Background. The U.S. prepared food industry represents a $27 billion dollar market, with double digit growth outpacing both retail packaged goods and traditional restaurant offerings, and with expectations for accelerated expansion. While growth of prepared foods has been rapid, it still represents less than 2% of the total U.S. food market of more than $1.5 trillion. The prepared foods segment is still in its infancy: the business is highly fragmented, highly profitable and without an established leader. The Online-to-Offline Gourmet model represents a highly focused approach to this market opportunity.
O20 Gourmet. The Online to Offline Gourmet model is small footprint, "takeaway" retail stores in customer-friendly prime locations. These stores offer 40-50 gourmet/restaurant quality entrees, appetizers, soups etc., that are fresh and tasty, high quality, generous portions, with good variety, including seasonal rotations, and good value for money. The offerings are refrigerated, easily viewable through attractively transparent packaging, and require only reheating and plating for serving at home.
Most customers are 25-60, white collar singles and couples, buying for themselves and/or their families for several days and in bulk for their parents who are not yet in attended living but are not eating well. The simple customer proposition is providing "take home" quality that they would otherwise receive at restaurants, at value for money prices because O2O Gourmet stores do not carry restaurant-type cost overhangs. Customer retention is therefore high.
These brick & mortar, convenient "walk-in" stores are highly profitable as stand alone businesses even without delivery or online ordering capability; they mine the most profitable "prepared foods" segment of the U.S. food market, with minimized space and staff costs. Using granularly tuned social media (e.g., Facebook banners for all 35-65 year customers within three miles of the store) as a more cost effective method of advertising, and further weaponized with user-friendly apps that enable online placement of orders for pickup and/or delivery, they offer sales and return on investment prospects greatly superior to existing models in either the restaurant or grocery industry.
The strategy has been validated by two established concepts in southern New England that currently operate five stores (one with a limited entree offering) with an additional three under construction. We are geographically expanding one of these concepts - see Mystic Market Project tab. Moreover, the O2O concept has been proven and is growing rapidly in Asia, where Alibaba founder Jack Ma recently announced plans to expand his current specialty grocery chain Hema Xiansheng from 40 existing stores to 2,000 within five years.
O2O Gourmet is not a meal kit service. Meal kits are a fad that has proven to be both unprofitable and a disappointment to consumers. The meal kit market was $4.65 billion in 2017, with Blue Apron the largest player with a 40% market share. Meal kits fail to address the most pressing need of consumers, which is time shortage. Moreover, they are extremely expensive. A survey of 12,892 shoppers conducted in May 2018 by market research firm Market Force Information found that 49% of consumers who tried meal kits described themselves as "less than satisfied" with the experience. Blue Apron finds that it only keeps 15% of its customers for as much as a year; Hello Fresh keeps a mere 11%.
Nor is O2O Gourmet a contractual home delivery service, where customers sign up for a pre-set number of meals per week/month, ordering from a narrow but rotating menu. The Market Force survey cited above further found that a staggering 83% of those who have tried a meal delivery service in the past year have stopped using it, primarily citing "poor value."
Rather, Our O2O model begins with a highly profitable retail store in a small footprint with consistently high quality, fresh and tasty, takeaway prepared options, then adds online ordering and delivery capability as an adjunct and profit enhancement tool.