Summary
This downloadable PDF lesson plan for English teachers explores the business of meal kits. This B2-level ESL class material uses a video to teach key business vocabulary and grammar for comparing and contrasting business models in an engaging way.
This lesson plan focuses on the economics of meal kit services like HelloFresh. Students will start with a warm-up discussion, then learn key business vocabulary. They'll watch a video to practice listening comprehension and analyze business strategies. The lesson includes a grammar section on comparing and contrasting, and culminates in a group activity where students develop and pitch their own meal kit company, applying all the language and concepts they've learned.
Activities
- Students begin by discussing their cooking habits and opinions on meal kits, activating their prior knowledge and setting the stage for the lesson's business theme. This warm-up encourages natural conversation before diving into more structured tasks.
- The core of the lesson involves watching a video about the meal kit industry. Students complete true/false and gap-fill exercises to check their listening comprehension, focusing on the challenges and strategies of companies like HelloFresh.
- The lesson culminates in a practical speaking task where students work in groups to create and pitch their own meal kit company. They must define a target customer, value proposition, and marketing strategy, using the new vocabulary and grammar.
Meal kit companies set out to disrupt grocery stores and change the way we cook at home.
Now, there's 382 of them in the US, a 300% increase from a decade ago, when they were just 13.
Despite industry-wide growth, the meal kit model faces an obstacle, you.
Of all the people who tried one of five major meal delivery services in 2022, about 90% canceled their subscription by the end of the year.
Human behavior is very fickle, especially when it comes to food and beverage.
And now, Blue Apron, one of the earliest players is selling. This is The Economics of Meal Kits.
This graph shows the share of sales in the US between the major meal kit companies in 2022. Sunbasket and Marley Spoon Inc., have 2 and 3%, Blue Apron and Home Chef took 6 and 12% while HelloFresh and its subsidiaries ate up 78%.
But no matter their size, many of these companies use the same key ingredients to find and keep customers: price point, convenience, and variety.
First, get the customer. Meal kit companies focus a lot on the price per meal.
Here's how I make fancy meals for under $5. Wow! Get $1.49 per meal.
Our biggest competitor are the offline grocers.
Which is why HelloFresh and Home Chef say, "It's cheaper to buy meal kits than to buy groceries."
Wherever you source the ingredients to do home cooking from scratch yourself, that's our competition in some way.
But what makes that possible? It's all about economies of scale.
Brian Choi has done market research on the food and beverage industry for 15 years, and he says that, "When it comes to keeping prices low for the consumer, grocery stores have an advantage over most meal kit companies because of the volume of product they handle daily.
But similarly, the meal kit companies that are best positioned to offer the lowest price point for consumers, are the biggest ones, like HelloFresh."
Economies of scale allow us to get better pricing, to get a better margin on the product, and then to reinvest parts of that margin, either into a better customer experience or into lower pricing.
Which means that at times, the company can compete on price with grocers, but on a per-meal basis, buying the ingredients yourself from a grocery store still tends to be cheaper, especially considering that you can always buy fewer ingredients or go for cheaper options.
Whereas the minimum you could spend on HelloFresh and Blue Apron in a week is $60.95, $12.49 per meal, at least before discounts.
It's sometimes hard to get people over the purchase barrier. That's why incentives are a key part of our marketing or growth playbook.
For every dollar that we spend on getting that group of customers, it takes about six months to actually earn that dollar that we invested back.
Which makes the next step all the more important, keeping the customer.
These are the customer retention rates for the same five meal kit companies in 2022.
In less than a year, they all lost the vast majority of the new customers that bought their first meal kits in January.
One possible reason everyone drops off, the discounts.
They're doing their own mental calculus. They're like, "Wow, $12 meal is very different from the $4, you know, based on the promotional rate."
When you introduce a product to someone at a severe discount, you may get more people to try it, but when the discount goes away and they have to pay full price, it may not be worth that new price to them.
One thing about the American consumer is they don't like dramatic change in prices.
