Fast and Epicurious
How AxleHire Became America’s Meal Kit Carrier Of Choice
What do Blue Apron, HelloFresh, Sun Basket, Green Chef and Marley Spoon have in common? Why, they are the biggest names in the U.S. subscription meal kit market, of course. What you may not know is that AxleHire is responsible for delivering a substantial portion of these meal kits to their household destinations via next-day or same-day service. (Plus we also deliver other dinner options along the spectrum of doneness, e.g. Gobble and Hungryroot — mix, heat, and serve — and fully cooked meals that only require reheating, such as Methodology.)
The U.S. meal kit market is estimated to be around $3B at the end of 2018, with Blue Apron and HelloFresh (which owns the Green Chef brand) accounting for more than half the market share. More than other types of consumer products, the success of meal kits is predicated upon getting the logistics — especially of delivery — down pat. Unlike a puppy’s chew toy, which would still be a chew toy even if it arrived two days late, the ingredients of a meal kit begin to degrade once the cold packaging, which is designed to survive not much longer than the delivery time frame, starts to fail. The ice melts, meat begins to go bad, and yellowed and wilted parsley awaits a surely irate customer. When the subscriber plans her grocery shopping and meal schedule around when she’s supposed to receive her boxes, this kind of thing is simply not acceptable. When she then complains about a missing delivery or a perished cucumber, the correct response is to issue a refund or credit, regardless of whether the company is at fault. But too often the damage is done — and irreversible. The disappointed customer shares her story on social media, and acquires an excuse to try another brand at their introductory price. Here’s just one sad story about a customer’s experience; the point is not to rip on our competitors (nobody is perfect) but to highlight how absolutely critical the logistics partner’s performance is to customer satisfaction and retention.
Essential Traits of Meal Kit Carriers
In our quest to win the hearts (and taste buds) of eaters for our clients, we have continuously worked on offering the right level of service and being competitive on several fronts: speed, predictability / reliability, and cost. We know that:
🍽 Behind every popular meal kit is a carrier that helps it make good on its promise to deliver freshness, fast.
🍽 Central to every excellent customer experience is a delivery service that is predictable and reliable.
🍽 Underlying every viable meal kit subscription business is a carrier that can deliver on its services inexpensively.
Last month, we spoke with Benjamin Lee, head of logistics at Sun Basket, about the tricky business of meal kit deliveries, and how AxleHire stacks up against other carriers. Ben joined Sun Basket in August 2016, about two years after the company was founded in the San Francisco Bay Area. When he first started, Sun Basket was operating out of two distribution centers; now they have three. Back in the day, Sun Basket only contracted with two carriers (FedEx and OnTrac); now they use six. And business has more than doubled. Ben is quite the pro in this space, you see, so if you’re struggling to get a handle on the logistics of delivering perishables, listen up.
Right off the bat, Ben told us what makes AxleHire stand out is that as a carrier we offer a good balance of pricing and delivery quality. Later on he reiterated the same point when asked what should be at the top of every logistics manager’s wish list. “All companies have to look at price. Things on top of that help, like technology, but quality (99%) is the most important.”
PRICING
National carriers cost more, and they generally have all kinds of surcharges. Sun Basket uses them when necessary because they have more zip code reach. AxleHire’s rates are lower, and we don’t do surcharges. Where there are high concentrations of consumers in certain regional markets, using a regional carrier definitely makes more sense. Ben said it all evens out. Each Sun Basket household pays a flat $6.99 per shipment. “The ones that are closer to our distribution centers help compensate for the ones that are farther out.” Some meal kit companies offer “free” delivery, but as Ben pointed out, none can survive without covering shipping, so the cost of delivery would be embedded in the product pricing. (If it was truly free to consumers, as in subsidized by investors, spectacular failures à la Sprig and Munchery have demonstrated that this kind of growth strategy is not sustainable: customers will leave after the honeymoon period is over. Another lesson learned is that it’s well-nigh impossible to be a food company and a delivery company at the same time, unless you start out with the resources of an Amazon, which does not apply to most start-ups.) It is not our place to say whether charging a separate delivery fee or having a higher per-meal cost with “free” delivery is more appealing to subscribers. What AxleHire offers is a break from national-carrier-level pricing so that our clients have some breathing room in their margins and more dollars to devote to product development and marketing.
