In its last earnings call, Whole Foods Market (NASDAQ: WFM) alluded to big plans in the burgeoning meal kit industry. Asked about the niche market, Co-CEO Walter Robb said, "Huge interest in this." Now it seems the company is finally taking its first step.
Today, the nation's leading organic grocer is launching its first meal kit program, partnering with plant-based meal-kit delivery service Purple Carrot in a pilot program at its Dedham, MA flagship store. Purple Carrot will offer a rotating menu of three boxed meal kits, including selections like Mongolian Seitan Stir Fry, Pan Seared Tofu and Black Rice Noodles, and Cashew Korma with Cauliflower Rice.
Purple Carrot CEO Andy Levitt said he's hopeful that the partnership with his two-year-old company will spread to other Whole Foods locations after the test, and that its meals will also be available through Instacart delivery from Whole Foods. Outside of the Whole Foods test, Purple Carrot is only available by ordering through its website. The meal kits will be priced at $19.99 at Whole Foods and serve two people.
The meal kit bonanza
Much of the food industry is struggling these days. Supermarkets are getting clipped by food deflation, and a restaurant recession is crushing fast-food chains. Meal kits, however, are booming, having gone from a virtually unheard-of product to a multi-billion dollar industry in just a few short years. Blue Apron, generally considered the leader in the industry, was valued at $2 billion in its last round of funding, and could be worth as much as $3 billion in a potential IPO. Meanwhile, Whole Foods, a 40-year-old company with nearly 500 stores nationwide, is valued at only $9 billion.
With those kinds of metrics attached to the meal kit juggernaut, it's clear why Whole Foods would jump on the bandwagon. It's not alone. Boxed meal deliveries have attracted a number of start-ups, including Plated, Hello Fresh, and Chef'd, as well as entrenched companies from outside the food industry like Amazon.com and The New York Times.
For a company like Whole Foods, meal kits make sense. Its target customers -- higher-income, food-conscious folks who are often starved for time -- are the same crowd the meal kit industry has popped up to serve. At its Investor Day conference this summer, Whole Foods indicated that it was aiming to launch its own meal kit service -- CIO Jason Buechel said, "I would say there's a lot of people in the 'Willy Wonka laboratory' working on this thing," though the company hasn't issued any further details since.
Keeping it vegan
For decades, Whole Foods was able to put up strong growth as it essentially had the organic and natural food space to itself. But that changed a few years ago when mainstream grocers like Kroger, Costco, and Wal-Mart spotted the opportunity and undercut Whole Foods on pricce. Now, the organic pioneer increasingly seems to be connecting its brand identity to veganism, or a plant-based diet. Two of the three recently opened 365 by Whole Foods locations include vegan restaurants, and the company's decision to partner with Purple Carrot, the first plant-based meal kit service, seems telling as well.
Interest in plant-based foods is growing. Levitt said growth at Purple Carrot has been "exceptionally strong" in 2016 and is trending well into 2017, and noted that 47% of Americans are now considered flexitarians -- individuals who eat plant-based meals some of the time -- while others are trying to eat less meat.
Whole Foods isn't the only one jumping on this trend. In a move signaling growing interest in plant-based proteins, Tyson Foods (NYSE:TSN), the world's largest processor of poultry, beef, and pork, recently surprised the food industry by taking a 5% stake for an undisclosed amount in Beyond Meat, makers of the plant-based Beyond Burger that is available in supermarket meat departments.
Levitt was optimistic that the pilot program would grow beyond the Dedham location, and even thought that meal kits in general will make the crossover into grocery stores, much in the same way that other e-commerce brands like Warby Parker have later gone into brick-and-mortar retail.
For Whole Foods, the meal kit has the opportunity to reinvigorate flagging sales. The company is likely to deliver another disappointing quarter when its earnings report comes next week, but expect to hear more about its plans for the meal kit space. It's clear that this is an intriguing proposition for both investors and customers alike.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Kroger. The Motley Fool owns shares of and recommends Amazon.com, Costco Wholesale, and Whole Foods Market. The Motley Fool recommends The New York Times. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.