In this segment from Industry Focus: Consumer Goods, the cast lays out the competitive landscape for Blue Apron and meal kit delivery. Besides the many start-ups riding its coattails, big names in the grocery, retail, and e-commerce worlds could soon encroach on this fast-growing industry. Tune in to learn more.
A full transcript follows the video.
This video was recorded on June 6, 2017.
Vincent Shen: In my view, this is really not a market with high barriers to entry. If you can just look at the story of how Blue Apron was founded, three guys, New York City apartments, putting together these meal kits themselves. It's not too surprising, then, that there are about a dozen or more other start-ups that are competing with the company. Some of the direct competitors include companies like Plated, Home Chef, Green Chef, HelloFresh. And then some of their competitors are specializing on certain niche customers, or changing the model. You have Purple Carrot, which is all plant-based recipes for vegetarians, there's Chef'd, which has no subscription required, unlike Blue Apron, you just order the recipes you like.
But I think, actually, the biggest threat beyond these direct competitors is, it wouldn't take that much for bigger companies that are already currently setting up their capabilities for grocery delivery or already have it in place to expand their service offerings to something that competes directly with Blue Apron. A lot of grocery chains are actually stocking meal kits, so you can purchase them in the store. The question becomes, what can stop a Walmart from putting these kits on their shelves, and also making them available for the curbside pickup service. Then, Amazon is another example where they partnered with Tyson Foods last fall to sell Tyson Tastemakers meal kits. They offer those online. They also offer their Martha Stewart meal kits as well. So it's quite easy, the idea to include these in your weekly AmazonFresh order, along with the rest of your shopping list. So what you mentioned in terms of some of the bigger competitors posing a more significant threat, I definitely agree there.
But another issue that comes through in terms of challenges that this company faces also comes with their pricing power. I looked over many of the competing services. Blue Apron charges about $10 per meal, similar to most of its competition. If it raises its prices, some of the stickiness that you would hope from people having a good relationship and ties to the brand. But customers can ultimately look elsewhere for similar services. There are plenty of promotions and free meals to try out there considering the marketing budgets that are being employed in this industry. That means, again, it comes back to our point, the idea that growth can really only come with more customers. I question a little bit how mainstream meal kits will actually become, because we've seen with even giant retailers like Walmart and Amazon, they struggle to build up their standard grocery delivery businesses. So whether these meal kit delivery services will reach a certain scale that we'd like to see is not so certain. But I'd like to close out with any final takeaway thoughts from you, Asit, for this IPO, and what maybe investors can expect, or any other thoughts you might have.
Asit Sharma: I think that Blue Aprons is an extremely interesting company. My thought is that investors should watch rather than leap into this IPO and have a few quarters pass, examine the financials, look at the stats that Vince was talking about earlier, the customer retention rates, customer additions, it'll be very prominent and easy to read in those quarterly reports. Really wait this one out. There's so much in terms of competition, and even within its own subscriber base. I'll end with a quote which actually shows you the flip side of this. This is from a writer from The Atlantic whom I follow on Twitter who writes often about food and health, Olga Khazan. She said, "The most dystopian thing about Blue Apron is that you're eating the same exact meal on the same night as thousands of other people." So this is a very interesting risk for the company -- 40% of customers are millennials. What happens when they wake up and figure out that they've learned how to cook through this great service, and they're ready to move on? So that's why I say proceed with caution. But it is an interesting company with a lot of potential. Right now, it's dominating the market. I'm not trying to diss it or persuade someone not to invest. I think, just take some time. You won't miss out too much on a few quarters of observation.
Shen: Thanks, Asit. I, too, will take a much more cautious tone. I think this company kind of reminds me of Fitbit, frankly. You have an early mover with a compelling product, a growing industry or category, and a very strong brand, but there's also lots of competition, few barriers to entry, and I think the financials are pretty challenging, as we've seen with the massive marketing spend to acquire and retain new customers, various metrics trending the wrong way that we've talked about.
So with this initial filing, the IPO will not occur for another six months or more, so you won't be able to get your hands on Blue Apron stock for some time, assuming that we haven't scared you off of it at this point. But when the deal happens, we'll be sure to revisit with any updates.
