Does Anything Blue Apron Tries Matter?

Blue Apron (NYSE: APRN) is in a fight for its survival, and is willing to try anything to remain relevant. Although its new “throw it at the wall and see if it sticks” attitude indicates it realizes that simply being an online meal-kit delivery service is a dead end, there seems little hope the company we know today will even exist in a year or two.

The meal-kit market has quickly evolved beyond stand-alone businesses delivering ready-to-prepare food to you door; being part of a larger enterprise with wider distribution looks to be where the industry is heading. Blue Apron’s determination to largely go it alone may be its undoing.

Image source: Blue Apron.

Better together

There is obviously value in meal kits, as their proliferation shows harried consumers are looking to the convenience offered. But the subscription-based delivery model can only serve a very small segment of the broader market because of the high costs associated with it.

That’s why supermarket giants like Albertson’s, Kroger, and Walmart have either acquired a meal kit company or have developed their own lines to make them more widely available to more customers.

Yet that has served to commoditize meal kits to the point where whatever unique advantages Blue Apron had that differentiated it from the competition have now disappeared. Even as it seeks to fall in line with industry trends, it shows there’s nothing really special left about its service, which also severely diminishes its value as an investment.

In just the past few months, Blue Apron has launched the following initiatives to regain its footing:

  • Partnered with Costco to have its meal kits sold in its warehouse stores.
  • Launched a pop-up store marketing campaign to bring its meal kits closer to consumers and generate some kind of buzz around them.
  • Began offering meal kits for parties, as well as appetizers and desserts.
  • Also started offering Whole 30, Mediterranean diet, and grill-friendly options.

While they may all be worthwhile efforts, Blue Apron’s main focus is still geared toward acquiring new subscribers, and ultimately that’s where it will fall down.

Always needing a supply of new customers

Getting new subscribers is expensive. After ramping up its marketing expenses prior to its IPO to show a flush of new subscriber growth, Blue Apron subsequently cut back on such costs and its new member numbers cratered.

It recently began spending more on marketing again — up 56% in the first quarter to $39.3 million — and that did help increase its subscriber rolls, but such elevated expenses are difficult to maintain primarily because Blue Apron and other meal kit companies need to continuously bring in more members.

Numerous surveys have shown that meal kit customers abandon their subscriptions after only a few months and switch to a different company or go back to shopping at the grocery store. So new subscribers must constantly be brought in, which is a very inefficient way to spend marketing dollars.

It is why many companies are being acquired by supermarket chains or are having their meal kits appear on the store shelves. They can reach far more customers than they otherwise would be able to, and do so at a lower cost.

A limited availability

While Blue Apron’s Costco partnership may be a step in that direction, it’s only in a few warehouse stores at the moment, and even if it does go companywide, that only means its meal kits will be in a few hundred stores.

In comparison, Walmart is rolling out meal kits to thousands of stores this year and Kroger just acquired Home Chef, with an eye toward supplementing its Prep+Pared meal kits that are sold in more than 525 stores, and eventually introduce them to the supermarket chain’s 2,800 stores.

And soon meal kits could be at your local drugstore. Chef’d announced it will soon be appearing in a few dozen Walgreens and Duane Reade stores in New York City, though if successful, the chance to go into broader distribution is there.

In short, Blue Apron needs to adapt or die, which increasingly looks like it needs a major grocery store chain to buy it. Although its orders and number of customers rose in the quarter, the amount of food they ordered, their average number of orders, and the revenue it received per customer all fell.

Standing all alone as a delivery business ensures it ends up wasting away to nothing.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends COST. The Motley Fool has a disclosure policy.

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