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Inc.: Vice Media Enters The Hyper-Competitive Meal-Kit Business

Inc.: Vice Media Enters The Hyper-Competitive Meal-Kit Business

Candidly, John Martin, the publisher of the food vertical Munchies on Vice, admits that he used to dine and dash. Martin, who's held several positions over the course of his 15-year tenure with the counterculture news empire, used to sign up for meal services to get the promotional freebie. Then, he'd cancel them.

"I thought it was bullshit," says Martin, referring to the industry as a whole. "I thought, 'Why do people need this? They're just lazy.'"

So it might come as some surprise, then, that the Brooklyn, New York-based Vice Media--a brand better known for reporting on drug cartels than food carts--is now launching its own line of meal kits. Starting on Tuesday, customers can order a chef-inspired meal directly from Vice's Munchies site. Vice is launching with acclaimed Toronto chef Matty Matheson, who hosts the site's "how to" series and stars in the Viceland special Dead Set on Life​. (Matheson designed the first five recipes, though the company plans to collaborate with additional talent after launch.)

Martin explains that he'd been heartened by the massive growth of the meal-kit industry since 2013--and the venture capital that has flowed into early entrants. Indeed, one of the biggest players, Blue Apron, which has raised nearly $200 million in VC funding, just last week filed paperwork to go public. The New York company is aiming to raise $100 million. It more than doubled its revenues in 2016 to $795 million from a year earlier.

"The growth was huge," Martin reflects. For Vice, he saw the move as akin to adding a "buy button" to editorial content. "It's an opportunity to monetize," he says. "Our audience wants to cook, and we have the voices of people that help them cook already." Vice Media, which was reportedly on track to do $850 million in sales last year, primarily generates revenue by running branded content and making advertisements for third-party brands.

A moveable feast

There are key differences in these business models, however: While companies such as Blue Apron operate as a subscription service, where customers spend a certain amount each month for recurring meals, Vice is letting customers order one-offs.

At launch, options include an all-day breakfast hash, for instance, and trout almondine. The company plans to ultimately offer a wide variety of meals for vegetarians, vegans, and meat eaters, selling for between $5 and $11.50 for 4-person orders, and $9.50 - $15 for 2-person orders (not including shipping.) Like other meal kits, you can order directly online. The kits--complete with pre-measured ingredients and recipe cards--are delivered  to your doorstep.

Ultimately, the company says it will pivot to subscriptions, but only after it establishes what those customers want to eat. Martin explained that Munchies surveyed its more than 5 million unique visitors, and discovered that they didn't like being "tied down" by subscriptions. "It was the number one reason," they didn't stick with meal kits, he says.

Moreover, Vice has partnered with a food startup--called Chef'd--to take care of the more expensive aspects of the business, including sourcing, packaging, shipping, and logistics. The El Segundo, California-based company sends out hundreds of thousands of customized meals a month, working with media partners including the New York Times, Men's Health, and Good Housekeeping to power their respective kits. With Vice, the revenue is then split three ways: An undisclosed royalty goes to the chef, and to Munchies.

Martin concedes that profit margins on food products are slim--and it wasn't a risk he was willing to take on alone. "The economics of this--for Chef'd to pack it, to send it, to mail it--that probably costs them [a ton]. We were like, OK, we don't want to do that," he says. "We want to make money on every meal we sell." Even before the meal-kit business launches, Martin insists that Munchies is profitable--though declined to specify what percentage of Vice's overall sales it accounts for. (In addition to advertising, the site also collects revenue from the sale of a cookbook.)

Food-borne risks

As promising as food services may be--a trillion-dollar opportunity by some estimates--a number of challenges remain for startups. Greatest among them is exactly the kind of savvy that Martin himself once demonstrated: Customers are loath to continue using meal kits over time. Recent research suggests that roughly 50 percent of Blue Apron customers dropped off after two weeks, while only 10 percent stuck around after six months. Meanwhile, Blue Apron spent more than $140 million on marketing in 2016 alone--around 18 percent of its overall sales, the S-1 filing revealed.

Still, Martin says the Munchies kits are liable to be more intriguing to customers, given that they aim to routinely create new recipes.

Others seem to agree with him. "People want choice," notes Sucharita Mulpuru, an independent e-commerce analyst, in an interview with Inc. She adds that the Vice meal kits may have a leg up, given the company's existing promotional muscle. "[Vice] is leveraging its mailing list and they get a cut of every transaction," Mulpuru says. "It may not be a huge business, but it should be a profitable one for them."