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External Analysis for Meal Kit Industry

1856 words (7 pages) Business Assignment

2nd Nov 2020 Business Assignment Reference this

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Analysis of the General Environment

Many have joined the evolution of meal solutions from traditional grocery shopping to meal kit subscriptions and other variations of the sort. Meal kits are a great solution to preparing convenient, home cooked meals for people that are constantly on the go. In the article, Demographic Disruptors, market researchers consider both demographics and social culture when looking into the target market for meal kits. From this consideration in addition to other research conducted, it was concluded that “Aging Baby Boomers with new priorities, cash-strapped young foodies, and Millennial parents” make up the target market for this industry (Slogan 2019).

From an economic perspective, locations with a low unemployment rate appeal to a larger target market that can afford them, as well as the luxuries provided by the additional cost. Entering markets in areas with a developed mailing or delivery service would also need to be considered to ensure that the orders can be fulfilled for the customers. Also, locating these companies in economies that are doing well will sell to customers that have more disposable income and who would be more willing to purchase these luxury products (Desjardins 2019).

Weather is uncontrollable and meal kit companies must work through its forces to transport products to customers on time and in good shape. Something as simple as a warm environment can be detrimental to the meal kits as they could be spoiled if left outside for too long (Machurick 2019). This correlates with a rising concern of many consumers about the food quality of meal kits upon arrival. An article in Shape states, “47 percent of the food items arrived with surface temperatures above 40 degrees, which falls in the USDA's "danger zone" upon which bacteria grows most rapidly” (Cherry 2019). In response to this, the implementation of technology such as apps for ordering the meal kits allow them to be scheduled to arrive during a time that someone is available to receive them. Apps that are user friendly and lack bugs/glitches are more likely to be successful as they assist with customer satisfaction.

The meal kit industry had been a huge success in North America with a market of 2.5 billion in 2017 and a forecast of 9 billion by 2025. This industry is appealing to the nuclear family who is busy at work all day and still wants to adopt a healthy lifestyle. All around the world this trend is increasing, including places such as Australia, where meal kits were purchased by a total of 1.5 % of total households (Hexa Research, 2019). Depending on where the meal kit company is located, legal and political practices will vary. It is important to consider the laws and political leanings of wherever the company operates in order to avoid breaking any laws and to maximize appropriateness.

Analysis of the Industry Environment

The meal kit industry is highly competitive as many companies fight for their share of the market. Part of the reason this industry is so competitive is because of the high threat of new entrants. This stems from the low barriers to entry which exist due to the relatively low startup costs for new businesses (Howland, 2017). In addition, the incumbents’ defense of the market is low in intensity and the industry growth rate is low, both a result of the inability of companies in this industry to retain their customers for long term (Lindenberg, 2019). This leads to a very high intensity of rivalry between companies in this sector, as they fight to keep their customers as well as gain new ones. Grocers like HEB and Kroger have also begun selling their own meal kits to buy in store, which has been an enormous source of increased competition (Lindenberg, 2019). The threat of substitute products is also high for this industry, as many alternatives to these meal kit companies exist. Companies like Uber will pick up food from your favorite restaurants and deliver it to your door, curbside pickup of groceries that make it easier to go grocery shopping, as well as grocery delivery services from companies like amazon or HEB all provide substitutes for meal kits. The bargaining power of buyers for the meal kit industry is on the average to low side due to the high number of companies to choose from, most of which offer similar, if not the same choices (Support Staff, 2019).  The bargaining power of suppliers is relatively low because most meal kit companies try to be efficient and are very basic in their layout to assist in ease of use for customers. They all require the same basic ingredients and supplies, which are very common among a multitude of suppliers, meaning suppliers have very little bargaining power as the companies can just go to any other supplier (Lingle, 2019).

Opportunities and Threats in the Environment

One of the biggest opportunities in the meal kit industry is the size of the market. According to Investor’s Business Daily, “Statistics portal Statista says meal kits generated $1 billion in revenue worldwide in 2015 and will hit $10 billion by 2020.” (Britt, 2018) In this era, leaving the comfort of one’s own home is considered an inconvenience, and as a result, meal kits are becoming ever more popular and new companies in this industry are constantly popping up. The convenience that meal kits bring to homes are one of their main advantages and a major selling point in the industry. “It simplifies the meal preparation process,” as Lee Levy, a stay-at-home mom with two kids, stated on her blog. She expressed the inconvenience of having to juggle her duties as a mom and having to buy the ingredients and preparing the meals. These meal kits have also been praised for their low cost, low time consumption, and for their variety of meal options (Levy, 2018). Mrs. Levy faces the same challenges as many households across America, looking for the convenience these services provide at a low cost, and putting the meal kit industry at an advantage to do just that.

The meal kit industry has continued to grow, including big name companies as well as small local companies within the United States and internationally. “Today, these meal packages are available in more than 900 Kroger stores” (Lindenberg, 2019). Many grocers have begun selling meal kits, an advantage for the companies who are teaming up with them and a threat to rivals. The ease of picking up one of these meal kits during a trip to the grocery store can be great exposure by some big-name companies. Another threat meal kit companies face is low customer retention rates, as in Blue Apron, who “Lost 13.78% of its customers in a single quarter of 2018” (Lindenberg, 2019). Many of these companies are offering great deals to get customers started on meal plans, but after the deal expires a large percentage of those customers cancel their membership. This is a common issue among many companies in this industry and severely harms their profits (Lindenberg, 2019).

Overall Summary and Recommendations

It is evident that the meal kit industry will be growing substantially over the next few years, and yet, not one company has completely dominated this industry. Addressing the problems of freshness and variety, customer convenience, and environmental sustainability will surely give an edge to the company who capitalizes on them. This is essentially required in the meal kit industry, where fierce competition exists among the various companies and their pursuit for greater market share.

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