Blue Apron Holdings' (NYSE:APRN) first months in the public markets have been a series of unfortunate events.
Even before the company went public at the end of June, its $15 to $17 pricing range was dashed by Amazon's acquisition of Whole Foods, and the company ended up selling its shares for just $10. Since then, the meal-kit service has been plagued by a management reshuffle, problems transitioning to a new facility, slowing sales, and layoffs. As a result of these challenges, the stock has lost 60% of its value since the IPO, and CEO Matt Salzberg moved on to the executive chairmanship two weeks ago to be replaced by CFO Brad Dickerson, who brings 12 years of experience with Under Armour, where he served as COO and CFO.
Still, while Blue Apron is clearly a busted IPO, the company is far from dead as meal kits are still a growing industry. With that in mind, let's take a look at the company's three biggest opportunities going forward.
1. Better execution
It may sound simple, but it can't be overstated how much Blue Apron's problems are of its own doing. The mistakes it made moving to a new highly automated facility in Linden, NJ caused the company's On-Time, In-Full rates to decline. OTIF, as it's abbreviated, is a key metric in the industry as it's crucial for meal-kit services to ensure that orders are delivered on time and with all the required ingredients.
While management didn't give a specific number for its OTIF rate, it did acknowledge the figure had declined in the most recent report. As a result of those challenges, the company cut back on marketing, so it wouldn't have more customers than it could handle, which in turn led to slower sales growth. Revenue in the third quarter increased just 3%, and the company expects it to drop by double digits in the current quarter.
Those self-imposed errors haven't gone unnoticed by its competition. In the run-up to its own IPO, Hello Fresh said, "We have out-executed Blue Apron across all dimension," and predicted that it would top its larger rival in revenue as soon as the current quarter.
For Blue Apron, the first steps toward repairing its brand, performance, and stock price is improving its execution, starting with its OTIF rates. Those should naturally rise as the company has now completed the transition to the new fulfillment center.
2. Expanded distribution
Blue Apron has stuck with the direct-to-consumer model it built its business on. If you want a Blue Apron meal kit, your only choice is to order one through the company's website. As meal kits go mainstream, however, they are increasingly available in supermarkets, which only makes sense as Americans still buy the vast majority of their groceries in stores rather than online.
Kroger for example, just added its own private label meal kit, Prep + Pared, to 200 Midwestern stores, and Walmart has begun selling 30 different varieties of them online in what would seem to be a test for future in-store distribution of the most popular types.
Whole Foods has tested meal kits in stores, and Albertson's plans to begin selling Plated kits at its stores after acquiring the start-up in September.
Distributing its product in grocery stores would offer a number of advantages for Blue Apron. First, doing so would help the company improve brand awareness as many Americans are still not familiar with the product, nor do they understand how it works. Blue Apron could even offer in-store demonstrations of its meals to help promote them. Selling in stores would also help the company save money on shipping as "last-mile" deliveries of perishable food is particularly costly. And finally, in-store availability would also allow customers to make spontaneous same-day purchases, and that, along with increased distribution, would surely provide a boost to sales.
3. Partner up
As the Alberston's acquisition of Plated shows, a wave of consolidation in the industry is likely imminent. Start-ups like Blue Apron, Plated, and Hello Fresh aren't profitable and will likely struggle to get out of the red as long as they're competing directly with entrenched supermarket giants, including Amazon.
Still, a brand like Blue Apron has assets that would appeal to a larger company like a supermarket chain, including a customer list of over one million shoppers, a well-known brand, and operational expertise that a newcomer wouldn't have.
Another option would be for Blue Apron to merge with or absorb another meal-kit provider such as Hello Fresh or a smaller company. Doing so would provide the new company greater scale and the ability to cut costs through synergies.
One appealing target if Blue Apron chooses to go after an acquisition could be Gobble. Though Gobble has a small market share in the industry, the company is the leader in customer retention according to a study by research firm Second Measure as it kept 19% of its customers from a year ago compared to 14% for Blue Apron and an industry average of 13%. Gobble also had the highest average customer spending in the first year with $897 compared to an industry average of just $617.
Gobble is more expensive than its competitors, but the secret to its success may be that it preps vegetables and other food items for its customers, promising a quick 15-minute meal cooked in one pan.
Meal kits are likely to see further consolidation in 2018, which could put pressure on Blue Apron to find a partner, but even if it remains independent, investors have reason to be optimistic. Dickerson, the new CEO, promises to bring a renewed focus to margins, and the company's prospects should improve in the first quarter as industry spending peaks that time of year due to New Year's resolutions, cold weather, and holiday gifts. With the Linden facility now ramping up capacity, it looks like the worst may finally be over for Blue Apron and its investors.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Kroger and Under Armour (C Shares). The Motley Fool owns shares of and recommends Amazon, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.