Whole Foods eyes millennials with Purple Carrot meal kit test

LOS ANGELES (Reuters) - Whole Foods Market Inc began testing sales of Purple Carrot's vegan meal kits on Wednesday, joining forces with one of many startups that threaten mainstream grocers by delivering boxed, cook-at-home meals.

Venture capital firms have funded a bumper crop of meal kit companies, which are particularly popular with sought-after millennials. They include Purple Carrot, Blue Apron, Plated, HelloFresh and Sun Basket, whose subscription plans include weekly shipments with instructions and pre-measured ingredients to make three meals for two people.

Purple Carrot downsized its kits for the test at Whole Foods. Those smaller boxes include fixings for a single meal for two people, cost $19.99 and currently are only sold in the grocer's Dedham, Massachusetts, store.

Ahold USA already sells its own meal kits at two of its grocery store chains in Pennsylvania and Washington, D.C.

Peapod, Ahold's online grocery delivery service, also offers those meal kits without a subscription.

Executives at Kroger Co, the largest U.S. supermarket operator, in June said they were "very open" to creating a meal kit service or partnering with an existing operator.

Meal kit delivery startups in the United States have raised more than $650 million in venture capital and are expected to generate roughly $1.5 billion in sales in 2016, according to Packaged Facts, a division of MarketResearch.com.

While the flood of venture funding supports rapid growth, it also fuels rampant discounting that makes subscriber retention difficult.

A recent report from Fast Company, citing research from 1010data, found that roughly half of Blue Apron subscribers remained after the second week and only about 10 percent stayed after six months. The research showed similar results for HelloFresh and Plated. The companies called the data inaccurate but declined to provide retention information.

Bloomberg in September reported that Blue Apron is preparing an initial public offering.

Don Tilson, 53, said he is among the company's lapsed users.

"I thought they were kind of pricey for the amount of food you got," said Tilson, who lives in Austin, Texas.

Purple Carrot Chief Executive Andy Levitt said his company's churn rate is lower than rivals' but conceded that discounting has "created a promiscuous user base."

The Whole Foods partnership, he said, "helps expose a lot of consumers to the way a meal kit works and how easy it is to cook a plant-based meal at home."

(Editing by Steve Orlofsky)