QUALITY (SPEED + RELIABILITY / PREDICTABILITY)
Regional carriers with hubs located near distribution centers can facilitate same-day and next-day deliveries with greater efficiency than national carriers. In Northern California, the proximity of Blue Apron’s distribution center in Richmond to AxleHire’s hub in San Leandro has allowed the company to roll out same-day on demand deliveries in the San Francisco Bay Area: order by noon and receive your meal kit in the evening, available Sunday through Thursday. Not only does the short transit time guarantee maximum freshness, our ability to respond quickly has opened up an extra channel for Blue Apron to reach non-subscription customers. Likewise, Sun Basket’s San Jose distribution center, which is pretty much right in our backyard, means some local customers get their boxes as early as 8 AM on their scheduled delivery day — they can put everything in the fridge before they head to work. (And even if they didn’t have to go to work: Sun Basket boxes were spotted in San Francisco building lobbies the morning of Memorial Day — AxleHire guys and gals didn’t miss a beat even if everyone else was out having brunch. Our main regional competitor was closed for business that day.) Sun Basket arranges for refrigerated trucks to bring organic produce directly from farms to their distribution centers. AxleHire also does line haul (with refrigerated options) for all our meal kit and prepared meals customers, up and down the West Coast (e.g. Bay Area to Los Angeles or Seattle / Portland) with a seamless connection to our last-mile drivers for the final legs of the boxes’ respective journeys. Generally, meal kit ingredients would stay fresh for up to two days in ambient temperatures if packed with the appropriate insulating materials. Coupled with our refrigerated freight service (not offered by OnTrac or other major national carriers) and efficient routing, consumers are getting veggies and meat products that are often as fresh as what they might find in grocery stores. In a place like Phoenix (where the average daily high temperature exceeds 100° for four months out of the year), the short transit time afforded by AxleHire is paramount to preventing spoilage and building a loyal fan base. Our high customer satisfaction ratings are a far cry from what many meal kit companies experienced in the early days when this particular business model was just introduced. People complained about many things, some of which were not related to deliveries (e.g. how challenging it was to cancel subscriptions), but by and large the companies have listened and shaped up, improved their offerings, and diversified their logistics pool to include more agile and technologically savvy regional partners that would help shorten transit time without breaking the bank.
Delivery success goes hand in hand with speed to ensure customer satisfaction. For us, “success” means a consumer receives her box when she expects it — not the next day or two days later — and on first try. There is no redeliver for meal kits and prepared meals. In fact, as a carrier we are obligated to dispose of undeliverable boxes for liability reasons (somebody gets food poisoning from a late delivery = very bad); this is costly to all parties involved. What draws the meal kit companies to AxleHire is our not-too-shabby delivery success rate: 99.5%. Ben from Sun Basket confirmed that the percent of boxes not delivered is miniscule, and the failed attempts usually arose from factors beyond their / our control, like natural disasters or incorrect addresses submitted by customers.
Beyond “delivery success” is the quality of handling, which speaks volumes about a carrier’s service standards and the work ethic it instills in delivery personnel. If a customer observes the driver carelessly tossing a box across the porch, it doesn’t create a good impression, so on Ben’s checklist is whether the carrier trains the drivers to follow instructions, leave things in the right place, and treat packages with care. End-to-end quality is premised on good communications with all our stakeholders, and Axlehire has built the technology to accomplish just that 👉🏼
- For our clients we have a nifty dashboard that tracks each order’s physical journey from the distribution center to the end-user. Our backend is fully integrated with their e-commerce and logistics platforms to automatically receive customers’ orders and special delivery instructions. We generate shipping labels that are then printed out at the shippers’ packing facilities.
