Will big food brands turn to home-delivered meals to drive future growth?

Discussion
Photo: Freshly
Feb 10, 2021
Dale Buss

Through a special arrangement, presented here for discussion is a summary of a current article from the bi-monthly e-zine, CPGmatters.

Nestle’s purchase of Freshly, the U.S. leader in fully-cooked meal delivery, taps into the stay-at-home dynamics of the pandemic. But will the $950-million purchase last October prove to be the vanguard of a number of other deals to come, or merely be an outlier?

Freshly Founder and CEO Matt Wystrach told CPGmatters that Nestle’s purchase takes advantage of how the “food market is massively changing and going online, focused on prepared and healthy meals.” In a press release, Nestle USA CEO Steve Presley added that Freshly “accelerates our ability to capitalize on the new realities in the U.S. food market.”

The move may embolden Nestle’s U.S. rivals to acquire or form strong partnerships with existing players in home-delivered fresh meals or meal kits or even launch their own such ventures.

“People are watching it pretty closely, but I don’t see other companies lining up to do this — unlike what they’re doing to expand their digital and online marketing, for instance,” said Ken Harris, managing director of Cadent, the CPG consultancy.

On the other hand, Jason Tham, CEO of Nulogy, a Toronto-based supply chain management software company, believes being able to connect with consumers through delivery of kits or prepared meals has advantages. He told CPGmatters, “The future belongs to CPG brands that can launch products efficiently and effectively by leveraging an external network, then focusing on branding. They want to get closer to the consumer and provide an experience that a brand can have a little more control over, rather than the disintermediation that they experience when working with a retailer.”

In any event, Matt Jackson, head of the food and beverage for marketing agency Lambert, said younger consumers are willing to pay a premium for the “last mile.” He said, “Amazon set the standard for 48-hour delivery, and in the next three years that standard will become same-day delivery. Everyone in the last mile will have to figure out how to do that. That’s where Nestle is going — they’re not really buying Freshly, but that ecosystem and channel.”

DISCUSS QUESTIONS: Has the pandemic opened up opportunities for CPG companies in fresh meal and meal kit deliveries? What does Freshly bring to Nestlé?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Meal kits/meal delivery is a way to stay competitive as consumers move further and further from cooking with raw staples."
"Freshly meals are a long way from TV dinners; these meals are fresh, but it’s essentially the same thing."
"Call it instinct, but I feel like Nestlé’s announced purchase of Freshly is a signal that the mass-market model for packaged food distribution is due for a pivot."

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16 Comments on "Will big food brands turn to home-delivered meals to drive future growth?"


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David Naumann
BrainTrust

The demand for home delivery of groceries and meal kits has skyrocketed during the pandemic and consumers appreciate the convenience and many will make this an ongoing habit. Many CPG companies have already expanded their business with direct to consumer models and adding meal kits is a smart extension fo their brands. Freshly brings to Nestle an accelerated delivery network.

Doug Garnett
BrainTrust

But are we mixing apples and oranges. No question, demand for online and home delivery of groceries has gone up. My guess is, this is where the real demand is — and that it’s a misunderstanding of results to believe that there’s also an increase in demand for meal kits.

Liz Crawford
BrainTrust

Many CPG companies will cling to selling ingredients or one-off packaged foods. However beyond “the last mile,” meal kits offer restaurant-style dining which may be difficult to achieve for many consumers. Savvy CPGs will enter the competition for total share of stomach, including take-out meals. Meal kits/meal delivery is a way to stay competitive as consumers move further and further from cooking with raw staples. (Note: some consumers are hobbyist scratch chefs — but most love heat-n-eat!)

Suresh Chaganti
BrainTrust

I am skeptical of this trend. Prepared meals is a niche, and it will remain so because it is expensive to execute and expensive for customers, yet companies lose money. The customer acquisition costs are high and customer retention is very poor. Logistics costs are not going to come down. The competing alternatives are too many.

From a positioning standpoint, generic healthy positioning is questionable. Maybe specialized diet meals which will need concierge-level service and convenience makes sense.

Georganne Bender
BrainTrust

Freshly meals are a long way from TV dinners; these meals are fresh, but it’s essentially the same thing.

Throughout the pandemic consumers have either embraced cooking at home, ordering in from local restaurants or meal delivery subscription services we prepare at home. We all have a lot on our plates these days (no pun intended) and anything that can make life easier will be welcomed by consumers who can afford it. It will be interesting to see if other brands follow Nestle’s lead.

Ryan Mathews
BrainTrust

This may be the wrong question since its answer is a self-evident yes. A better question might be, will the opportunities for CPG companies to sell fresh meals and meal kit deliveries created during COVID-19 continue post-pandemic?

Clearly, consumers who haven’t been able to access restaurants have expanded the addressable market for in-home heating/cooking plans. Will some of that market be retained post-COVID-19? Of course. The multi-billion questions are how much, what will the preferred form be, and at what price/margin point will the solution be offered? My guess, and all any of us can do at this point is guess, is that a significant minority of current customers will stick with the meal kit delivery options but that the market, as a whole, will decline if people get the opportunity to freely go outside to dine again. As to what Freshly brings to Nestle, that’s easier: experience, IP around consumer behavior, and an established brand in a competitive space where brand means everything.

