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Sean Butler on the Future of Meal Kits in Grocery

Sean Butler on the Future of Meal Kits in Grocery
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Mercatus Radio presents the Digital Grocer - Episode #5

In this episode, Sylvain interviews Sean Butler, formerly Senior Vice President of Retail at meal kit provider, Chef’d, where he created, launched, and scaled the company’s chef-designed in-store meal kits. Sean left Chef’d in May 2018 and founder The Emerging Brand Studios, a global strategy consultancy serving the food & beverage industry and a division of LIDD, Inc., retail operations and supply chain infrastructure consultants.

This interview took place just prior to Chef’d announcing its insolvency on July 17, 2018 and laying off 350 employees.  Chef’d supplies about 25 retail customers, including Walgreen’s and Duane Reade drug stores in New York City, and has about 200 licensing partnerships. Soon after the announcement, the company’s assets, including plant, property, equipment, brand and intangibles were scooped up by True Food Innovations for an undisclosed amount. Chef’d products will continue to be sold in U.S. grocery stores, but the firm’s e-commerce offering will be suspended. The grocery store effort is more in tune with where American consumers are headed.

Sean lays out his vision for the future of meal kits, the fastest growing food channel in the U.S. (including grocery as well as foodservice delivery). In-store grocery sales of meal kits is what’s driving revenue growth in the space. He says the right way to do meal kits is not the subscription model. ​The future is a curated non-subscription model supported by a fresh, rotating set of in-store offerings. He says “pretty dramatic change is going to happen on the earlier side of that three to five year prediction. We’ve seen the convergence of retail and perishable e-commerce through meal kits. But much more interestingly, says Sean, the next level is going to be involving restaurants as well, and meal kits will be on the cutting edge once again.”

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Sylvain Perrier:              Ladies and gentlemen, welcome to our podcast The Digital Grocer. I’m your host, Sylvain Perrier, sans Mark Fairhurst. Mark is, I think he’s dealing with amoeba dysentery right now, and I think probably passed out somewhere east of the city. But we have our trusted sound engineer here and our sidekick, Kevin Glen.

Kevin Glen:                   How’s it going?

Sylvain Perrier:              Awesome. We are recording an intro to the intro of the podcast that’s about to play. Let me share with you guys some important information here. Back on, I think it was July 3rd, we recorded, I would say it’s an important podcast with Sean Butler.

Sylvain Perrier:              Sean was a former employee of Chef’d. It was a podcast meant to talk about the meal kit industry and so on. It was great really talking to Sean. I mean, this guy really gets this space.

Sylvain Perrier:              Full disclosure, Sean never talked about the financial performance of Chef’d. We never asked him any questions of the like whether it was during the recording session, or even before, or after.

Sylvain Perrier:              Now, there’s been a series of things that have happened in this space that we felt that as opposed to waiting to release this episode, which we had decided was going to be in our cycle of episodes, it was going to be number eight, we decided to accelerate the release. This is formally gonna become number four. Actually, no, number five, because number four was we talked about the whole ADA thing.

Sylvain Perrier:              So Kevin worked his magic over the weekend and did the editing of the episode because traditionally what we do is when I go up to the mic, I kind of explain, “Hey, this is Episode X,” right?

Sylvain Perrier:              We decided to accelerate it. The reason is, is the whole demise of Chef’d, which is really sad in any case. We’re talking about 350 people that are out of a job.

Sylvain Perrier:              This happened really quickly. Not only did we record our episode with Sean on the 3rd, I was actually co-chairing the Digital Food and Beverage Show in Chicago on Monday the 16th. I actually participated in a panel on the 16th hosted by the supermarket guru himself, Phil Lempert. The next day I was actually co-chairing when I did the keynote and hosted my own panel, introduced a bunch of amazing speakers.