- For our drivers we have an equally nifty app that provides routing information and directions, customers’ instructions, and channels to communicate with AxleHire’s dispatchers — yes, we have humans to troubleshoot issues — and recipients. The driver app also uses the smartphone camera to collect proof of delivery; this helps minimize disputes among all parties and saves a pretty penny.
- Consumers expecting deliveries within a certain window will receive text notifications from AxleHire regarding the whereabouts of their meal kits as well as the ETA. “Everyone who orders online wants that Uber model,” Ben noted, as in they like tracking that little dot on the map and knowing where exactly their package is. Whether this is germane to a successful delivery is up for discussion, but we know for sure that customers dig it. Real-time map-based tracking makes for a better customer experience, which translates into positive feelings for a client’s brand.
Our customer-facing technologies and reliable same-day and next-day services at a lower price point differentiate us from national carriers that are by and large less flexible. AxleHire has five hubs and plans for five more through 2020 to connect shippers’ regional distribution centers with consumers. We encourage prospective clients to plan their market expansions with us to take advantage of our well honed operations.
“Daniel (Sokolovsky, AxleHire’s CEO) and his team put a lot of research and money” into developing AxleHire’s capacities, Ben remarked. “It benefits us and ultimately benefits our customers.” These are good times for shippers of perishables, because there’s now a plethora of options, each with their own pros and cons in different contexts. Ben thinks like an investor and his strategy is to diversify: “We don’t want to put all our eggs in one basket. At the scale we’re at, there’s no way FedEx could do everything for us. Daniel understands the dynamics we’re dealing with … and with some of the regionals being on the forefront of technology — we can pass that on to our consumers.”
Market Outlook
The first meal kits entered the U.S. market in 2012. By 2016, there were more than 150 meal kit companies, but currently this segment is undergoing a wave of consolidation to better address business fundamentals. Let’s face it: this is a tough market. High customer acquisition costs and churn in an increasingly crowded field result in compressed margins, and there is not one clearly winning business model that investors are sold on. Even the largest players are barely or not quite profitable on an EBITDA basis. In this operating environment, AxleHire does our share to keep shipping fees low and minimize the instances of unsuccessful deliveries (= food waste and sometimes refunds, which means lost income).
While top-line growth in the meal kit business is expected to rely heavily on retail grocery store offerings, the subscription-delivery model is here to stay and will likely account for over half of all meal kit sales in 2019.
At the same time, the “on demand” model is preferred by many customers as it allows them to make one-off orders for own use or as gifts without being locked into a subscription and a rigid eat-in schedule. Companies that offer more flexible options are better positioned to maintain customer loyalty, though this comes at the risk of losing steady revenue streams from subscriptions — but this is already the reality in the meal kit space. As mentioned before, Blue Apron is offering non-subscription meal kits that are delivered by AxleHire. For now, Sun Basket is sticking with the subscription model. Regardless, since our clients have invested in developing excellent working relationships with us — it goes both ways! — we stand ready to mobilize should they decide to flip that on-demand switch on. We have the technology and the efficient routing in place, but most importantly, we have a track record of successful deliveries that our clients can continue to count on, whatever their business strategy may be.
By offering reliable transportation services to these food industry trailblazers, AxleHire essentially levels the playing field and allows them to compete directly on menus and recipes, special diet offerings, pricing, packaging, flexibility, and overall customer service. This is an exciting space for which we have developed deep expertise over a breadth of competencies. We have an absolute blast being in this race with our clients. When eaters come back for seconds because we’ve done our job right, everybody wins. If you need some help figuring out the logistics for your food or perishables business, please hit up Sam (sam@axlehire.com) to have a chat. And be sure to try a meal kit and tell us what you think!
Cecilia Tom
Cecilia is passionate about building efficient and resilient systems for the greater good. She is the lead storyteller for AxleHire.
