Freezing Out the Meal Kit Competition

Dec. 15, 2020

Is higher quality enough of an advantage for refrigerated subscription meals?

A high-ranking executive at a publishing company I used to work for called me out of the blue one day to ask why so many of the frozen meals sold in American supermarkets taste so bad.

I told him that in most cases, it was unavoidable, because almost all such meals have to be cooked before they’re frozen. Think of a steak, I said. If you freeze it raw, thaw it out and grill it, it’ll taste more or less how it’s supposed to. If you grill it, then freeze, it’ll taste terrible once you thaw it and warm it up. This exec wasn’t a details kind of guy, so I didn’t go on to explain about how cooking followed by freezing lowers a protein’s water activity, leading to a tougher texture and gritty mouthfeel.

That conversation came to mind with this news item about HelloFresh, the German company that’s the No. 1 U.S. purveyor of meal kits, planning to expand its sales of delivery of cooked and refrigerated meals. The reasoning is that yes, Americans stuck at home in the pandemic got into meal kits in a big way, allowing HelloFresh’s stock to more than double. But once the virus comes under control, consumers who once more have to go into the office, and who once more will be able to visit their favorite restaurants, won’t be as interested in making their own suppers – not even from meal kits. Refrigerated fresh meals, the thinking goes, will give consumers the high quality of a meal kit without actually cooking. HelloFresh, and competitors like Freshly (now a unit of Nestlé), are betting this will appeal to consumers enough to make them subscribe to a meal service – the only way fresh meal delivery can possibly be profitable.

In other words, they’re hoping that the quality and convenience of refrigerated meals, delivered daily to your door, will outweigh the price disadvantage. And it’s a big one. If you order 10 dinners a week from HelloFresh, you can expect to pay about $9 per meal, plus tax and a weekly delivery charge of $9. That’s nearly three times what a frozen meal will set you back at Kroger – and Kroger won’t make you and your spouse commit to having that stuff for supper every weeknight.

“Quality” and “convenience” are doing most of the work in this business plan. And those are certainly important value propositions for food. But are they enough to carry the day against all the competition HelloFresh and its competitors are facing? It’s not just frozen food. Consumers who are willing to pay HelloFresh prices can in many cases order delivery from a restaurant that probably has newfound, hard-won experience in how to cook, package and deliver a meal for home consumption. And again, the restaurant won’t make you commit to delivery five nights a week.

Best of luck to HelloFresh. But I would be very surprised if fresh-food delivery in general made any kind of dent in the market share of frozen RTE meals, which themselves have enjoyed a sales spike from the pandemic. Yes, refrigerated meals have a built-in quality advantage over frozen food, as I said at the beginning of this post. But my experience has been, in any kind of market competition, that it’s always smart to bet on the guy with the lowest price.