Will Unilever’s investment in an organic meal kit maker pay off?

Discussion
Photo: Sun Basket
May 12, 2017
George Anderson

Sun Basket, the meal kit service that delivers weekly recipes with organic ingredients, has just picked up a $9.2 million investment from Unilever’s venture capital business and other investors, according to a press release put out by the two companies.

The meal kit service has hired Bank of America and Jefferies Group to lead an initial public offering that could value the company at $1 billion, Bloomberg reports.

“We have been really impressed by Sun Basket’s extremely fast growth and category leading customer retention rates,” said Olivier Garel, head of Unilever Ventures, in a statement. “Over a relatively short period of time, Sun Basket has built a clear leadership position as the best healthy, organic meals service platform, addressing consumers’ growing demand for healthy, tasty, diet-specific but convenient solutions.”

Sun Basket intends to use the latest round of funding to help scale its business nationally. The service operates facilities on both coasts and in the Midwest and claims to have “the largest distribution footprint of any direct-to-consumer organic food distributor in the United States.”

Management is counting on Sun Basket’s unique positioning to differentiate from an increasingly crowded field that not only includes Blue Apron, HelloFresh and Home Chef, but newcomer services from Kroger, Publix and others. Market Force Information puts the number of companies now involved in meal kits at 150.

Blue Apron is the most popular service in Market Force’s report, tried by 39 percent of those surveyed. HelloFresh at 30 percent was second and Home Chef ranked third at 10 percent.

While more consumers are trying meal kit services, 76 percent that have tried them have stopped.

People attracted to these services point to added variety (51 percent), fun experience (47 percent), trying new ingredients (43 percent) and saving time (40 percent) as the four biggest factors in their decisions.

Those that stop cite poor value, portion size and prep time as the factors in their decisions to quit. Home Chef has the highest satisfaction rating and lowest amount of customer turnover, according to Market Force’s findings.

DISCUSSION QUESTIONS: Do you think meal kits are a fad or are they here to stay? Do you think Unilever’s investment in Sun Basket will pay off?

Braintrust
"Quality, cost and reliability are big issues to overcome. While at the same time, consumers want convenience, variety and an 'experience.'"
"It seems to me that grocers could have the biggest and most sustainable opportunity in this space..."
"Many here keep saying that food delivery costs will work its way out and, for the life of me, this makes no sense."

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14 Comments on "Will Unilever’s investment in an organic meal kit maker pay off?"

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Paula Rosenblum
BrainTrust

I don’t think they’re here to stay. A friend of mine is a chef for Green Chef, so I decided to give it a try. It might work okay if you don’t have particular dietary issues, but I’m pretty much a vegetarian, which translated into pasta, pasta and more pasta. And spicy pasta at that.

That’s okay … I’m idiosyncratic in that way. The bigger issue I had was how wasteful it was in the packaging department. Two tablespoons of pesto — a plastic jar. A packet of spices — a plastic jar. One carrot, wrapped in more packaging.

I’m not a green fanatic particularly, but even I could not deny the wastefulness of it all. I think Millennials will feel the same. And I discovered I can buy food via Instacart from Whole Foods and do just as well.

I think it’s a fad.

Lee Kent
BrainTrust

I’m with Paula. It’s a fad! However I do see an opportunity for grocery stores to jump into this market. Obviously there are lots of people who are interested in the concept. Grocers can avoid the waste of packaging and might even be able to have the entrée closer to ready and fresh every day. For my 2 cents.

Dave Wendland
BrainTrust

Let me begin by commenting on Unilever’s investment in Sun Basket. I do think this is a prudent move for the company and an area that will broaden Unilever’s understanding of the space and strengthen their brand portfolio. Although the investment is quite large, starting from scratch would have not only delayed their entry into the space, but also required learning as they go.

As for the meal kit space in general. It is my belief that this is not a fad. Quality, cost and reliability are big issues to overcome. While at the same time, consumers want convenience, variety and an “experience.” Meal kits can deliver all of the benefit sought by shoppers and will continue to soar as the issues of quality and cost are adequately addressed.

Phil Masiello
BrainTrust

I don’t see the economics of the meal kit delivery business as a sustainable model. However, I can see this business as a tripwire or as a component for a grocery delivery model. I am surprised that Unilever made the investment rather than a grocery chain.

Unilever wants to understand the direct-to-consumer model, so an investment like this may pay off if they choose to partner with a retailer in the space.

Ian Percy
BrainTrust

As is our foolish way, we will end up with at least five times the number of these “meal kit” offerings as the market is able to support in even the most minimal of ways. Our national “me too” mentality has been the death of many an enterprise and a phenomenal waste of money. I just wish these investor groups would take a look at ventures bringing NEW possibilities to the marketplace.