Sylvain Perrier:              On the Monday morning, I met the CMO of Chef’d. He went up on stage and gave a presentation and that night I was sick, sick as a dog in Chicago. I was in the hotel room and the information came out through Tech Crunch and Business Insider that the CEO of Chef’d sent out an email to the staff ceasing the operations of the business.

Sylvain Perrier:              When you’re in a start-up world, specifically in the food vertical and you’re really trying to go out there and make it your own, it’s really difficult. They succumbed to not being able to raise capital. I wish those guys a lot of luck in their future endeavors and so on.

Sylvain Perrier:              I will tell you that the whole industry of meal kits is rapidly taking off. There’s tons of consolidation. It’s not an easy space to be in whatsoever, right? You’re faced with three probably very difficult challenges. Certainly we’re privy to some of those challenges but there’s some additional components that the meal kit industry has that we just don’t.

Sylvain Perrier:              Number one is, you have to have a solid platform, solid technology. The second one, quite frankly, is you have to not only have a solid piece of technology to be able to back you up, it has to be compelling and you have to build an audience. You have to get trusted consumers to believe in you, and to try your product, and to stay on for the long haul, right? You build up that subscriber base. The third one, and this is the one that we don’t face here at Mercatus, in fact, some of our retailer’s don’t to a certain extent, you have to build out a whole operational process and framework and equipment in the backend to be able to prepare these meal kits, and to do it in a way that delivers margin to you.

Sylvain Perrier:              Sean talks about this, right? The margins and the different levels. You just don’t roll out of bed one morning and say, “Hey, I’m going to be in the meal kit industry. I’m going to make X percent of margins on each of my meals.” You can’t do that without investing in people and investing in infrastructure.

Sylvain Perrier:              I think at one point, if I remember correctly from the trades that Chef’d had 350 employees in El Segundo. I’m wondering if they bought the old Fresh and Easy environment. Fresh and Easy was originally started by Tesco. Tesco, out of the UK, started up Fresh and Easy in California. The big thing Fresh and Easy did was ready made meals and really fresh meals inside their stores. They had a commissary, this kind of central depot environment where these meals were built. I’ve always kind of wondered if Chef’d was the company that acquired the assets of Fresh and Easy.

Sylvain Perrier:              This morning, Chick-Fil-A out of Atlanta announced they were getting in the meal kit industry. Shocking. It’s the first QSR to do it, right? Quick serve restaurant to do it. I’m interested in the fact that they do drive-through, if that’s going to help, right? That’s kind of new.

Sylvain Perrier:              Martha Stewart is getting into meal kits. First three are free. It takes thirty minutes to prepare it, there’s a recipe card on the inside. If there’s someone that’s going to get, I wouldn’t call it syndication but distribution for their meal kits, it’ll be Martha Stewart.

Kevin Glen:                   Mm-hmm (affirmative).

Sylvain Perrier:              Let’s be honest, right? It’s Martha.

Kevin Glen:                   Yeah.

Sylvain Perrier:              There’s a little bit of Martha in every meal.

Sylvain Perrier:              When we were in Chicago at the Digital Food and Beverage show, which was an amazing show, content was really well, I’d say tailored for the audience and the attendees. Carmela Cugini was up on stage from Walmart, Jet.com. She’s just an amazing woman, I would literally do pretty much anything to work for her. When you listen to her talk about e-commerce and marketing, for some reason, she’s got it figured out. Not because she’s not good at what she does, she’s amazing at what she does but she’s got such presence and such strength. Her content was on point, specifically stuff on what Walmart’s doing to tackle e-commerce. It was an amazing breath of fresh air.

Sylvain Perrier:              Then we had also Scott Thompson. Scott is responsible for ClickList. He’s a VP at Kroger for ClickList and had some amazing insights coming out of Kroger.

Sylvain Perrier:              As I was chairing the second day, doing the keynote stuff, I snuck in a bunch of meaty interviews. One of them happened to be a telephone interview to be on the Retail Focus podcast. Great podcast. The content is very apropos in time for what’s happening in the industry for that week, for that day, quite frankly. The hosts were really gracious to have me on. I think I did … I listened to the rough episode and haven’t listened to the final one that was submitted but I think I was on for 15, 20 minutes.

