaBox’s free shipping promise began straining the concept. Yet more, BurgaBox’s success demanded constant attention—new products, digital marketing, and manpower—that Sillari and his team paused BurgaBox operations.
“We needed to refine the business model and market strategy because meal kits demand a lot,” Sillari says.
Since debuting in the U.S. market about seven years ago, meal kits have become a headline-grabbing force. Major players like Blue Apron, Plated, and HelloFresh have captured notable investors while niche players like Southern-inspired PeachDish and plant-based Purple Carrot have entered the fray alongside retail powerhouses like Amazon and Walmart.
Packaged Facts reports that U.S. meal-kit sales finished 2018 at roughly $3 billion in sales, a double-digit increase from 2017, and the market research firm expects that growth to continue in the coming years. Figures and prognostications like that have put some restaurants on edge, even if the $825 billion eateries earned in 2018 dwarfs meal kits’ tally.
Whether as a defensive move or an offensive play to boost revenue, some restaurants have given meal kits an exploratory look, especially with an estimated 80 percent of meals still consumed in the home.
But is that a savvy investment of time?
Although these kits are expected to skyrocket in the immediate future, many analysts see an unsustainable business model plagued by intense customer acquisition costs, customer retention battles, and delivery challenges. Even big public players like Blue Apron and HelloFresh have yet to achieve profitability, and that’s with devoting their full resources to meal kits, not meal kits and running restaurants.
The NPD Group food and beverage industry analyst Darren Seifer compares today’s meal-kit sector to the late 1990s dot-com bust, which is to say a lot of players jockeying for share but few making any money.
“This is still very much a market in a state of evolution,” Seifer says.
And it shouldn’t be surprising given other mighty headwinds attacking the category. The meal-kit game requires knowledge of shipping, packaging, digital marketing, and all the logistics required to prepare and send kits. In other words: uncharted waters for most restaurateurs. Then, of course, there’s the added manpower and space needed. Sillari says Boston Burger would not have launched BurgaBox if not for its 4,000-square-foot commissary space and a capable team.
Despite those clear and varied challenges, Dave Query, founder of the Colorado-based Big Red F Restaurant Group behind heralded concepts like Jax Fish House & Oyster Bar, says meal kits are absolutely worth investigating.
“As competition grows and expenses increase, everyone needs to consider top-line growth, including how they can capture different meal periods and demographics,” Query says. “The restaurant business is different today, and you can’t put your head in the sand.”
That’s why Big Red F has partnered with third-party delivery services and unveiled carefully crafted carryout “kits” like the Jax’s Oyster Club program that pairs fresh oysters with preparation tips. Even with these irons in the fire, the group is continuing to examine meal kits.
While Seifer doesn’t see meal kits revolutionizing restaurants, such specialty services do offer consumers another experiential point and address consumers’ desire to entertain in the home.
“Every restaurant will have to figure out how their consumers will feel about this,” says Seifer, adding that signature dishes from a casual arena may be better suited for meal kits than fine-dining options require specific kitchen skills.
Indeed, that’s what BurgaBox offered: simple-to-prepare signature items that were featured in an episode of “Diners, Drive-Ins and Dives.”
After a year hiatus, Sillari and his team are back at it with a more thoughtful edge. For now, it is shipping a limited menu to East Coast customers only.
“We’re definitely doing this with eyes wide open,” Sillari says. “We’ve ramped it back up, and we’ll see what happens.”