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Half of Blue Apron's competitors will die, insiders predict

  • Slice Intelligence analyst Ken Cassar predicts half of meal-kit startups will fail after the Blue Apron IPO and Amazon acquisition of Whole Foods.
  • To survive, meal-kit start-ups should partner with brick-and-mortar groceries such as Kroger, Cassar suggested.
  • Food investor Rory Eakin, CircleUp COO, said meal-kit companies that do survive need to tap into specialty markets.

People buy a bigger share of their groceries online each year, which seems to bode well for meal-kit makers.

However, Slice Intelligence analyst Ken Cassar expects at least half of meal-kit companies to die off following Blue Apron's market debut on Thursday, and the acquisition of Whole Foods by Amazon, which is expected to close later this year.

"There's going to be a lot of competition to win customers, and a lot of spending on advertising and marketing here," Cassar said. "The companies that aren't already established will have to entice folks who have tried competing services and decided meal-kits are not for them. At least half of them aren't going to make it."

Dozens of meal-kit companies are still operating in the U.S., and many have raised venture funding to support their growth, such as Plated, Hello Fresh, Green Chef, Sun Basket, Chef'd, which is backed by Campbell Soup, and Purple Carrot, which has partnered with NFL star Tom Brady to develop recipes.

Those who have a chance at survival, Cassar said, should be thinking about partnering with major brick-and-mortar groceries such as Kroger, which might stock their kits, and help them reduce costs by making pickups a possibility and alternative to delivery.

"My bet is the winning model right now for food-commerce companies is more defined by Walmart than Amazon," Cassar said. "This is where you buy online and pick up at the store, especially where there is a convenient option for pickup, and where you do not have to get out of your car."

CircleUp COO and food investor Rory Eakin agreed that meal-kit brands should be willing to strike up partnerships that will increase their reach. He also said remaining meal-kit companies have to develop a specialty to survive.

One company he's invested in, Good Eggs, delivers meal kits made from food produced locally (it got its start delivering groceries). Others, such as Green Chef and Sun Basket, make meals of organic ingredients and offer recipes for people following a gluten-free, vegetarian, or paleo diet.

Eakin also said food e-commerce companies need to become data-obsessed.

"Amazon makes data available to brands on its platforms about their customers' purchase behavior, core demographic and more," he said. "Brick-and-mortar groceries don't do that. You only know if a product is doing well when they re-order it. Leveraging data will help startups keep vendors around, connect with new customers, master pricing, and just generally get to scale."

Watch: Guy Adami gives Blue Apron a try