Last week, The Kroger Co. (NYSE: KR) announced a merger with Home Chef for $200 million, plus future earnings payments of up to $500 million over five years if certain milestones are met. Founded in 2013, Home Chef delivered more than 10 million meals last year, and last year the company reported growth of 150 percent with $250 million in revenue and two profitable quarters.

‘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,’ said Yael Cosset, Kroger’s chief digital officer, in a news release. ‘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.’

Kroger said the merger with Home Chef will accelerate the availability of meal kits and serve as an industry leader in transforming how families shop for, prepare and cook their meals. Kroger launched its own private label meal kit service, Prep+Pared, in the spring of 2017, offering fresh meal kits requiring about cooking time of 20 minutes and ranging in price from $14 to $20 for two adult servings.  

The Prep+Pared meal kits were available in more than 525 Kroger and Kroger brand stores nationwide. The company has since expanded into new markets and said it will ‘rapidly grow the footprint of Prep+Pared Meal Kits in 2018.’

Pat Vihtelic, Home Chef founder and CEO, also commented on the deal.

‘We’ve long believed that the future of our industry is omni-channel and bigger than just meal kits sold online. We want to be where our customers are and want to help make cooking at home easier, more accessible and even more enjoyable,’ said Vihtelic.

‘We’re thrilled that we will be part of the Kroger family and plan to maintain our relentless focus on innovation that meets customers’ evolving food needs. Kroger’s expansive retail footprint will allow us to serve millions of more customers across the country with simple, convenient and enjoyable meal solutions,’ Vihtelic added.

Home Chef is headquartered in downtown Chicago, it employs about 1,000 workers, and it operates distribution centers in Chicago, Atlanta and San Bernardino. Home Chef said it has the most variety among the top meal kit subscriptions, and it offers more than just standard meal kits. Home Chef also offers 5-minute lunches, flexible serving options and easy-to-prepare meals that require minimal prep.

Why a merger? Cosset offered the following explanation.

‘As one of the fastest growing meal kit companies in the country, Home Chef is poised for even more explosive growth,’ said Cosset. ‘We admire their focus on the customer, culture of collaboration, dynamic experimentation, and demonstrated financial success. Home Chef’s combination of culinary expertise and a customer data driven decision-making process is right in line with Kroger’s vision to serve America through food inspiration and uplift by providing meal solutions for every lifestyle.’

Once the deal closes, Home Chef will operate as a subsidiary of The Kroger Co. It does not anticipate the deal to impact 2018 earnings. Home Chef will take over the responsibility of Kroger’s ‘meal solutions portfolio,’ and continue to manage and operate its own facilities and offices. Kroger will make Home Chef meal kits available online and in stores.

Insider Take:

Online grocery shopping and meal kit services like Home Chef have changed how many of us shop for and prepare our food. With a desire to grow its portfolio, Kroger wants a slice of the pie. Partnering with a solid performer in the meal kit market is a smart move. Kroger benefits by having a proven company take over its growing meal kit offerings, while Home Chef benefits from having Kroger’s backing and resources. And, of course, consumers benefit because they can get more of what they want online and in stores. Everybody wins.