Lyle Bunn (Ph.D. Hon)
BrainTrust

As food delivery figures itself out, with fairly little consumer demand pulling such delivery services forward, placing bets on many options makes sense. It is a market to be created and it will be created to be of value in the busy lives of consumers, for our aging, health-aware population and for those who just hate the food sourcing outing.

Anne Howe
BrainTrust

It seems to me that grocers could have the biggest and most sustainable opportunity in this space, primarily because customers can pick up and really reduce the shipping expense. Interest in the organic food options in meal kits should continue to grow, especially among Millennials and Boomers who are health obsessed!

Ryan Mathews
BrainTrust

Meal kits can serve a niche, but I don’t see that niche being large enough to support all the players that keep entering the market. In fact, once the novelty wears off I think the niche will actually decline in size over time. As to the Unilever investment, $9.2 million sounds like the annual tea budget for the London office. Never hurts to place a variety of small bets just in case the market actually grows. Besides, they’ll probably get more than $9 million worth of consumer information and insight out of the investment.

JJ Kallergis
Guest
Agreed. Not only is $9.2m pocket change for Unilever, it strikes me as an unauthentic move by the company that brought us “I Can’t Believe It’s Not Butter.” It could be a small bet they are placing to glean consumer insights from the market and learn a bit more about the DTC business. But downside for them is that it could be considered provocative to their retail customers. Also, for Sun Basket, which I have never heard of, this could potentially do damage to their reputation similar to when craft breweries are acquired by large global beer companies. But getting back to the consumer point-of-view here, convenience and variety is a big benefit here with the meal kits. Economically, it is not really a good value, and I think grocers could do a better job prepping meats, vegetables, etc. and having them prepared and ready to be picked up in store at a more attractive price point for the consumer and better profitability for the retailer. Fresh & Easy, Tesco’s US experiment, didn’t live long enough to gain much traction, but with the digital tools and integration available to leading grocers like Kroger today, it may be a better time… Read more »
Tony Orlando
BrainTrust

Many here keep saying that food delivery costs will work its way out and, for the life of me, this makes no sense. In what way will costs come down as increased costs of delivery continue to climb? Driver-less robots aren’t happening anytime soon and UPS needs to keep its employees happy and simply are not going to lower their fees to please the home meal kit producers.

In addition, my cousin bought one from Groupon and said it was just OK and the portions were for third graders, which isn’t going to fill someone like me up. He complained about the cost and never bought it again. Outside of high-income areas, people are bargain hunting for food and price is still a huge obstacle for this service. Bottom-line, folks with plenty of money can buy these products without any problems, but for the other 90 percent of the folks it will be a special occasion.

Camille P. Schuster, PhD.
BrainTrust

Before venturing any comments on the future of this category I would be very interested in seeing research about why the 76 percent stopped the service. That information would be important for an assessment of the viability of this service. I was interested in trying something in this area and tried Gracie — the snack food company. I was told that because of my allergies I should not order their snacks but they still keep sending ads to use the service. Obviously they are not paying attention to my ordering process so I will not use their service any longer.

John Karolefski
BrainTrust

I think the meal kit business will eventually settle down with fewer players, but this business will remain an interesting option for consumers. Kroger and Publix have limited tests of meal kits. They and other savvy grocers have the opportunity to dominate this shopping option. They should collaborate with their trading partners in the food business.

Jeff Miller
BrainTrust

Meal Kits, like any subscription program, are always being labeled “a fad” or someone is saying that the category is dead. I expect meal kits to follow the path of other similar programs like the Beauty sample box.

  • A few successful ones will launch: Blue Apron/Birchbox
  • Many will pop up and follow
  • Most of those will not make it
  • The others will innovate and improve their model and remain small to medium sized or be purchased by CPGs, larger grocery or even restaurant chain

Hard to see Sun Basket being anything more than a rounding error for Unilever in terms of financials, but I applaud them for continuing to make the move to better understand the direct to consumer model and be involved with quality upstarts in the space.

Craig Sundstrom
Guest

I checked their website: “$11.49 per serving, $5.99 shipping fee per order”…so essentially you’re paying restaurant prices to make a meal at home. This doesn’t make a whole lot of sense to me, but far stupider ideas have gone big — at least for a while — so who am I to kill the fun?

Unilever’s level of investment, the corporate equivalent of buying a flower on the way to work, seems consistent with a “What’s to lose?” approach. I don’t think anyone there is banking on this being UL’s turning point.

wpDiscuz
Braintrust
"Quality, cost and reliability are big issues to overcome. While at the same time, consumers want convenience, variety and an 'experience.'"
"It seems to me that grocers could have the biggest and most sustainable opportunity in this space..."
"Many here keep saying that food delivery costs will work its way out and, for the life of me, this makes no sense."

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