Kevin Glen:                   That sounds about right. I listened to most of the episode already, it sounds like they did a ton of research because they’re just dropping knowledge all over the-

Sylvain Perrier:              Yeah. It was a great interview. I want to say thanks to the guys over at Retail Focus. It was amazing to be on your show.

Sylvain Perrier:              Ladies and gentlemen, my suggestion is you definitely listen in to the show. If you have any questions, reach out to us. You can find out what our social media channels are by going to our website mercatus.com. You can send me some questions if you want. Sylvain.perrier, p-e-r-r-i-e-r, just like the water, at mercatus.com. Even better, just send me some questions via Twitter at sylvainperrier s-y-l, as in Larry, v-a-i-n, as in Nancy. Perrier. We look forward to getting your feedback and your comments regarding episode five with our friend Sean Butler. Thank you.

Sylvain Perrier:              Welcome ladies and gentleman to Mercatus Podcast, The Digital Grocer, episode 8, director’s cut, redux. We’re recording right here at Mercatus HQ in the heart of downtown Toronto, Canada in the fashion district. I will tell you it is a sweltering day and I think the planet’s on fire.

Mark Fairhurst:             It’s like three million degrees.

Sylvain Perrier:              It’s three million degrees. I saw two people burst into flames on the sidewalk this afternoon. I saw a third person accidentally melt. It’s actually cold in here. I am wearing a very fashionable Mercatus-

Mark Fairhurst:             Jacket?

Sylvain Perrier:              Jacket. Sweater. [inaudible 00:08:58] the people and I’m wearing sandals with jeans and people are looking at me. I think he’s like, “What’s wrong with this guy? He’s a bit, he’s not right.” I’m your host, Sylvain Perrier, president and CEO of Mercatus Technologies. Joining me, as always, is Mark Fairhurst, our senior director of marketing. Making the audio magic, a little bit like David Copperfield, so please do not disappear, is our sound engineer, Kevin Glen.

Kevin Glen:                   Thanks for that lovely intro.

Sylvain Perrier:              Yeah, you’re welcome.

Sylvain Perrier:              For those of you that are listening to our podcast, we actually have a very apropos subject today. It’s something that’s extremely relevant with respect to what’s happening in the industry and it has to do with meal kits.

Sylvain Perrier:              It seems that every week there’s a new launch, a merger, an acquisition in this space. Kroger purchased Home Chef in May 2018. Probably well before that was Albertson’s purchasing Plated back in September ’17. Blue Apron IPO’d in 2017. I haven’t looked up their stock value in a while so I’m not entirely sure how they’re trending.

Sylvain Perrier:              FMI released their most recent annual trend report and what’s really funny when you look at meal kits and so on, they claim that it’s really the upper bracket of the older millennials that are driving the purchase of meal kits. The reason for that is, millennials, today if you look at it, that bracket, I think, markets between the ages of 18 to 37.

Mark Fairhurst:             Mm-hmm (affirmative)-

Sylvain Perrier:              Apparently, at a much younger age we’re realizing that we have to eat healthy to stay alive a lot longer.

Mark Fairhurst:             Shocking, yeah.

Sylvain Perrier:              Which is apparently shocking, it took me an extra ten years to figure that one out. Also, it’s the notion of the experience in wanting to discover and try new things. Today the industry is worth roughly 2.2 billion and is estimated to hit 3 billion to 5 billion by 2020. There’s another interesting statistic and this actually didn’t come out of the FMI report, I actually pulled this one out of some of the research we’ve done here at Mercatus is that 41% of American adults are visiting cooking websites.

Mark Fairhurst:             Mm-hmm (affirmative).

Sylvain Perrier:              Right? We get this question a lot from our own retailers that are saying to us, “You know, we really need recipes on our website.”

