Will meal kits be a hit on Walmart’s virtual shelves?

Discussion
Photos: Takeout Kit/walmart.com
Dec 12, 2017
Matthew Stern

Whether as a move to continue boosting its Millennial appeal, to stay neck and neck with Amazon.com, to give its e-commerce customers some new eating options or all of the above, Walmart is now offering meal kits on Walmart.com.

Walmart introduced the meal kits, by Home Chef and Takeout Kit, early last week according to The Verge. Both of the brands offer kits through Walmart.com (Walmart earns a commission and referral fee on sales) as well as subscriptions through their own individual websites. Home Chef’s selection swaps out every Tuesday afternoon. Of the initial 30 meal kits offered, some have already sold out.

At the time of this article’s writing, a search on Walmart.com produced results for 22 meal kits between the two vendors. Takeout Kit meals appeared in the $32 to $35 range and serve four. Home Chef kits ranged from about $40 to about $80 with two or four servings per kit.

In a Market Force Information study, Home Chef was the third most frequently-tried meal kit service among those who had tried them, ranking below Hello Fresh and the most popular, Blue Apron.

The emerging meal kit space has grown into somewhat of a battleground for major CPG companies and retailers, with Amazon, Publix, Unilever and Kroger among others establishing a footprint in the space, either with their own kits or, like Walmart, through third-party partnerships.

Meal kits ideally offer customers the excitement of cooking something new and interesting alongside the convenience of delivery.

But success hasn’t been surefire for the big meal kit players. Blue Apron’s hotly anticipated IPO was a bit of a bust. Recently, the stock has been trading at around $3.80, after experiencing a slight bump on the early-December news that the company’s CEO was stepping down to be replaced by the CFO.

In a blog post on LinkedIn, Professor Daniel McCarthy of Emory University crunched the numbers to estimate a potential customer churn of 72 percent every six months for Blue Apron.

It is not clear whether Walmart will be moving any products from Home Chef or Takeout Kit onto its physical shelves.

DISCUSSION QUESTIONS: Is Walmart making a smart move by getting involved in the meal kit space through online third-party relationships? Do you see Walmart eventually developing its own meal kit offerings?

Braintrust
"Budding foodies love meal kits and will order them from the most convenient outlet. Walmart is smart to get into this business."
"From a business perspective it is smarter to get into this new space through third-party relationships than to try doing meal kits themselves."
"Frankly I prefer seeing meal kits in-store rather than online. Online has had many issues."

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19 Comments on "Will meal kits be a hit on Walmart’s virtual shelves?"


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Charles Dimov
BrainTrust

From a business perspective it is smarter to get into this new space through third-party relationships than to try to start doing meal kits themselves. Get the business rolling with third parties. Test the market to see what works. Then if and when the meal kit market grows on people and becomes established, start seeding in Walmart’s own meal kit. They should ultimately only develop their own after it has proven to be successful. This is the low-risk maneuver that lets Walmart adapt to the market need rather than picking a direction that might not be aligned to customer desires.

David Livingston
Guest
4 months 9 days ago

I agree with Charles. Nothing more to add to his good analysis.

Jennifer McDermott
BrainTrust

Agreed! The truth is that the average consumer won’t really know (or care about) whether it is Walmart or third party. This is a great way to test the market.

Adrian Weidmann
BrainTrust

The entire foodservice sector is evolving due to digital transformation and the expectation and cultural shifts of buyers. It used to be that you’d plan to go shopping and then decide to go out for a meal. Today you’re more likely to plan to go out for dinner and then decide to shop. The traditional defined lines between activities continue to blur. What were once individual and unique events are now being mashed into experiences along a journey. Retailers and brands cannot predict and strategize for unique events but rather must cater experiences to be discovered and enjoyed along an often circuitous path to purchase(s).

Walmart will test meal kits using (in a very dubious way!) third-party relationships. If it proves successful, they’ll abandon their relationship and do it themselves. If it fails, their “relationship” will suffer the financial consequences.

Richard J. George, Ph.D.
BrainTrust

As noted, the meal kit phenomenon has had its share of bumps along the way. The opportunity to offer convenience and variety with the ability to claim “meal making” ownership is an attractive alternative to today’s consumers. Somehow, putting a frozen entree into a microwave and stating to the family, “look what I nuked for you” does not meet the meal preparation and credit standard.

The third-party relationship option is a great way to learn the business and its pitfalls/opportunities without making the necessary capital investment. It is a strategy similar to its Jet.com investment. Depending on the success of a third party arrangement and the accompanying economics (profitability) of meal kits will allow Walmart to make that decision after testing the various alternatives.

Cathy Hotka
BrainTrust

Convenience, convenience, convenience. Walmart wants younger customers to get into the habit of turning to it as a matter of course, just as Amazon has. Budding foodies love meal kits and will order them from the most convenient outlet … Walmart is smart to get into this business.

Dr. Stephen Needel
BrainTrust

Meal kits may not last — they are not a good price value and that may eventually doom them. With that in mind, doing third-party deals rather than developing meal kits themselves is probably a good move for Walmart.

Phil Masiello
BrainTrust

It’s very smart for Walmart to enter the space using third parties. There is zero risk for them and only an upside. Walmart can learn the space on the backs of Home Chef and Takeout Kit.

This is a tough space. Whether or not it can be profitable is the long-term question. Raising the cost of middle America’s food bill is never a good idea. And in order to scale the meal kit business, middle America has to be the target, not the top 10 percent.

