TSN Tyson Foods

Tyson Foods, Hershey and Campbell Soup crowd into the market for dinner in a box

By Kelsey Gee 

Big-food companies are following startups into the meal-kit market, hunting for new ways to wrest back profit on ingredients that they already make.

Tyson Foods Inc., Campbell Soup Co. and Hershey Co. are working with online couriers to challenge meal-kit companies that ship parcels of ingredients and recipes to consumers looking for an easier way to cook stir-fry or enchiladas at home.

These purveyors of packaged foods and commodity meats also hope to stem a consumer shift away from packaged foods that is benefiting startups such as Blue Apron and HelloFresh, which source some ingredients directly from farmers. The arrival of these deep-pocketed rivals and their cupboard of existing products could crowd a nascent market already showing signs of strain.

At least a half dozen meal-delivery firms have closed or restructured this year after struggling to recoup the costs of rapidly growing a food business from scratch. Investors have spent $177.5 million on meal- and grocery-delivery companies this year, Dow Jones VentureSource data shows, less than half of the $403 million spent last year.

"There has been a mass rush of people hoping to find the Uber for food," said Gregory Chang, an investor in Din, a company that closed in October after 18 months of selling kits inspired by items on the menus of popular San Francisco restaurants. "There are a lot of points along the value chain where things could fall apart."

The market is still small. Only 3% of consumers surveyed in May by market-research firm NPD Group had tried a meal kit. They cost $10 on average, while many consumers make dinner for an average of $4 a person.

But the barriers to entry are relatively low for big food makers, which have been forced to change as they battle the perception that their products are less fresh and of lower quality than those offered by a new guard of natural and organic brands.

The payoff from such a foray could be worthwhile as young shoppers spend less at the grocery stores they rely on. A January survey by research firm Technomic showed 54% of consumers inclined to try meal kits anticipated they would cut back on grocery-store spending.

"We don't want meal kits to continue to cut into sales," said Cheryl Bersin, manager of emerging technologies and e-commerce at ConAgra Foods Inc. Sales at the grocery retailers that generate about 85% of ConAgra's sales have declined for three consecutive years.

The Chicago maker of Chef Boyardee in June joined with Ahold USA's online retailer Peapod to sell kits for Buffalo chicken quinoa and zucchini noodle primavera. Both incorporate products such as Hunt's canned tomatoes that ConAgra normally sells at grocery stores. "Meal kits are a tactic in the strategy needed to combat the bigger threat of e-commerce and online grocery," said Diana Sheehan, a director at research firm Kantar Retail.

Hershey, with startup Chef'd, in September launched dessert kits on Facebook Live, where some food-preparation videos have attracted millions of views.

Tyson Foods launched kits through Amazon Fresh in September, working its chicken and beef into tacos, stews and roasts. Tyson sells a separate line of kits at some grocery and convenience stores.

Campbell's is also using Peapod to deliver kits to make meals like chicken pot pie out of its cream of chicken soup and Swanson vegetable broth.

In a Hershey video, viewed roughly 850 times, executives are shown unpacking chocolate chips, flour satchels and vanilla vials from an orange Chef'd box to bake cookies.

"It could be extremely profitable because Tyson already has the protein available in house," said John Anderson, head of food-and-beverage research at Franklin Resources Inc.'s equity investment group.

Dominik Richter, chief executive of Berlin-based meal-kit pioneer HelloFresh, said he isn't worried big food companies will edge him off the turf he helped create.

HelloFresh and its rivals like Blue Apron didn't exist six years ago. Now, more than 150 companies compete in the $1.5 billion U.S. market, says research firm Packaged Facts.

"It's always the best product that wins. We're not scared of anyone else coming into this market," Mr. Richter said. HelloFresh is on track for over $600 million in revenue this year, he said, twice what it earned in 2015. But the company lost EUR71 million ($75 million) before interest and taxes in the first nine months of 2016, while spending quickly to build its customer base, according to its investor Rocket Internet SE.

Blue Apron Chief Executive Matt Salzberg wouldn't say whether his company was profitable or not. The U.S. market leader, Blue Apron has struggled with ingredient shortages and workforce issues that led it to cut ties with three different staffing agencies.

Some startups are hedging their bets by diversifying distribution into supermarkets as well as courier services.

Whole Foods in October began to stock $20 Purple Carrot vegan meal kits, previously available only by home delivery. Mark Bittman, a food writer and Purple Carrot part owner, said he isn't convinced yet that consumers will make a permanent habit of meal-kit cooking, no matter the company.

"I've been predicting cooking would make a comeback for 30 years and I've been wrong for 30 years," he said.

Write to Kelsey Gee at kelsey.gee@wsj.com

(END) Dow Jones Newswires

December 06, 2016 02:47 ET (07:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.