Mark Fairhurst:             Yeah.

Sylvain Perrier:              We try to explain to them, it’s really a third or fourth not even most important property on your website. That the reality if consumers want to go out and they want to experiment with things, they’ll explore the internet to find out how to cook things. Now Walmart has admitted, I’m not sure if this was in a public announcement or not, but certainly through the trades, that by the end of this year they will outfit 2000 locations with some sort of meal kit solution. We’re not entirely sure if they’re going to try to tackle this on their own or they’ll partner with someone. So stay tuned in terms of what’s going to happen with Walmart.

Sylvain Perrier:              Now, I have my own thesis in terms of this whole interest in meal kits. So most of the listeners out there probably don’t know, but I spend an enormous amount of time in Charlotte, North Carolina between the year of, I would say starting late ’07 right through to 2011, and specifically in South Park which is an area of Charlotte, a suburb if you will, and some time in Fort Mill, South Carolina, which is over yonder as they would say in North Carolina. I was there during the downturn of the economy and I will tell you it was really, really scary because I’m at the only hotel and they’re literally, you know when Lehman Brothers collapsed in New York, on the following week in the hotel they were bringing in lineups of employees from Bank of America’s head office and Wachovia, and these mass layoffs. It was really, really strange. And at one point South Carolina’s unemployment was 17%, considerably higher than the national average.

Mark Fairhurst:             Wow.

Sylvain Perrier:              So this had a really interesting effect on the grocery retail space, and still today we are seeing those effects play out. Really smart retailers understood that they needed to reinvent themselves so they started investing their private label brands. They started to invest in their store formats. They started to invest in the layouts of their stores. We saw a lot of consumers what I call trade down. So if you don’t know what trade down means, this is a great example, but if you were shopping at Dean & DeLuca, right, super high end Dean & DeLuca. I think a can of coffee, Café du Monde is 35 dollars American.

Mark Fairhurst:             A specialty retailer in that area.

Sylvain Perrier:              In that area. Right. So if you can’t afford Dean & DeLuca anymore you’re going to trade down. So maybe you go to Harris Teeter. If you can’t afford a Harris Teeter, and I think Harris Teeter is affordable, you may go to in that area a Bottom Dollar Food, which is a Delhaize property. If you can’t afford Bottom Dollar Foods, you may decide to go to a Walmart. If you can’t afford a Walmart, soup kitchen.

Mark Fairhurst:             That’s the next rung on the ladder, yeah.

Sylvain Perrier:              That’s the next. Similar with the whole experience in restaurants. So if you’re used to going to a Morton’s, maybe you’re going to a Tony Roma’s. If you’re not going to a Tony Roma’s maybe you’re going to, I don’t know, McDonalds. But what we saw in [inaudible 00:14:39] grocers I worked in, the whole HMS category really take off.

Mark Fairhurst:             And by HMS you mean-

Sylvain Perrier:              Home Meal Solution.

Mark Fairhurst:             Right.

Sylvain Perrier:              So it’s ready made meals where you go in and you get a protein and you get a starch, or you get two starches or something like that. We saw a lot of CPGs kind of jump into the category and wanting to sponsor a lot of these HMS ideas or solutions. Coca Cola, so if you go in, you buy a rotisserie chicken you may get two liters of Coke. And I think the reality is, we had a lot of people grow up through those times. And so as the economy rebounded in the last 24 months, I mean if you look today at the five economical drivers, they’re fairly healthy. So the people that grew up during those times and watched their parents struggle, I think that they’re being really sensible in the notion, I really like the whole HMS thing, but really the choices are kind of limited.

Sylvain Perrier:              And then suddenly the notion of convenience, the notion of wanting to safely experiment and try something. I don’t think everyone rolls out of bed every morning and says, “I’m going to try Szechuan chicken tonight from scratch, but if you give me an idea how to do this on my own where it’s really healthy and affordable, I’ll totally jump in.

