Just how health is the U.S. market for new meal delivery services? It’s an interesting question posed in the December issue of Entrepreneur. In some ways, 2015 was the year of the meal delivery kit, with dozens of new ventures beginning operations with a unique take on bringing convenient, healthful food to consumers. However, the piece’s authors articulate a belief that a shakeout is looming in 2016, as too many concepts were funded with too much money fueled by too little market research.
The article highlights Good Eggs, a farm-to-home grocery-delivery service with $50 million in venture funding. Despite the capital investments, it still had to lay of 140 of its 300 employees at the end of the summer. Simultaneously, it shuttered its services in Los Angeles, New York and New Orleans to instead focus on San Francisco, the home of its launch in 2011. Unfortunately, this sort of story is the norm in the industry.
Despite the challenges involved, opportunity still exists within the industry. According to Bob Goldin, executive vice president of Technomic, the sector could generate U.S. sales of $3 billion to $5 billion by 2020. Danielle Gould, founder and CEO of Food+Tech Connect, agrees that there is still potential: “At first, I was skeptical of the model; I thought people would use it once or twice, then just search for recipes and shop for ingredients on their own. That hasn’t been the case. The demand has been phenomenal. It’s about convenience. Home-cooked meals without effort.”
The real secret to success in the sector, however, may be a bit more nuanced.
The article notes that specialization is key for the sector, both in terms of demographics and geography, and we happen to agree. Delivery services can find success by focusing on second-tier cities beyond New York and San Francisco. More importantly, the customer base must be determined: Brian Todd, president and CEO of the Food Institute, notes that successful businesses will “hit a niche: vegetarian, vegan, gluten-free or a special-need group like diabetics.”
The best advice to those in the industry is to grow slowly and carefully. Just ask Good Eggs:
“We scaled up too quickly, before we were a proven success.”