There's a phrase about rearranging deck chairs on the Titanic that is meant to describe a pointless exercise in the face of impending catastrophe. That's the equivalent of meal-kit delivery service Blue Apron (NYSE:APRN) announcing that the company's co-founder and CEO was stepping down in favor of having someone new fill the position.
Cutting the apron strings
Blue Apron co-founder Matt Salzberg resigned his dual posts of president and CEO at the end of November, and in his place, CFO Brad Dickerson was appointed to the posts. With Dickerson being placed on the board of directors, Salzberg was made the company's executive chairman and continues to serve as chairman of the board of directors.
Although investors cheered the move, and sometimes a faltering business can make a turnaround when executive leadership is shaken up, in Blue Apron's case the problem wasn't with the person at the helm. That fact is, its business model remains flawed.
Blue Apron has no moat to keep competitors at bay. There's nothing to stop a competitor from starting up a meal-kit delivery business, and as we've seen since Blue Apron went public, there are companies willing to jump into the industry.
A very crowded field
Hello Fresh is Blue Apron's biggest rival and it's reportedly been enjoying revenue growth in excess of 50%. Some analysts see it surpassing Blue Apron as the industry leader within the next few months, but other companies are also making their mark on the field, such as Chef'd, Marley Spoon, Purple Carrot, Sun Basket, Home Chef, and Plated, which got sold to supermarket chain Albertson's for as much as $200 million.
Wal-Mart just jumped into the business of selling third-party meal kits on its website and, of course, Amazon.com's acquisition of Whole Foods Market has everyone expecting the e-commerce giant to make a big splash in the meal-kit delivery business.
There is nothing that makes Blue Apron stand out as a business, let alone an investment. In the most recently reported quarter, the number of customers it serves tumbled 6% from the year-ago period to 856,000, and plunged 9% from the previous quarter. Although average revenue per customer did rise year over year, it fell sequentially from $251 to $245.
While the company blames the customer figures on reduced marketing, spending more on marketing would likely cut revenue per user as new users tend to spend less.
A quick trip to the bottom
The collapse of Blue Apron's business since going public has been blamed in part on the opening of a new distribution center in New Jersey just as it was preparing its IPO. That was probably a poor time to undertake such an endeavor, as it increased costs and necessitated reduced marketing to pay for the new facility.
But the situation hasn't improved, and the meal-kit leader has since fired 6% of its employees as it implemented a "realignment of personnel" to deal with its declining business. It also backed out of a plan to open another distribution center in California. It's likely going to need to take an impairment charge as a result of the decision, and it is also on the hook for $38.5 million in lease payments through 2028 that it can't cancel.
Blue Apron's new CEO may be able to sharpen his pencil and identify additional cost-cutting initiatives, as he is intimately familiar with the financials of the company as its former CFO, but cost-cutting only goes so far.
There's no reason to think Blue Apron will be able to resume the momentum or meteoric growth it had previously enjoyed.