Sylvain Perrier:              Again, that’s just my whole idea of what meal kits may have come from. But fear not, like every other podcast we’ve done, we’ve brought in an expert. Now to help our listeners understand the whole realm of meal kits, we’ve asked Sean Butler, who’s on the phone today from Los Angeles, and he’s really going to help drive it home for us.

Sylvain Perrier:              Now for those of you who may not know Sean, he’s the managing director of Emerging Brand Studios, a consultancy providing solutions to CPG brands, startups and retailers, and investors in the food and beverage industry.

Sylvain Perrier:              Even better than that, which I think that’s pretty phenomenal, Sean’s actually the former vice president of retail for Chef’d. Now, if you guys don’t know who Chef’d is, they are a meal kit powerhouse, and actually Sean was responsible for in-store product and go-to market strategy. Sean, welcome to the show.

Sean Butler:                  Hi Sylvain, hi Mark. Good to speak with you.

Mark Fairhurst:             Welcome.

Sylvain Perrier:              So Sean, you’ve been in this space for a tremendous amount of time. What type of consumers are buying into meal kits?

Sean Butler:                  Well, you have two different sets of consumers truly between the traditional e-commerce direct to consumer subscription-style meal kit and the in-store shopper. The fact is, that the vast majority of US shoppers who have the economic capabilities to buy meal kits have never tried them, but they are aware of them. So both at Chef’d and other roles and other projects we’ve conducted segmentation studies and other market research in partnership with specialists and it has repeatedly shown us that there is an interest in trying meal kits in more than 50% of US households middle class and above, but depending on your data set, those who have actually tried it are always under 20% and sometimes much lower.

Sean Butler:                  And so when you dig into that, what you most likely conclude is that the hundreds of millions of dollars in advertising spent over the last three years by Hello Fresh and Blue Apron, and Plated, and others has created really broad awareness of meal kits in the United States and then in Canada to a lesser extent with Goodfood and Miss Fresh, but the path to access is a fairly complicated one online, it’s difficult to make an impulse purchase, and so one would hope then that an opportunity for significant market expansion is available through adding in in-store channels and some other alternative channels and the consumers who haven’t tried meal kits will try them, you’ll see improved value proposition versus the original subscription style, and they’ll become adopters and the market will expand significantly.

Sylvain Perrier:              What’s driving consumers towards the meal kits?

Sean Butler:                  A variety of factors. I would say if you think of consumer behavior in terms of meals instead of meal kits specifically, or CPG meal products, what you can conclude is that more and more consumers are purchasing food as meals and less consumers are purchasing food as ingredients.

Sean Butler:                  Nielsen released a study in March of 2018 to track the fastest growing channels in the 1.5 trillion dollar US food industry, and the fastest growing channel by far since 2015 was meal kits growing more than 3X the next closest channel. But the next closest channel was food delivery from restaurants. So grub hub, Just Eat, Postmates, et cetera. And so you put those pieces of information together with the trends year over year in retail grocery categories overall where you have Center Store including dairy and frozen, contracting now year over year, and then you have those fresh perimeter categories which are much more meal focused growing in the double digits across all the categories year over year nationally across all retail brands.

Sean Butler:                  You can say consumers are changing their behavior and they’re likely doing it because their overall lifestyle behavior is changing, they’re spending less time preparing food, or they’re seeking to spend less time preparing food, and they’re also focused on health and other trends. There’s a lot of great information about the proliferation and expansion of food tribes over the past five years meaning the stigma associated with veganism or vegetarianism or gluten-free eating has gone away significantly. At the same time, you’ve had the emergence of all new food tribes like paleo eating or ketogenic eating, and so on. So these things are converging and as a result you have pretty significant growth in meal kits but that could also turn into pretty significant growth in the traditional home meal replacement or heat and eat categories, or ready to eat categories in a branded way in the years to come.

Sylvain Perrier:              Excellent. Now Mark, have you tried a meal kit solution?

