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Meal kits at a time of corona: does this crisis deliver an opportunity?

April 16, 2020

“Brits aren’t known for being the best cooks,” a Reuters reporter observed this week, “but as the coronavirus lockdown continues, a baking frenzy has taken hold to such an extent that flour is running low in some places and recipe searches have hit all-time highs.”

News like this could be a pie splattering into the faces of analysts at the Swiss bank UBS, who published a report a few years ago entitled “Is the Kitchen Dead?” But it is also a morbid glimmer of opportunity for meal kit companies capable of delivering precise quantities of ingredients to families living under lockdown during the global Covid-19 pandemic.

As AFN previously reported, startups getting into meal kits— or recipe boxes, as they are called here in Britain — have long been an endangered species. Many have had a tough time gaining market traction in the years and months leading up to Covid-19, flanked by grocers moving into e-commerce. Apps like Deliveroo bringing well-cooked restaurant meals right to the doorstep haven’t helped. High profile casualties litter the space, mostly due to the challenging unit economics related to a high consumer churn rate.

Then came the shuttering of restaurants around the world, and a resurgence of the home-cooked meal to nourish the housebound. Could consumer behavior and demand for these services change for long-enough to shift these fundamentals in the wake of the coronavirus? Or should we expect the same issues to arise again in the aftermath?

Gousto, a UK meal kit company, is seizing the moment either way; it has tapped its investors for an additional £33 million ($41 million) in a funding round led by Perwyn, BGF, MMC Ventures and the influencer and fitness guru Joe Wicks. This investment closed less than a year on from their previous round and takes the total funds raised by Gousto to over £130 million in the last eight years.

Andrew Wynn, a founder and managing partner at Perwyn, said Gousto continued to impress firm and that it had “adapted quickly to continue providing an essential service to so many,” reaffirming their decision to invest in Gousto pre-Covid-19.

By delivering online-ordered recipe boxes to homes, Gousto and its competitors such as Hello Fresh not only eliminates supermarket travel and costs, it also helps consumers cut down on food waste, an increasingly salient political priority here in Britain, even in times of anxious stockpiling.

Gousto claims it is now trading profitably and has seen revenue grow by 70% YoY (Q1), with over 4 million meals delivered to 380,000 UK households monthly. Gousto’s focus on data, artificial intelligence and automation will see it put over 400 million meals on tables by 2025, the team hope.

That hope, however, seems to assume a successful wrestle for market share from legacy grocers on the high street — who are have been jolted into ramping up their online delivery services as well. Gousto will also have its work cut out against another insurgent grocer: the online supermarket Ocado, which had to suspend its online services in March due to a “simply staggering” increase of traffic.

And aside from that, Gousto will have to contend with the assumption of the kitchen coroners from UBS — essentially a bet on the laziness of human nature, where restaurants and ghost kitchens will bring readily cooked food effortlessly onto Netflix-addicted laps through apps like Just Eat or Deliveroo.

(Despite losing custom from the likes of Burger King due to the shutdown, Just Eat has noted an uptick of 3,000 restaurants signing onto its platform, the Daily Telegraph reported. while in another good stroke of news, Britain’s Competition and Markets Authority has just ruled that Dutch online food ordering company can continue merging with Just Eat, though an investigation into the merger continues. Takeaway had purchased Just Eat for $7.8 billion earlier this year.)

The high projections also require quick scale and risk backlash, as recipe box delivery service rival HelloFresh has discovered; the team has failed to keep pace with surging demand, irritating customers left without food or missing key ingredients. The Berlin-based firm is now on a rapid hiring spree as it similarly bets on people still finding enough joy and value in cooking their own meals at home in a post-Covid world.

Gousto, meanwhile, plans to grow too; adding 400 roles within the next four months across teams in Spalding and its HQ in London with an aim of increasing headcount by over 700 by 2022. The firm says it will continue “to harness technology to further propel its market-leading proposition, with a particular focus on expanding its 100-strong tech team in London, accelerating innovation – including Next Day Delivery, customisation and significantly scaling up its fulfilment capacity. Hiring has already started for around 100 roles at the company’s existing facility in Spalding, Lincolnshire and for its second fulfilment centre opening later this year.”

“In these challenging times, we want to continue offering people more choice and especially more convenience. We will maintain our close relationships with the government and other charitable partners to ensure those already struggling don’t see their situation worsen,” said CEO and founder Timo Boldt in a press release sent to AFN. The release also touched on how Gousto is engaging with the UK’s Department for Environment, Food and Rural Affairs on a coronavirus response effort for the vulnerable.

It has already implemented contactless delivery for customers and donated the equivalent of 6,000 meals to The Trussell Trust foodbank network and homeless charity, Shelter.

Do you see hope for meal kit startups in a post-covid world? Drop a note to [email protected]

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