Amazon’s Imminent Threat To The Crowded Meal-Kit Delivery Field

The concept of the meal kit is this: Order online and the meal kits, with pre-portioned, fresh ingredients and detailed recipe cards, are delivered, chilled, to your door, ready to be sliced, chopped and cooked.

“There are a lot of people who have means, but who don’t have time, and who don’t want to eat out every night,” says P.K. Kannan, the Ralph J. Tyser Professor of Marketing Science at the Smith School. “This taps into that.”

Meal-kit startups typically spend a lot of money on marketing to recruit and retain customers, which Zhang points out, has been “a major hurdle” for Blue Apron in reaching profitability. The startup, whose IPO is planned for later this month, spent some $141 million on marketing last year alone, roughly 18 percent of its revenue.

About 30 percent of Blue Apron subscribers cancel the service after just a month, Kannan says, quoting a recent research study by Dan McCarthy at the University of Pennsylvania’s Wharton School. And another 14 percent cancel after two months. About 70 percent never make it to the one-year mark.

“That’s a problem. The retention rate of customers is very important,” Kannan says. “Because that is going to give you the cash flow over time.”

Zhang points out that “both Amazon and Whole Foods already enjoy great brand reputation and large customer bases.”

And that might make it easier and less costly, she says, for Amazon and Whole Foods to recruit and retain customers – both for home-kit delivery and for online grocery shopping.

From a logistics standpoint, the deal also gives Amazon an existing refrigerated and frozen-food supply chain, says Philip T. Evers, an associate professor of logistics, business and public policy at the Smith School.

“Amazon could always compete on the dry goods side, because distributing dry goods is not terribly different distributing books,” Evers says. “But refrigerated and frozen, that’s something that requires significantly different handling.”

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