Mark Fairhurst:             Personally, no I have not.

Sylvain Perrier:              It’s odd right, because here in Canada the whole notion of meal kits, specifically in Toronto, it’s not discussed really in the dark corners of the downtown [inaudible 00:21:39].

Mark Fairhurst:             No, really what you see is the ready to eat meals within the bakery or deli section of the grocery stores. However, you’re starting to see some penetration now, whether it’s advertising through Instagram, or even the local commuter train you’re seeing outdoor signage promoting Hello Fresh for example.

Sylvain Perrier:              Yeah, there is a local company here, and I think they’re located north of the city, but the way that they promote their solution, and this is … It’s interesting. It started off as a meal solution for the fitness industry. So tell us your macros, we’ll do your 12 meals for 200 bucks and we’ll deliver them to your home in some sort of a styrofoam cooler or some sort of frozen solution, I’m not sure how they do it. But it’s odd, even our community retailers, Loblaws, I would think that a company like Longos who has 17 plus stores and has a pretty well established e-commerce model would be able to do the delivery of these solutions.

Sylvain Perrier:              Now Sean, correct me if I’m wrong, but I get the sense that from reading up on this topic and from talking to you for this episode is that to be successful in this space it’s really not just about selling our [inaudible 00:22:53] but it’s also being able to distribute in store.

Sean Butler:                  Yeah, that’s certainly the way that the industry is evolving. That customer centric distribution model I think has an opportunity to really flourish in meal kits across channels and then I think you’ll see a lot of that activity extending to other categories and food products after meal kits.

Sylvain Perrier:              Now, when you were in this space, was the challenge more so about convincing consumers that this is a viable option or was it equally or greater more of an operational challenge in terms of getting the food, preparing it, and distributing it?

Sean Butler:                  Well it certainly has adjusted over time and it depends on, each brand has its unique challenges, so we’re still very active in the industry as clients right now. We have active projects for five meal kit companies across US, Canada, Europe, and Asia, and we see different things in different markets, but to Marks’s point there, the Canadian market has traditionally been different than the US market in that customer acquisition costs have been much lower in Canada and in Europe as well because there’s been much less venture capital money pouring into the space, and so there’s been much less done on acquisition and so the opportunity in Canada still exists really significantly to educate shoppers about what meal kits are, whereas in the states just by virtue of how much money has been spent, that’s more or less been achieved, and now the challenge is, how do you create trial and loyalty in a category that consumers are already familiar with, and how do you differentiate meal kits from the old school home meal replacement, heat and eat products. How do you show them that this is something in-store which hasn’t really existed before in a ready to cook category and demonstrate quality and value in that context.

Sylvain Perrier:              So I’m kind of curious. Why would a large retailer go out and buy a meal kit service provider, and why wouldn’t they do this on their own considering their already dealing with the food distributors, the CPGs, and set themselves up to be able to kind of pick and pack, and prep these things and put in good content and a recipe and ship them out? Why make a large acquisition?

Sean Butler:                  Well, there’s a few good reasons but we have seen both models at scale so far. So the flip side of that, you’ve got Publix with more than a thousand stores in the American southeast, who is assembling products in-store and they’ve got their own model. You’ve got H-E-B which has done meal kits themselves, and then Walmart initially launched meal kits with an in-store assembly model, where as, as you pointed out, Kroger had made an acquisition of Home Chef. Safeway/Albertson has made an acquisition of Plated, and then companies like Chef’d have worked in partnership with large CPG companies to take advantage of this opportunity, specifically the biggest pork company in North America, Smithfield Foods.