Byron Kerr
BrainTrust

Smart move by Walmart. They are going all-in on building a “convenience-first” wheelhouse and by leveraging third-party relationships they can deliver on this promise.

Could Walmart develop their own meal kit offering? Potentially. Amazon leverages the insights of their third-party sellers to go out and private label their own goods. It’s very feasible that Walmart will leverage the data and insights from this program to take it in-house and apply their supplier shakedown to make this a very attractive (i.e. profitable) option.

Katherine Black
Guest
4 months 9 days ago

This move shows Walmart’s commitment to broadening its customer base. They have publicly stated that they want to attract a more upscale customer to drive future growth and their online platform is a focused way of doing so. If they offer innovative brands and partnerships, primarily through their online platform, I think that they can avoid the perils of the prior “win, play, show” strategy that they undertook many years ago which attracted a marginally larger upscale customer base but led to many more of their loyal, value-oriented shoppers leaving.

I think that the key problem is building buzz with this new customer for Walmart’s online platform. This type of partnership gives them some helpful PR, but they will need a much larger campaign for the whole strategy to scale successfully. Adding these kits to stores would be tempting, but in most trade areas a bad idea.

Meaghan Brophy
BrainTrust

I agree that it’s smart for Walmart to get involved with meal kits through a third-party provider. My only hang-up is the price point. As a company known for low prices, Walmart’s meal kit costs are on par with that of Blue Apron and Hello Fresh, around $10 per serving. If they can create a better value, I think Walmart will see great success.

Joy Chen
BrainTrust

Third party is a better move for Walmart than having their own branded meal kit. Walmart can leverage their online logistics scale and infrastructure to provide the meal kit service. However, it’s not clear that the meal kit space will survive with many players as the category competes heavily with other more convenient alternatives like on-demand food deliveries.

Harley Feldman
BrainTrust

Since Walmart is one of the nation’s largest grocers and the largest retailer, meal kits are a category Walmart cannot ignore. Entering the category through third-party sellers is a way for Walmart to enter quickly partnered with companies that have learned many lessons that Walmart can take advantage of. As it learns the lessons of meal kits, Walmart will move to having its own.

Carol Spieckerman
BrainTrust
My concern is how Walmart will drive awareness for these new offerings (and for any number of more upscale concepts, brands, etc. that may now be found on Walmart.com). I found out about the Walmart kits through a reporter and went on to order the Ethiopian lentils and injera kit. Anyone who loves Ethiopian food knows how difficult it is to duplicate at home. I had to see how well the concept was carried off and made it last night. The packaging and directions were awesome. The kit itself was pretty much a combination of items and brands that can be purchased elsewhere. It was okay, definitely a “fix” for Ethiopian flavors but no competition for even a mediocre restaurant. I knew how to doctor it up but someone unfamiliar with the cuisine probably wouldn’t. It was super spicy which I love but could be off-putting to others. I like that these kits are tackling ethnic and vegetarian cuisines and the longer shelf life that Takeout Kit offers is also a step in the right… Read more »
Ricardo Belmar
BrainTrust

This is a smart move by Walmart to increase their convenience factor with younger customers who are likely to try new meal kit services. Using third-party sources is wise as this market segment is very volatile right now and it isn’t clear how any of the current services will survive in the long run. Walmart can afford to grow shoppers’ habits into relying on Walmart to purchase the kits and in time, if proven successful, they can develop their own. Walmart wants younger shoppers to see them as being equally convenient as Amazon and this is another way for them to become the “go to” shopping source for everything the consumer wants.

Karen S. Herman
BrainTrust

It appears that Walmart continues to court the urban Millennial, a demographic that spends money for convenience and is very familiar with Amazon.com. I think Home Chef and Takeout Kit meal kits are a great addition to Walmart.com’s offerings. What I would like to see next are in-store tastings of the meal selections from Home Chef and Takeout Kit. Adding an in-store experience that is educational and engaging offers a strategic advantage over Amazon.com, Blue Apron and Hello Fresh.

Lee Kent
BrainTrust

Frankly I prefer seeing meal kits in-store rather than online. Online has had many issues. Just take a look at the bumps in the road for Blue Apron. I see no harm in getting into the space — it does and will continue to have a following, but I would focus on the store, for my 2 cents.

Steve Montgomery
BrainTrust

Low risk/low reward approach for meal kits is a far better strategy for Walmart than the alternative. As many have stated, testing with third parties is the way to go for this highly volatile segment. 72% customer turnover every six months indicates customers like the concept, but not the product and/or its value.

James Tenser
BrainTrust

Physical retailers like Walmart have an opportunity to sidestep the subscription commitment issue that probably contributes to high customer churn at online meal kit marketers like Blue Apron and others. “I want my meal kits when I want them — not when the service tells me I do.” But exposure to varied and interesting menu choices can provide consumers with an extra reason to visit grocery stores, especially at the end of the workday. This goes well beyond the “meal solutions” cross-merchandising concepts that were introduced in the 1990s.

Retailers could use SMS text messaging and/or mobile apps to share daily menu alerts with opt-in shoppers. They might even take reservations for grab-and-go orders. This is a realm where I think store pickup could beat delivery plans. Walmart is smart to jump on the bandwagon.

wpDiscuz
Braintrust
"Budding foodies love meal kits and will order them from the most convenient outlet. Walmart is smart to get into this business."
"From a business perspective it is smarter to get into this new space through third-party relationships than to try doing meal kits themselves."
"Frankly I prefer seeing meal kits in-store rather than online. Online has had many issues."

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