July, 2015

Research Perspective and Comments & Analysis

How Fresh Produce Plays Key Role In New Generation Of Delivery Services

By Maeve Webster, Senior Director; Mike Kostyo, Publications Manager, Datassential

Late last year, Datassential asked consumers which factors were most important to them when choosing a meal delivery service. Topping the list was fresh ingredients. Forty-eight percent of consumers said fresh ingredients were very important to them, beating factors such as: healthy meals, the use of local ingredients, and options for special diets (gluten-free or vegetarian).

In fact, fresh produce is one of the most important differentiators for a whole new generation of meal and grocery delivery services that are growing fast and earning lots of attention. These services often make claims of “disrupting” traditional industries and becoming the “Uber” of meal delivery. And those claims may not be far off.

For Datassential’s Creative Concepts TrendSpotting Report on meal delivery services, we took a comprehensive look at these services, from the ingredients and flavors you’ll find on the menu to the technologies making these services possible. We also surveyed consumers for their thoughts on these companies, from their interest in the types of dishes being offered to the concept’s overall appeal. In particular, we looked at three types of services: prepared meal delivery, meal kit delivery, and grocery/packaged goods delivery.

Freshness & Produce Is Key

“From kale to baby bok choy, we’re choosy about what goes into your box,” Plated.com proclaims. “Great meals start with fresh ingredients,” says Sprig.com. Blue Apron promises produce that is “fresher than the supermarket.” For companies focused on prepared meal delivery (such as Plated, Sprig and Blue Apron), this focus on freshness is designed to de-stigmatize pre-made dinners. These aren’t your typical frozen dishes. Many of these companies hire renowned chefs or partner with local restaurants to deliver hot, on-demand, restaurant-quality dishes. Berkeley, California-based SpoonRocket uses algorithms to position delivery drivers around the city before customers even order, using specially-designed delivery vehicles with built-in hot and cold compartments.

For those consumers using meal kit delivery services, which deliver pre-portioned ingredients to customers to be prepared on the customer’s schedule, novelty and reducing food waste are key factors. Many note that these boxes allow any customer, anywhere in the country, to find ingredients that are typically only available in specialty grocers or urban areas — for example, daikon radishes, escarole, or Calabrian chili peppers. A mix of healthy dishes, customer favorites, and on-trend produce is also key for many services. Almost everyone offers a variation on a kale salad. Because the ingredients are portioned out for each dish, these services noted that customers don’t have to buy entire bunches of cilantro or even an entire lemon if a dish only calls for a sprinkling or a squeeze.

While grocery delivery may be the most mature segment of the delivery market (Peapod launched in 1989), fresh produce is sometimes a pain point to try and convince customers that a surrogate shopper will choose produce that’s up to the customer’s standards. Almost every company goes to great lengths to reassure customers that the company’s standards are exceptionally high, and that it will return, replace, or reimburse any produce that isn’t up-to-par. It seems to be working. Grocery delivery services are one of the fastest-growing segments of the meal delivery market. Last year the New York Times reported Instacart’s gross revenue grew more than 10 times last year, to more than $100 million annually. Now the company is expanding to suburban markets and directly partnering with supermarket chains after showing that a majority of Instacart orders do not replace traditional shopping trips, they augment them.

Customers & Companies Are Responding

According to Datassential’s research, one-fifth of consumers tried an online or mobile-based delivery service, and more than a third love the idea. Now everyone is getting into the game. In addition to Amazon, Google Express partnered with brands like Costco, while Wal-Mart expanded both its pickup and delivery services this year. In April, Chipotle announced it would begin offering delivery in 67 cities through a partnership with Postmates on-demand delivery service. Celebrity chef David Chang announced he is curating the menu for Maple, a recently-launched, Manhattan-based delivery-only restaurant.

Even Uber is aiming to be the “meta-Uber” of meal delivery with its UberEats platform, leveraging the company’s drivers to deliver meals from local restaurants. Investment capital continues to flow into the delivery startup space, as investors make bets that technology usage (most delivery services are web or app-based), urban population growth, and an on-demand economy will continue to drive interest and growth in these services.

In the near future, customers may only have to go as far as their doorstep for fresh produce.

45% of consumers said meal choice was important in choosing a delivery service.