Sean Butler:                  And so to answer your question directly, I’ll call back a conversation I had a few days ago in New York with the senior product executive for one of the three biggest meal kit companies, who was formerly of a very, very large multibillion dollar consumer package goods company. We were talking about how, there’s [inaudible 00:26:33] broad understanding of how complex, difficult a meal ki supply chain is relative to other categories. So one thing you have to keep in mind is that email kits for the most part are fully fresh supply chains. So you have some products like rice or like pasta which doesn’t require any sort of temperature conditioning, and there are some brands on a limited basis use some frozen products, but by and large you’ve got in-store three to six recipes at a time and direct to consumer delivery and three or four recipes at a time. And then you’re managing a minimum of five perishable supply chain components for each one of those recipes. So typically you’re rotating those recipes as well. So in a given month you can quite easily have more than 100 perishable supply chain components to manage and the retailer enterprise resource planning systems and their warehouse management software, and their commissary facilities are not set up to manage that supply chain.

Sean Butler:                  The leaders in the space have the manufacturing cost for a single meal kit down to close to 50 cents, maybe a little bit more, 60 cents for retail, whereas starting out several years ago when the industry was getting started and where the retailers would likely be something closer to four or five dollars per unit. So the economics just don’t really work. One of the trends in retail if you all well know is to move labor out of the stores and into commissary facilities and so for someone like Walmart who initially was doing meal kits in 200 stores through their deli department, what they may find is that they have a better opportunity to move that labor of their books, strengthen their contribution margins, and deliver a better product to consumers at the same time.

Sylvain Perrier:              That’s great. Sean, you’re saying this, and I keep thinking, the margins are great if it’s done properly. Then I’m starting to think, not just managing the supply chain, but managing recalls, dealing with the FDA if there’s an issue, it can get really complex really quick. Now if you’re doing 100 meal kits a week, you have 200 stores, I get it. But there comes this tipping point where you just won’t be prepared in any case. So that’s great.

Sylvain Perrier:              Sean, if you were to look in your crystal ball, how do you see this playing out in the next three to five years?

Sean Butler:                  I think pretty dramatic change is going to happen on the earlier side of that three to five year prediction. So right now we’ve seen the convergence of retail and perishable e-commerce through meal kits. I think that is going to extend to many other categories where you’ll have customer centric or omni channel distribution of everything from perishable beverages to fresh commodity products like meat and dairy and so on in partnership with e-commerce brands and brick and mortar retail. But much more interestingly, I think the next level is going to be involving restaurants as well, and I’m talking specifically for meal kits which I think will be on the cutting edge once again, and the way that I see that happening is through the customer lens.

Sean Butler:                  So we talked a few minutes before about how many consumers are aware of meal kits and have not tried them. Well anyway, the majority of consumers are aware of them< the majority of consumers have not tried them. So if you think about why that is, you can go along the customer journey for the traditional e-commerce subscription meal kit and see plenty of opportunities to not give it a try. So for one, you’ve got usually a 60 dollar US or greater minimum purchase in order to try this out. You’ve got a five, six, seven-day lead time from when you place the order to when you’re going to receive your first box, and then it’s something that locks you in, so you’ve got to manage it actively. So how do you solve that? Well, it is a better value proposition in many ways if you can just stop by the Walgreens, or stop by the Kroger or the Walmart on the way home from work and pick something up for 15, 16 dollars the same day, but where I really see it going is same day delivery with voice activation. So if you’re a consumer and you’re driving in your car or you’re sitting at your desk or at home and you can say, “Alexa,” or “Siri, I want a Hello Fresh or Blue Apron chicken Parmesan.” And they say “two servings or four servings?” And you say, “four servings.” And then Alexa says “When would you like it?” And you say “Today at five o’clock.” And then Alexa goes “Okay, I’ve got a four-serving chicken Parmesan from Hello Fresh or Blue Apron coming between five o’clock and six o’clock this evening.”

Sean Butler:                  That’s going to really, really improve the customer value proposition and so in order to achieve that you have to build your meal kit inventories to stock instead of to order and then you’ve got to forward deploy that inventory in refrigerated cold storage locations very close to where your consumers are and then use the same last mile delivery solutions, that those cold storage locations are using transport products to consumers now. So that is most likely to be restaurants and so there’s that, and then the successful meal kit brands will also get into things that aren’t meal kits, but are still meals. So heat and eat and ready to eat food.