Dave Bruno
BrainTrust

I do think there is a lot of untapped opportunity in fresh meal/meal kit delivery. However I think the greatest opportunity lies with retail rather than CPG. Local grocers already have ingredient assortments that are tailored to their market’s tastes. They also have built-in customers with active loyalty programs replete with rich data about individual customers’ tastes and preferences. They also have kitchens, and most now have robust last-mile infrastructure in place, including curbside delivery and pick-up, which can help maximize the freshness of hot meals. Seems like they have a great opportunity to capitalize on their inherent competitive advantages and seize the day.

Lisa Goller
BrainTrust

CPG brands are spicing up bland pandemic malaise by adding variety and convenience to our meal options. Food apps, prepared meals and meal kits are booming as consumers seek simplicity and comfort at home.

Buying Freshly embeds Nestle into new, high-growth food markets. This purchase helps Nestle promptly adapt to consumer demand for home delivery, time savings and ease. Freshly shortens Nestle’s supply chain and makes it more robust by stretching to consumers’ doorsteps.

Gene Detroyer
BrainTrust

Forgive me for being cynical, but in the long run CPG companies will approach this as they have approached every other food product. They will cut the cost of ingredients, figure out how to move production to the factory, add less than unacceptable chemicals and VOILA! TV dinners!

Shep Hyken
BrainTrust

The pandemic taught consumers about convenience, which includes grocery – and fresh meal-kit – deliveries. This may taper off a little as people go back to venturing out, but the concept will remain stronger than it was in 2019. Freshly gives Nestle, a recognized and trusted brand name, a place in this expanding area.

Dr. Stephen Needel
BrainTrust

Nestle bought a good name in this space – but as Ryan and others point out, how long is this space going to be big enough? Pandemic goes away, so does delivered meals. Keep in mind, this is not a meal kit, so the “we’re into cooking now” aspect isn’t present. And Gene is right on – sooner or later, post-pandemic, the cost-cutting will start and the brand goes down in flames.

Sterling Hawkins
BrainTrust

It’s not just the pandemic, there has long been an opportunity for CPGs to get into meal deliveries — the pandemic has just pushed some to capitalize on it. It seems a bit contrarian on this thread, but I don’t see the market for this stuff shrinking much post COVID-19. If there’s the right value prop, it will continue to grow. Consumer habits take something to change once they’re established. Besides, there’s not going to be a point (at least any time soon) when we declare victory over the virus and life returns to “normal”. This is it and the smart companies are operating that way.

Gary Sankary
BrainTrust

I think the real question here is, are pre-made meal plans are enough of a trend to be worth investing in? I applaud Nestlé for taking a chance here. The market has been growing steadily, it’s enough of a disruptor at this point that grocers are starting to take notice. For new people new to weekly cooking and meal planning many realize quickly it’s a lot harder than it looks. These services are the prefect answer. The issue is successfully managing the costs associated with preparing and delivering meals, cooked or not.

It’s going to take continued innovation and trial an error to get to a point where this can scale to mass, and that’s going to take more investment and more resources. A company like Nestlé has the resources to support this. I expect to see other CPGs and some grocers get more involved in this space in the future.

RandyDandy
Guest
2 months 10 days ago
As a long-time and often elated AND annoyed consumer of this type of “prepared meal” service, it’s the details which present the biggest problem. Ironically, cost is not one of them. When weighing the expense of an individual (me) gathering ingredients, travel time, etc, with getting it all delivered to one’s home — it balances out. However, the two problems as I see them are: 1) cycling through selections, which creates a kind of boredom at buying the same things over again (though it’s rather obvious most people buy, make and serve the same traditional foods all on their own); and 2) the untold but immense issue of sheer waste created through something that has the veneer of being “green.” One way to encapsulate the problem: imagine a single household (times thousands within a metropolitan area to make it profitable for the service) receiving cardboard boxes, insulation and frozen nitrogen (that MUST BE diluted with running water — in a drought-prone city like San Francisco) and you start to realize the awful ramifications. The ONLY… Read more »
James Tenser
BrainTrust

Call it instinct, but I feel like Nestlé’s announced purchase of Freshly is a signal that the mass-market model for packaged food distribution is due for a pivot.

Remember “disintermediation,” the buzzword that appeared at the dawn of the dot-com revolution of the late 1990s? The concept was not fully-imagined then, but the desire remains — brand marketers dream of connecting with shoppers with less reliance upon their retail distributors.

Two decades of digital transformation and innovation have brought us to a moment when some brands can and should contemplate consumer-direct models. For fast-moving consumer goods companies like Nestlé the practical challenges remain enormous, but getting into the meal delivery business holds promise as a way to gain deep learning about how to navigate the path between mass production and personalized distribution.

Rachelle King
BrainTrust

Almost all acquisitions are about acquiring new ecosystems, channels or IP. That’s no different for Nestle in this case. They are not really in need of acquiring a brand, but Freshly gives them full access to a relevant and growing distribution channel. So long as they stay true to the brand purpose, there is nothing but upside here for Nestle.

wpDiscuz
Braintrust
"Meal kits/meal delivery is a way to stay competitive as consumers move further and further from cooking with raw staples."
"Freshly meals are a long way from TV dinners; these meals are fresh, but it’s essentially the same thing."
"Call it instinct, but I feel like Nestlé’s announced purchase of Freshly is a signal that the mass-market model for packaged food distribution is due for a pivot."

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