How Kroger Is Breaking Into the Meal Kit Market

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Home meal kits have grown in popularity over the past few years. Blue Apron Holdings Inc. (NYSE: APRN) was one of the main beneficiaries of this movement and actually came public. Other services are popular too, such as Freshly, Plated or Hello Fresh. Now Kroger Co. (NYSE: KR) is looking to get into the meal kit game with its most recent acquisition.

Kroger announced, late on Thursday, a merger agreement with Home Chef that will significantly accelerate the¬†availability of its meal kits. The initial transaction price is $200 million, and future earnout payments of up to $500 million over five years are contingent on achieving certain milestones, including significant growth of in-store and online meal kit sales. The pending merger comes on the heels of Home Chef’s 150% growth in 2017, $250 million in revenue and two profitable quarters.

Home Chef currently leads the industry with the most variety among the leading meal kit companies. Home Chef’s offerings complement Kroger’s Prep+Pared offering that is currently available in more than 525 stores.

Home Chef employs roughly 1,000 employees and is headquartered in downtown Chicago. Its distribution centers reach 98% of all continental U.S. households within a two-day delivery window.

After the deal closes, Home Chef will operate as a subsidiary of Kroger, maintain its e-commerce business and assume responsibility for Kroger’s meal solutions portfolio.

Yael Cosset, Kroger’s chief digital officer, commented:

Customers want convenience, simplicity and a personalized food experience. Bringing Home Chef’s innovative and exciting products and services to Kroger’s customers will help make meal planning even easier and mealtime more delicious. This merger will introduce Kroger’s 60 million shoppers to Home Chef, enhance our ship-to-home and subscription capabilities, and contribute to Restock Kroger.

Shares of Kroger closed most recently at $24.57, with a consensus analyst price target of $27.43 and a 52-week range of $19.69 to $31.45.