The days of calling the local pizza parlor to order dinner for home delivery may soon be over.
Consumers accustomed to shopping online are increasingly expecting the same click-and-ship convenience from grocery stores, restaurants and food retailers. New technologies, improved logistics, the advent of the gig economy and changing consumer tastes have given rise to a slew of food delivery companies such as GrubHub, Instacart and Nuro that aim to deliver groceries and restaurant meals to consumers whenever and wherever they want them.
“In the old days, the only thing delivered was pizza and Chinese food,” said David Littwitz, a Houston-based restaurant broker and consultant. “Now you can get almost anything delivered if you want to pay for it.”
The growing popularity of food deliveries is now forcing legacy retailers to change longstanding business models.
Snap Kitchen, an Austin-based retailer selling prepared meals, is the latest company to pivot to e-commerce, recently expanding its direct-to-consumer shipments to 15 markets nationally. The company can now reach 80 million people in cities such as San Antonio, Oklahoma City, New York and Washington, D.C., and plans to grow its online footprint.
What Snap Kitchen won’t be doing, at least for now, is to open new stores, Chief Executive Jon Carter said. The company has 34 locations across Texas and Philadelphia, including 10 in the Houston area, its largest market.
“Our model moving forward is to be asset light in our retail presence,” Carter said. “This is a key inflection point for our business.”
Snap Kitchen began in 2010 as a brick-and-mortar retailer selling fresh and healthy grab-and-go meals catering to a variety of diets such as vegetarian, low carbohydrate, high protein and, more recently, Paleo, Keto and Whole30.
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The company expanded into e-commerce, allowing customers to order online or via a smartphone app and have meals delivered on demand or through a subscription service. Customers can customize a six- to 12-meal box, ranging in price from $3.99 to $12.99 per meal, and have it delivered in one-to-two days.
“Both have seen explosive growth over the last couple of years,” Carter said. “Consumers are increasingly more comfortable with buying food digitally, and sometimes prefer it, so we’ve moved to where the consumer is.”
Indeed, the market for online food ordering and delivery is poised for robust growth.
Swiss investment bank UBS estimates the global market for food deliveries could expand more than tenfold over the next decade to $365 billion by 2030, up from $35 billion today. Consulting firm McKinsey & Co. estimates the food delivery market will grow at an annualized rate of nearly 15 percent between 2018 and 2020.
Millennial consumers and affluent families are driving the surge in food deliveries as young adults spend less time in the kitchen than did previous generations and busy families outsource household chores. In 2015, restaurant sales surpassed grocery sales for the first time, according to the National Restaurant Association.
“People don’t have the time and the cooking skills,” Phil Lampert, food industry analyst and editor of SupermarketGuru.com, said. “They’d rather just order or heat something up rather than make it from scratch.”
Meal kit companies such as Blue Apron and Hello Fresh introduced thousands of Americans to online food deliveries in recent years. However, prepared meals such as the ones sold by Snap Kitchen are expected to eclipse meal kits, which take more time to cook and clean up than ready-to-eat meals.
As a result, a multitude of e-commerce companies, such as Freshly, Sakara and Kettlebell Kitchen, have cropped up, shipping prepared meals direct to consumers, and grocery chains are starting to devote more shelf space to ready-to-eat meals.
H-E-B developed a product it calls Meal Simple; Albertsons, which owns Randalls, bought Plated; and Kroger acquired Home Chef, all to provide ready-to-eat meals that can be reheated in a microwave or conventional oven. Whole Foods partnered with Snap Kitchen in 2016 to offer its prepared meals in its grocery stores.
Even restaurant chains are starting to offer frozen meals in grocery stores. Houston-based Luby’s has been selling its fried fish, mac and cheese and chicken tetrazzini meals in H-E-B stores.
To be sure, ready-made meals have been a staple inside American fridges since Swanson popularized TV dinners 65 years ago. However, prepared meals have evolved from frozen trays of Stouffers and Lean Cuisine meals.
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Snap Kitchen’s meals are chilled, never frozen, and do not contain any gluten, antibiotics, added hormones or artificial preservatives, flavors or colors. The meals are designed by a team of dietitians, and are made from scratch by chefs in two commercial kitchens, one in Fort Worth and the other in Philadelphia. Together, they produce as many as 60,000 meals daily, which are shipped directly from the kitchens through FedEx and arrive to customers in compostable packages and recycled cardboard boxes that are cooled with ice packs.
“The consumer wants frictionless living in the form of ready-to-eat meals that are healthy and have clean ingredients, and they want the comfort of ordering food through their phones,” Carter said. “We’re all excited to help more people live healthier lives.”
Snap Kitchen has more than 500 employees nationally, including 75 locally. Carter declined to share revenue or earnings figures, but said the company is profitable and its stores have some of the highest sales per square foot in the industry. Snap Kitchen is backed by Connecticut-based private equity firm L Catterton.
Still, the question remains: Can Snap Kitchen and other food retailers profit from food deliveries, which burdens them with additional costs such as drivers and vehicles?
“The problem with food delivery, whether it’s grocery, restaurant or Snap Kitchen, is that nobody is making any money from it,” Lampert, of SupermarketGuru.com, said. “While delivery is nice and a lot of people like it, it’s not sustainable until we have a more efficient operation, whether it’s autonomous vehicles or whatever it is.”
Littwitz, the restaurant consultant, said many Houston restaurateurs begrudgingly offer their food on demand despite losing a cut of the profits to delivery platforms such as GrubHub and DoorDash. Some restaurants, such as Carrabba’s corporate locations, have even installed special delivery windows and redesigned takeout boxes to adapt to the growing popularity of food deliveries.
On the grocery side, Kroger has partnered with robotics companies Nuro from San Francisco and Ocado from the United Kingdom to automate its food warehouses and use self-driving grocery delivery vehicles at two Houston-area grocery stores. H-E-B is now testing an autonomous delivery van in San Antonio through a partnership with California-based Udelv.
“They all realize food delivery is a necessary evil and a way for them to expand their base,” Littwitz said.
Tilman Fertitta, the billionaire owner of Landry’s restaurants, recently invested in Waitr, a startup that focuses on food deliveries because customers are demanding it.
“It’s not as profitable a business, but you have to do it right now,” Fertitta said. “We tend to make things better and figure things out, and I think that’s what’s going to happen.”
Carter doesn’t dispute the challenges facing Snap Kitchen and the rest of the food industry as it adapts to food deliveries.
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The former Union Bank of California and Live Nation Entertainment executive said he has seen how e-commerce has transformed the banking and entertainment worlds, and is prepared to help lead Snap Kitchen as it makes the pivot. Carter joined Snap Kitchen in 2015 as its chief digital and technology officer to help others live healthier lives after losing his father to diabetes. He was named chief executive in January.
“I’m an e-commerce guy through and through,” Carter said. “Everyone’s trying to figure out how do we respond to this internet thing. Having done this in other consumer sectors, I can say disruption has sped up in every case.”
As it began shifting its brick-and-mortar operations toward e-commerce, Snap Kitchen consolidated its two Houston-area and two Austin-area kitchens into a 30,000-square-foot central kitchen in Fort Worth and laid off more than 160 employees in Texas in 2017.
To handle e-commerce orders, Snap Kitchen is prepared to increase its kitchen production by 50 percent to 100 percent, and is looking to expand its meal subscriptions to make production more predictable and reduce waste, Carter said.
“The proliferation of smartphones and new technology has collectively contributed to the large-scale adoption of this way of transacting and food consumption,” Carter said of food deliveries. “I think it’s only going to continue and speed up. I think the impact of this will be felt widespread over the next five to 10 years.”
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