31% of consumers said healthy meals were an important factor in choosing a meal delivery service.

14% of consumers used a supermarket/local grocery delivery service (Instacart, Peapod) in the past.



Poised For Growth

Datassential always does interesting work, and this piece by Maeve Webster and Mike Kostyo raises important issues for the produce industry.

First, it points to the rise of a new business category selling meal delivery services. Although some produce companies are participating in this segment by actually assembling the boxes that go to consumers — and all these services are buying produce from somewhere — few shippers established divisions or sales desks with personnel specialized in these markets.

Much as like selling to foodservice depends crucially on influencing the menus of operators until these companies are persuaded to add these items to menus — after all, sales of sliced apples, blueberries and Clementines to McDonald’s were zero a decade or so ago — the industry must engage with meal delivery services to highlight opportunities to use more fresh produce. After all, the Datassential research showing that consumers value fresh foods means that meal delivery services will be open to new opportunities. Yet how many produce shippers are organized to place a sales priority on this fast growing industry segment? How many companies have the expertise necessary to credibly engage in assisting these meal delivery services in menu planning, delivery execution, etc.

The meal delivery service would seem to hold the potential for being a real boon to specialty produce vendors. After all, consumers typically refrain from buying specialty items because of: unfamiliarity with taste; uncertainty of usage and cooking techniques; cost; and fear of waste. Yet, if meal delivery services incorporate these items into their menus, all these “problems” are mitigated.

Consumers pay for meal delivery services to have chefs develop great recipes, so consumers will be inclined to give specialty items a try — even if they don’t know how they taste. Since whatever cooking required comes with clear explanation, and the services wouldn’t allow anything too complicated, lack-of-cooking expertise will not be a serious problem for consumers. Relative to other produce items, specialty produce costs a lot, because retailers use these items as margin-enhancers and do have concerns on shrink.

Meal delivery services sell a meal at a fixed margin, don’t try to make more on one item than another, and there is no shrink due to lack of sales as the services buy exactly the quantity they need for the number of meals contracted. Finally, consumers buy exactly what they need — an individual meal — so there is no waste as there could be in cooking small quantities. Since many meal delivery services appeal to urban singles and couples, this is a big win.

One can imagine these services growing substantially. As the elderly portion of the population grows, these services, delivering meals with pre-cut portions, serve so many needs of the elderly: ease of transport, avoidance of waste, avoidance of too much knife work in cooking, etc.

Also, the growth in health concerns and specific diets will play into this trend as well. Ordering a gluten-free meal or one that conforms to the Paleo diet, a carb-free option, or a peanut-free diet for someone allergic is often easier than trying to hobble together such options at a restaurant. In the hullaballoo of a busy restaurant, it is much harder to really ensure that no knife used to spread peanut butter is used on a peanut-free meal without thorough sanitation. On an assembly line, this is less of a challenge.

The broader grocery delivery industry is obviously set to explode. Amazon, after years of experimentation, is now in a roll-out stage. This platform alone could become one of the largest grocers in the world. The reactions of other players, from Wal-Mart to Google, all demonstrate that this area is not only hot but perceived as a long-term growth strategy.

This growth offers the produce industry the potential for a more satisfied consumer. Fundamentally, the standard practice in stores — which is to remove items from their packages, disturb the cold chain, put them out in a venue where consumers can touch the produce — all lead to reductions in product quality and opportunities for food safety problems, all while increasing shrink.

The obvious next generation of produce packaging is consumer packaging. Just as shippers often prepare special boxes for warehouse clubs, if the typical consumer order is for six clementines, the ultimate outcome will be source-packing of small trays of six Clementines so that the delivery services can sell that unit without having to repack. This will allow for a much improved cold chain, more efficiency, and a more sanitary product.

These delivery services start out selling convenience, but in the end, they will deliver superior quality produce, and that will be a major cause of their triumph.

Although it may seem as if consumers will be hesitant to trust a delivery service with produce selection, the best research we have indicates the opposite is true. Consumers are so doubtful about their own ability to select a ripe pineapple or flavorful melon that they are happy to outsource this function to experts. Online retailers (with their various ranking systems), which almost always include some sort of message such as: “This is bad, but we make it available in case you really need it,” actually have more credibility with consumers than brick-and-mortar retailers who almost never speak so bluntly. pb