The Meal Kit Market Is On A Valuation Diet

Blue Apron, Plated, and HelloFresh are among the most growing players in the meal kit market; a new industry turned into a booming trend. It offers busy millennials the opportunity to cook the food themselves but without the hustle of spending hours on it. Customers receive a box in the mail with all necessary ingredients and recipe cards estimating the preparation process to no more than 30-40 minutes. The cost is lower than ordering a prepared meal: about $8-$12 per meal, with a monthly or weekly subscription plans pushing it to the lower side. [Read here for the full spotlight report on HelloFresh]

The meal kits trend was the missing part in the chain of “real world products” apps like Uber, Lyft, Airbnb or TaskRabbit, that connected users with physical goods such as cars or rooms. But, Blue Apron or HelloFresh don’t see themselves as merely delivery services that bring food to customers. They see themselves as retailers aiming to fix the broken market of food, decreasing food waste from 10% as is today, to no more than 3%.

A HelloFresh meal kit

As the food delivery market is capital intensive, companies have raised hundreds of millions each to support expansion in the U.S and other markets. Germany-based HelloFresh has raised $367 million since 2012, while Blue Apron, it’s American nemesis, has raised $194 million since 2012. But new signs from the market show that it is about to slow down, if it’s not already slowing down. Heavy losses, creaking logistics, and fierce competition are clouding over the companies’ eternal appetite for growth. It is no wonder that Blue Apron and HelloFresh have each stopped talking about a possible IPO.

Earlier this month The Information reported that Blue Apron and HelloFresh weren’t able to keep up their breakneck growth at the end of last year and both saw a sharp decrease in growth in the second half of last year. To keep growing, the firms must convince customers that the convenience they provide outweighs the cost. Plated, another competitor, grew at a slightly faster pace in the fourth quarter but it is a distant third in its market share.

As other on-demand startups such as Uber or Lyft are trying hard to do, Blue Apron and HelloFresh are struggling to reduce the cost of acquiring customers and to retain customers. The competition and scale demand high growth in customer acquisition, fueled by massive marketing campaigns and subsidies that make the price much more attractive. In Blue Apron’s case, the company runs about $800 million in total revenues but is struggling to improve profit margins.

The press rumors Blue Apron to be valued at $2 billion and that they wish to go public with a $3 billion valuation. However, Zirra, a company that analyzes private tech companies using AI and machine learning technology, values Blue Apron at $700-$800 million. The probability of an exit, such as going public, is low (40%-50%) according to the algorithms. If it chooses to make an exit, Zirra predicts a lower valuation that the press, with an estimate of $1.2-$1.3 billion.

HelloFresh has the same idea. Valued at $2.18 billion not a long time ago, Zirra now estimates its valuation at $1.1-$1.2 billion. The chances to make an exit are actually higher than Blue Apron’s, with a probability of around 60% in a window of 2-3 years. Think of the Seamless-Grubhub merger a few years ago that started a consolidation trend in the food delivery industry.

Blue Apron is suffering recently from growing criticism over its employment policy and some have said it provides customers with small portions of food. This definitely happened due to an uninhibited push to grow at any price – possibly at the expense of quality of employees and ingredients.

These graphs from LinkedIn show how the company’s growth is cooling down. Blue Apron’s growth in IT engineering jobs stood at 110%-120%, but the same growth in the last six months was dwarfed to around 40%. HR jobs are still growing in Blue Apron, probably due to a need of a stronger management of employees after the penalties cast on the company by California’s division of occupational safety and health. HelloFresh’s growth has also cooled down, but its growth has never been as high as Blue Apron’s.

Headcount growth at Blue Apron (Source: Linkedin)

Headcount growth at HelloFresh (Source: Linkedin)

A look at Google Trends shows that Blue Apron (the blue line) and HelloFresh (the green line) suffer from seasonality. There is a lower demand during the holiday season while January and February are strong, probably as people prefer to cook at home. Yet, Blue Apron’s dominance in the market is clearly shown in the graph.

Data provided by Slice Intelligence to The Information shows the same status in share from total orders:

Blue Apron and HelloFresh will now have to deal with two contradicting trends: the need to reduce costs, a trend that will necessary lead to surging prices, and the demand for cheaper meals or meals that provide higher quality. [Read here for the full spotlight report on HelloFresh]

Assaf Gilad

An ex-journalist from Calcalist, a leading business and tech news outlet in Israel, I'm now writing about startups for