Meal Delivery’s Uncertain Future

Role Reversal

During the pandemic, meal delivery companies met a clear need. They allowed consumers to eat without leaving the home. However, after a year of record inflation, paying a premium to have dinner delivered to your doorstep is starting to make less sense for some. This has led investors to question if companies like HelloFresh (HLFFF) and Blue Apron (APRN) have long-term staying power.

Last year, HelloFresh accounted for 78% of home delivery meal-kit sales in the US. As the market leader, it sets the standard for the industry — and it isn’t necessarily a high bar. Looking forward, the meal delivery service expects a high-end revenue growth of just 10%. This is much lower than investors were expecting, and it could be a sign that the industry is slowing down.

3 Issues

There are three issues that could be causing meal delivery services to spoil.

To start, meal-kit companies rely on shipping unprepared food, a bulky product that often must remain refrigerated. On the flipside, prepared meal delivery services like Fresh N Lean or Home Chef’s (K) Fresh and Easy line face tough turnaround times to ship pre-cooked meals that still taste fresh. Either way, it’s expensive and logistically complex for delivery companies to, well, deliver.

Plus, during the pandemic, meal delivery companies subsidized the cost of service by offering promotions to lure in customers. However, when forced to pay the full price, the industry’s slowing growth suggests many customers would rather eat out or simply cook for themselves.

No More Delivery?

The future for meal delivery stocks remains uncertain. However, it’s important to note these companies are distinct from “food delivery” or “everything delivery” companies. DoorDash (DASH) or Uber Eats (UBER) — which deliver fresh-cooked food, groceries, and other essentials, often within the hour — have shown substantial post-pandemic growth.

If you are hooked on getting meals delivered, you may want to hold onto your old cookbooks for a while longer. Meal kits may have proven to be a valuable service during the pandemic, but they have a ways to go to prove they’re a necessity.

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