Blue Apron: Success, Risk and what lies ahead

Blue Apron: Success, Risk and what lies ahead

Prepped delivery meal kit Blue Apron has finally filed for an IPO. The financial results place Blue Apron as the worldwide market leader regarding revenue but also poses some serious questions regarding the company’s ability to grow.

We’ve outlined some success factors, risk points and some comments on the company’s future. With right timing, management, and common sense, Blue Apron may be able to become the largest online restaurant in the U.S.

Success Factors:

Blue Apron‘s revenue is growing faster than its losses:  2016 ‘s revenue resulted in $795.4 million in revenue for 2016, up 133% from about $340 million 2015. However, losses grew only from $30.8 million in 2014 to $46.7 million in 2015 to  $54.9 million in 2016. It seems the company could create profit but preferred minor losses to maintain growth. But in the first quarter of 2017, the company had a net loss totaling $52.2 million—almost as much as all of the last year.

Source: Blue Apron’s S-1

“The biggest online restaurant in the U.S,” – Scale and incumbency: Blue Apron is probably the ‘Uber’ of meal kit industry. It is a pioneer in offering meal kit delivery service and still the world’s largest regarding revenue. Its German competitor, Hello Fresh, now competes with Blue Apron in its own U.S backyard. Hello Fresh‘s revenue in 2016 grew by 104%, less than the growth rate of Blue Apron. But while Blue Apron‘s cost of good sold doubled to $532.6 million, Hello Fresh‘s cost of goods is standing merely on half of the number. The two companies are losing money, but while Blue Apron‘s net loss grew in 2016, Hello Fresh‘s net loss went down by almost 20%.

Source: Blue Apron’s S-1 / Hello Fresh April 2017 financial statement

It’s all about data: If Blue Apron is the “Uber” of meal kit in its scale, it is also the “Netflix” of food delivery in the manner of data ownership. Blue Apron knows it customer’s taste even more than GrabHub or Yelp does, and collect data on personal preferences including ingredients, tastes, styles of food and timing.

Source: Blue Apron  

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Risk Factors:

Low barrier to entry mean lots of competition: Entry barriers to the meal kit industry are low. All that you need is a digital asset, warehouses full of goods, and people to pack them and deliver them. Today, there are at least 18 meal kit delivery companies operating in the U.S alone, including Plated, Home Chef, Sun Basket, Martha & Marley Spoon, and Chef’d. The market is big enough to include varieties of services: vegan-oriented, supermarket-oriented and more. In this fragmented market, scale and resources are necessary to expand faster and become a giant.

Growing cost per customer, higher churn: Blue Apron‘s revenue increased significantly in 2016, but so did to cost of acquiring new customers. Blue Apron pays $94 per each new user and its marketing expenses in the first quarter of 2017 are bigger than the entire marketing budget of 2015. The cumulative net revenue per customer isn’t growing enough as seen here in the graph. For instance, an average customer that is subscribed for 36 months expands only $72 more than a 30 months-old subscriber.

Source: Blue Apron’s S-1

A halt in growth: The company’s increase in revenue in 2016 was high and impressive, but looking at 2017’s indicators, a halt in the company’s growth is apparent. According to Google Trends, there’s a sharp decline in Blue Apron‘s popularity since the end of 2016. At the same time, Hello Fresh grew in popularity so that the two companies are standing on approximately the same level now.

Source: Google Trends

Looking at LinkedIn’s HR data, employee count has been stopped growing for a few months, and last May it went down 1%. It is entirely possible that Blue Apron wanted to increase its workforce significantly before filing for an IPO, but a lack of future growth in these indicators is something to follow. The sudden increase in the company’s losses in the first quarter might be a hint to the way the company deals with the lack of growth.

Source: LinkedIn

In addition, as demonstrated by the below, it is not far from reality that users may order a few meal kits to try it out, and then they forget about it or are just less eager to seek to order more meals.

Source: Slice Intelligence / TheInformation.com

Growing competition from supermarkets: Retail chains have already discovered the fast growing market of meal kit and are offering kits with pre-measured fresh ingredients and instructions. These meal kits can be quickly picked up on the way home, saving delivery fee. The other reality is that supermarkets including Kroger, Publix, Hy-Vee and Mariano’s to name just a few, are stepping up with high-quality meal kits that we can pick up on our way home, which might be the fatal bullet for the burgeoning meal kit industry, no matter how much money they raise.

International expansion: In contrast to Hello Fresh, Blue Apron operates in the U.S alone, and in order to keep growing it will soon have to expand overseas. Blue Apron will have to find a more environmentally viable packaging solution for its meal kits. Millennials are buying meal kits also because they are more environment-friendly than grocery products. In average, people will throw three times as much food with regular home cooking than with a meal kit, according to a Nielsen study. But the multitude, tailor-made, and complicated packaging of meal kits that include portable coolers, freezers, and bags, makes the whole experience a little less environmental.

How to be the Amazon of Food: The fact that Blue Apron is, perhaps, “the biggest restaurant in America,” brings multiple scenarios of growth to the table, to compensate for the lack of growth. As meal kit delivery companies are focused on dinners, there is plenty of space in the breakfast and snacks. Chef’d, for instance, partnered with Quaker Oats to deliver meal kits for breakfast. Blue Apron will probably need to develop a brick and mortar presence to compete with supermarkets. Hello Fresh, for instance, already sells kits at Sainsbury in London. An acquisition is, of course, another great way to eliminate competition and acquire market share. After its IPO, if successful, Blue Apron can consider acquiring each of the smaller companies in the space. Plated is a great opportunity: it is covering the entire U.S market very well, it’s strategy focuses on offering quality food in places where the supply of mid-range quality food is lacking.

Comments on the company’s future

Blue Apron will probably need to develop a brick and mortar presence to compete with supermarkets. Hello Fresh, for instance, already sells kits at Sainsbury’s in London. An acquisition is, of course, another great way to eliminate competition and acquire market share. After its IPO, if successful, Blue Apron can consider buying each of the smaller companies in the space. Plated is a great opportunity: it is covering the entire U.S market very well, it’s strategy focuses on offering quality food in places where the supply of mid-range quality food is lacking. Also, Plated is cheap and valued at about $300-$400 million by Zirra, a startup that has developed big data and AI tech to better research companies.

Read Zirra’s list of the 10 highest valued delivery startups here

Seach any startup and order a company analysis here

 

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