Food for thought

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Food delivery services is more than just pizza these days, such offerings are wide-ranging and highly competitive, making our lives that little bit more convenient. But does it translate into investment opportunities? It has its challenges, says Maria Toneva, global research analyst at Newton.

Advancements in technology have arguably altered the types of companies in which we invest today just as the gig economy¹ has changed the nature of employment. However, the two – technology and part-time employment – together make things extremely convenient for consumers. Case in point is the world of food.

In Europe online food and grocery shopping has almost doubled in size from 2009 and by 2018 accounted for some 25% of online orders.² In the UK alone, online groceries is forecast to account for 10% of all food shopping over the next five years, with sales growing by 60% to reach £19.8bn in 2023, according to market intelligence agency Mintel.³

At the same time – worldwide – there has been an explosion in meal prep companies. Examples include Blue Apron, HelloFresh and Gousto, and feature ‘recipe boxes’ with all the ingredients and instructions needed to prepare a meal. Having started in Sweden in 2007, today there are more than 150 such companies in the US alone and globally the industry is estimated to be worth US$2.2bn.⁴

Arguably, most people today would prefer to have groceries brought to their door instead of having to venture out to get them after a long day, but meal prep companies also play up to consumers’ lack of creativity with food. If one is struggling with what to make for a meal or wanting to try something new, there are recipe boxes with different fusions of flavour and inspirations from delicacies all over the world.

From individual meals to larger portions for families, the idea of having all of the ingredients measured out and at one’s fingertips makes the cooking process seem effortless, playing in to the ‘convenience’ consumers today appreciate. These meals also cater to specific dietary requirements, with an abundance of vegetarian, vegan and gluten-free options. But despite the fact these companies are more popular today than ever before, how an investor would generate profit from them remains in question, says Toneva.

The meal prep arena is a smaller, addressable market than the online food delivery app market, which is one of the main reasons investors may not want to spend their time in this space,” she continues.

According to Toneva, the main issue every meal prep company faces today is generating profit after large amounts of marketing expenditure.

Meal prep companies often start customers off with a cheap, subsidised ‘trial offer’ which customers take advantage of, but many don’t continue with the programme because the regular price can be double that of the initial offer period. This results in these companies having to spend even more money to remarket their products and look for new customers.

This whole process can make such companies less attractive for potential investors. Toneva says customer churn in this industry is also cause for investors to be wary of this sector.

However, despite the competitiveness of meal prep companies, it isn’t at the same level as seen in the online delivery app space. According to Toneva, this means the former could become profitable quicker than could the latter.

Despite the surge in popularity with meal prep companies, this space is still a waiting game to see what will actually happen with profitability,” she concludes.

¹Gig economy: A gig economy is a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements. www.techtarget.com
²Forbes.com: ‘Who Are The Top Online Grocery Shoppers In Europe?’ 24 October 2019
³Mintel: ‘Brits spent £12.3 billion on online groceries in 2018’ 24 November 2019
⁴Food Box HQ: ‘The History & Future of Meal Kits’ 24 October 2019

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