Sean Butler:                  So three to five years from now you should be able to get a meal kit or a heat and eat meal that you pop in the oven or the microwave, or the ready to eat meal all from, let’s call it a Blue Apron or Hello Fresh brand all in the same day, and I think that will be dramatically different obviously than what we see today.

Sylvain Perrier:              You said the word restaurant, and one of the applications that’s taking Chicago, New York, and Toronto by storm is Ritual. And I think the team over at Ritual just did a Series C fundraise I think north of 60 million?

Mark Fairhurst:             Yeah.

Sylvain Perrier:              I recall, that’s right, yeah. And that’s pretty big for Canadian corp headquartered in Toronto and I think [inaudible 00:33:21] may have been, and Relay Ventures may have been involved in a Series C, and I’ve always wondered, I’ve been talking to some of the restaurateurs here in the fashion district, at what point does a specific meal from a restaurant become so valuable and the restaurant become so inundated with orders, at what point do they take their own notion of inventory out of the restaurant?

Mark Fairhurst:             And just dedicate it right to Ritual.

Sylvain Perrier:              Right. And so it’s not fulfilled in the restaurant.

Mark Fairhurst:             Yeah.

Sylvain Perrier:              And maybe that never happens, who knows? But Sean raised a really good point about that. At what point do restaurants become a distribution point with a notion for inventory coming out of Plated, Chef’d, and all those things. Which I think that’s again really interesting. But everything we’ve heard in evolution of the food and beverage and quite frankly now the drug industry, centric to the theme has always been convenience for you, the consumer. How do we make it that much easier? And I kind of feel, and Sean, correct us if we’re wrong here, is the retail part of driving this journey or do they just have to really catch up?

Sean Butler:                  Well, I mean you’ve got diversity across the retail landscape. So you have some retailers even today who are not participating in that customer journey at all, and then you’ve got very progressive retailers like Kroger or like Sobeys who have invested extensively in an Ocado partnership, specifically with those two retailers, but across a range of initiatives to allow them to serve more customers, more meals at more times and in more convenient places. So I think retailers are going to be a source of thought leadership and capital and innovation during this transformation, but I wouldn’t consider them the primary source, and that’s largely just because of their size. So despite their very high levels of competence in many cases, certainly not in all cases, they will not move as quickly as someone like Ritual to allow them to really lead this transformation.

Sylvain Perrier:              You know Mark, I’m always amazed by the smart people we bring on our show. They live in the space day in and day out and they have this innate ability to shine a spotlight on really transforming the space so our audience can really benefit from us.

Sylvain Perrier:              Sean, it’s been a pleasure having you on our show today. If people want to reach out to you to ask you a question, how can they do that?

Sean Butler:                  The best place is just find me on LinkedIn. It’s S-E-A-N Butler, B-U-T-L-E-R, and I’ll be happy to connect.

Sylvain Perrier:              Thank you very much for joining us today.

Sean Butler:                  Thank you for having me.

Sylvain Perrier:              Ladies and gentleman, thank you for listening. Don’t forget to download our next episode where I’m sure we’re going to be tackling something amazingly important that’s happening in the space, that’s really causing everyone some head scratching and something else, I’m not sure what that is.

Sylvain Perrier:              Mark, how do people get ahold of us?

Mark Fairhurst:             Best way to find us is on the web at mercatus.com. Our social channels are also listed at the footer of the website. We’re on all the major channels.

Sylvain Perrier:              Thank you everyone.



Sylvain Perrier

Sylvain is president and CEO of Mercatus Technologies, and the driving force behind the leading digital commerce platform in grocery retail today.

Sean Butler

Founder of The Emerging Brand Studios. Formerly Senior Vice President of Retail at meal kit provider, Chef’d.