So how do companies get retention rates up? One way is to offer the discounts again, and hope that they entice customers to return.
And another is to add more convenience and variety.
The biggest value proposition is the convenience.
The big thing meal kits offer to consumers is a convenient way to cook at home. They ship to your door and give you pre-portioned ingredients for relatively simple recipes.
But when you stack that versus the other options that are there for consumers, the collective value proposition has diminished significantly.
With restaurants and grocery stores offering delivery to your door, it's hard for meal kits to offer a unique convenience to customers, and getting pre-portioned ingredients maybe more convenient if you want to cook for yourself.
But Americans only cook an average of 4.5 meals at home per week.
But companies across the meal kit industry are expanding their offerings, and one of the common ones isn't a meal kit at all, it's just pre-made meals.
Factor has chefs cook meals for you and then they deliver them fresh to your house.
They have oven-ready meals with everything included and fast and fresh meals that can be done in 15 minutes.
As you grow your customer base and you grow your assortment, you also tend to give customers a lot more choice.
And more choice means you're more likely to get customers to spend more with your company, but it's yet to be seen how much these new offerings will increase retention rates across meal kit companies, plus retention rates aren't everything.
Looking back at this chart, Blue Apron sits slightly above the rest, which Choi says, "May be because it offers slightly more options and customization."
But Blue Apron's revenue has declined greatly since 2017, then, there's profit.
Both HelloFresh and Blue Apron got off the ground by raising hundreds of millions of dollars in funding.
In 2017, they both went public, then their paths split.
Blue Apron's revenue has slowly declined with just a slight increase during the industry's pandemic boom.
HelloFresh on the other hand, has been consistently profitable since 2017.
Looking at its revenue, you see constant growth, even after the pandemic shutdowns ended and people could eat at restaurants again.
Once you establish yourself as the leader in that space, it becomes very, very hard to be disrupted because you need to solve a lot of complex problems over and over again to get to that position.
While both faced stark drops in their share prices, the New York Stock Exchange threatened to delist Blue Apron after its stock dipped below a dollar.
The company shifted to an asset-light model, scaling down, and offloading many of its operations to another company.
Then it announced it's selling to Wonder Group, a food delivery startup, and return to being a private company.
Another key step is to differentiate. The barriers to enter the meal kit industry are fairly low, which is partly why there are so many meal kit companies today.
But the barriers to scale and build a big business are actually really high.
And why it's important for each one to stand out if it wants to survive.
Take Methodology, a small meal delivery company that started in 2015. It doesn't offer meal kits at all.
Instead, Methodology sends out four or five days' worth of pre-made meals with ingredients you're less likely to find in other kits, like nopales, cacti, and purslane.
Our audience is basically who I was when I started the business. They're really time-starved, so they don't have time to cook healthy meals on weeknights, and as far as their incomes, most are making in the several hundred thousands, if not more than that.
Most other companies compete at a price point around $8 to $15 per serving without discounts.
But Methodology costs around $17 to $30 per meal.
Our sweet spot actually is men who live on takeout 'cause they're already doing it three to four times a week minimum, they're spending $35 on average per meal.
And it doesn't offer discounts at nearly the same rate as the other companies.
The average discount for a Methodology Kit is 10% off a customer's first week.
Nguyen says, "This model has allowed the company to be profitable from year two."
We have customers who have spent over a hundred thousand dollars with us because we really are a lifestyle for our target customer.
We're operating in one of the largest consumer categories out there, which is food at home.
So in my view, a large category will always attract sort of like new business models, new entrants in the category, and so on.
Grand View Research forecasts that the revenue across the US meal kit industry will reach $64.27 billion by 2030.
Do I believe the numbers? I think they're probably a little bit too optimistic.
I don't know what the food industry will look like in five or 10 years, but I do think that we can play a really big role in shaping the future of the food industry.
I think in 10 years, we'll probably see one or two major players in the industry still operating in that space.
I'll also expect to see some companies that have gone bankrupt or acquired by some of the larger players.
