Oct 27, 2016 · 7 minutes

For most of this year I’ve been mystified by the dueling trends of the “what’s for dinner?” segment of on demand startups— the most over-funded one in terms of deals.

One minute the bottom seems to be falling out from under the weak number four to number 5 million players. The next minute, another one you haven’t heard of seems to be getting new funding.

Um, ok.

Regular Pando readers know that I spent a painstaking four months or so testing many of the better known entrants. I’ll short cut the archive of findings:

- There’s almost no differentiation between them, except for Gobble which pledged very quick meals by having a lot of the sauces pre-made

- BlueApron was the best, but even BlueApron when from delightful to a chore. I have never met anyone who sees these services as a permanent way of life, versus the solution to a temporary problem, i.e.: I don’t know how to cook, or I have a new baby and need shopping/cooking to be easier.

- The plans are simply too rigid. The “on demand” ones like Munchery are nice because you can get a meal kit or a prepared meal and decide thirty minutes before you want to eat. That’s convenient because more than half of us don’t know what we want for dinner by 4 pm. Technology rarely changes human nature; it just make it more livable. But Munchery’s selections were narrow.

Blue Apron had a better selection but you have to decide to start the service weeks before you do, cancelling most of these companies is abusively hard, and still you notice a pattern after a few weeks. There’s always a bavette steak with something, a pan sautéed salmon with something, a various burger made of something that isn’t beef. There are few ways to flag recipes you love and get them again or customize based on the likes or dislikes. This is all because food is perishable and a bitch to organize at scale. But understanding that doesn’t make the services less annoying.

- They aren’t healthy. Lots of adjectives are used to describe these services “fresh” or “local” or “farm to table.” What they are not is low in calorie. Average meals totaled half the calories I try to eat in a day and that’s before you include wine. Result? I gained 20 pounds testing them I am still fighting to take off a year later. Not worth it.

I simply cannot imagine the churn when compared to the Total Addressable Market is in any way reasonable for any of these companies to go public, although Blue Apron is rumored to be eyeing just that. Meantime, Munchery seems to be struggling to raise funds.

*insert shruggy guy emoticon here*

A new study popped up in my inbox that kinda explains all of this and mostly backs up what we’ve said and said and said and said about this category. Conducted by 1010Data, it says it looked at HelloFresh, BlueApron and Plated over two years to determine the breakdown of the non-demand food world. If you ignore the bad food puns in the report, the analysis was interesting: BlueApron has more than three times the sales of its nearest competitor.

Three of every four dollars spent in the meal kit category goes to Blue Apron. And Blue Apron is the only player that commands customer loyalty. From the study:

We looked at consumers who have made more than one order across any of the meal-prep brands and found that Blue Apron has the highest proportion of “loyal” customers. 89% of Blue Apron’s customers have only made repeat purchases from Blue Apron’s delivery service (Chart 3.1). Comparatively, 73% of HelloFresh’s customers (Chart 3.2) and just 60% of Plated’s customers (Chart 3.3) were brand loyal. Plated’s customers appear the most adventurous, with 8% having tried all three services over the past two years (Chart 3.3).

Blue Apron’s loyal customers aren’t the only ones who have taken a liking to the brand. This year, HelloFresh and Plated customers most often turned to Blue Apron when trying out a second brand. 1010data analysis shows that about one-fourth of HelloFresh and Plated customers have also tried Blue Apron (Charts 3.2 and 3.3 respectively). No matter how you slice it, Blue Apron is still the most preferred brand.

Yep.

BlueApron is the best of them and most importantly the best known. It was the first unicorn in the space, and likely has one of the biggest ad budgets. It hasn’t raised the most capital, but it has raised more than most of its rivals at nearly $200 million. As such, it has the biggest market share. And that market share is dominant because none of these services are differentiated at all. When I’ve asked people at these companies how they are differentiated they’ve even given me the same answers: PEOPLE LIKE OUR RECIPES MORE!

Food is the ultimate commodity product, and these services are commodities too because they look just alike. Hence, the best known, second best funded of them, with the best execution and marginally better quality wins.

Proving sheer capital isn’t everything, HelloFresh was number two. It also spends a lot on customer acquisition, but was later to the US market. HelloFresh has gone so far as to send door-to-door salespeople to my house even though I’d already tried and cancelled the service. It has raised even more capital than BlueApron and is valued at nearly $3 billion. But that’s in “Samwer math.” HelloFresh’s struggles to go public have been widely documented as a cautionary tale about their model of company building.  

Plated comes in third; the study says that HelloFresh is five times as big. I’ve used both. HelloFresh isn’t any better. My guess is HelloFresh has just raised and spends an ass ton of money. Plated has raised a fraction of BlueApron and HelloFresh at just $56 million.

This also explains why Blue Apron thinks it can go public, even though HelloFresh couldn’t: The entire category might be limited and the churn might be high but it dominates the category and has more brand loyalty.

Maybe the category is bigger than I think. Maybe they are spending enough to keep the funnel filled up. Or maybe they can convince Wall Street of either of those things. The only question mark is the market if this study is true. But if BlueApron only had a marginal majority, of a fragmented market with dozens of players, you are making a bet on them and the market.

The study tries to argue that customers love the service because 77% have ordered twice in the past two years, and 48% have ordered five times. I’d flip those numbers around: Less than half of the people who have tried these services even stick with it for six months. That isn’t brag-worthy and proves my central point: People burn out of these services after a few months. It isn’t a new way to cook, it’s a stop gap, a novelty, a means to a temporary ends.

All of this deepens my conviction that there has to be a reckoning coming for, let’s just say, almost everyone else. It’s hard enough for Lyft to compete against deep-pocketed, brand-dominant Uber in the commodity business of ridesharing. And at least that market is mostly just a two-horse race. At least Lyft also has billions to spend— albeit fewer billions than Uber. And when it spends those billions, its market share grows. And at least Lyft has the whole friendly shtick going on.

No one hates BlueApron. BlueApron is well funded and more rationally capitalized. And it’s better known. Without raising a shit ton of capital, it’s going to be hard for any of these players to make a dent in those numbers. And even then, HelloFresh— which has raised $275 million— has tried and come up short.

And of course the most telling difference of all: Ridesharing is a vastly larger industry with wider appeal and repeat usage than restrictive, perishable, non-demand meal kit subscriptions.

As I said, I think BlueApron has built a high quality product. I don’t wish them any ill. And I’m happy that the best player is winning, I suppose. But I still don’t see how we have a stand alone company selling restrictive meal kit subscriptions in the public markets in the next five years. Is there a roll up? Do meal kit companies become the next growth engine of a WholeFoods? I have argued both make more sense than VCs continuing to fund a dozen me-too companies. And that’s especially the case if these numbers are true and BlueApron is owning whatever sized market this actually is.