Kroger yesterday said that it will acquire Home Chef, the nation’s third largest meal kit company, for $200 million; the cost could go as high as $700 million if Home Chef achieves certain performance targets.
Once the acquisition closes, Home Chef is expected to operate as a standalone company, but with its kits available in the vast majority of Kroger’s 2,800 stores. Home Chef says that it currently delivers some three million meals a month. Kroger’s existing in-house meal kit business, Prep+Pared, will be folded into Home Chef.
This is the second deal that Kroger has made in recent days that can be seen as extending and deepening its footprint outside the traditional bricks-and-mortar milieu. It was just a week or so ago that Kroger invested $250 million in Ocado, the British e-commerce/logistics/robotics/warehouse company, that will give it exclusive access to Ocado’s technology.
The Wall Street Journal writes this morning that Kroger “is quickly pushing to shake up its business model as its faces competition on all fronts. Amazon.com Inc. is ramping up delivery service and discounts at Whole Foods stores for Prime members, while Walmart Inc.’s investments in its stores and technology are paying off. Deep discounters, meanwhile, have pressured Kroger to slash costs as weak inflation in food prices haven’t boosted sales as grocers had hoped.”
Kroger executives, however, position the company’s moves and investments as being a reflection of its reading of consumer needs and desires, rather than as responses to what competitors are doing.
Yael Cosset, Kroger’s chief digital officer, tells Bloomberg that the deal “allows us to go faster. We expect it to be extremely disruptive in the industry.”
The meal kit business has proven to be somewhat problematic a for standalone entities, with market leader Blue Apron currently aligned with Costco to sell its offerings in stores. And Albertsons acquired Plated, another meal kit company, last year.
The Journal notes that “the business business is extremely competitive, with over 100 meal-kits companies operating online.”
Once the acquisition closes, Home Chef is expected to operate as a standalone company, but with its kits available in the vast majority of Kroger’s 2,800 stores. Home Chef says that it currently delivers some three million meals a month. Kroger’s existing in-house meal kit business, Prep+Pared, will be folded into Home Chef.
This is the second deal that Kroger has made in recent days that can be seen as extending and deepening its footprint outside the traditional bricks-and-mortar milieu. It was just a week or so ago that Kroger invested $250 million in Ocado, the British e-commerce/logistics/robotics/warehouse company, that will give it exclusive access to Ocado’s technology.
The Wall Street Journal writes this morning that Kroger “is quickly pushing to shake up its business model as its faces competition on all fronts. Amazon.com Inc. is ramping up delivery service and discounts at Whole Foods stores for Prime members, while Walmart Inc.’s investments in its stores and technology are paying off. Deep discounters, meanwhile, have pressured Kroger to slash costs as weak inflation in food prices haven’t boosted sales as grocers had hoped.”
Kroger executives, however, position the company’s moves and investments as being a reflection of its reading of consumer needs and desires, rather than as responses to what competitors are doing.
Yael Cosset, Kroger’s chief digital officer, tells Bloomberg that the deal “allows us to go faster. We expect it to be extremely disruptive in the industry.”
The meal kit business has proven to be somewhat problematic a for standalone entities, with market leader Blue Apron currently aligned with Costco to sell its offerings in stores. And Albertsons acquired Plated, another meal kit company, last year.
The Journal notes that “the business business is extremely competitive, with over 100 meal-kits companies operating online.”
- KC's View:
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Meal kits of various kinds are beginning to be seen, I think, as an almost de rigueur offering in supermarkets, regardless of whether the segment has proven out as being profitable. Sometimes trends get ahead of the numbers, and this may be one of these cases.
I do think that Kroger’s moves need to be seen as part of a broader chess game, regardless of whether it is motivated by consumers or competition. Kroger’s superior customer data has the potential of giving it the ability to target customers to a great degree, understanding which customers might be most open to a meal kit pitch, and appreciating the pain points that need to be addressed.
I also find myself wondering if there is another kind of symmetry in the Ocado and Home Chef deals. Maybe there is way to convert Ocado’s robotics expertise into a way to make meal kits accessible to customers without them ever having to go into the store, perhaps through some sort of exterior vending arrangement.
Didn’t we also have a story the other day about how meat kit company Chef’d announced a partnership with vending company Byte Foods to bring meal kits to 100 workplace locations in San Francisco and Sacramento? There is a lot coalescing here, I think.
I also think that Kroger isn’t done yet. There are more deals to be done, maybe a really big one. I’m not just talking digital-oriented deals … I’m also talking deals that could give Kroger a bricks-and-mortar presence in the few markets where it doesn’t yet have one, or deals that could give its banner greater depth of presence even in places where it does have stores.
The clock is ticking, though. It isn’t only Kroger playing this game … Albertsons, Walmart, Costco and yes, even Amazon are all looking at the board and making judgements about their best strategic moves.
