The competition keeps getting tougher for Blue Apron (NYSE:APRN), which has seen its meal kit business get stomped by a parade of formidable competitors over the past year. Until now, those rivals mainly included grocers like Amazon's Whole Foods and rival meal kit makers like HelloFresh.

However, Chick-fil-A now plans to jump into the fray as the first major fast food chain to offer meal kits. On August 27, Chick-fil-A will start selling its "Mealtime Kits" on a test basis at 150 locations near its Atlanta headquarters. The kits can be purchased at the counter or drive-thru, or through the Chick-fil-A One mobile app.

Chick-fil-A's pan-roasted chicken meal kit.

Chick-fil-A's pan-roasted chicken meal kit. Image source: Chick-fil-A.

It might seem odd for a fast food chain to sell DIY meal kits, but the kits feature five special recipes -- chicken enchiladas, chicken parmesan, dijon chicken, pan-roasted chicken, and chicken flatbread -- that aren't sold at its restaurants. Each kit costs $15.89 and serves two people.

Chick-fil-A innovation program chief Michael Patrick stated that busier guests "need a variety of convenient dinner options," and that its Mealtime Kits represented a new way to "to serve our guests by providing fresh ingredients to enjoy a delicious meal at home." If Chick-fil-A expands this program beyond Atlanta, could it take a bite out of Blue Apron's nationwide sales?

Why Chick-fil-A is a dangerous rival

Chick-fil-A consistently generates the highest average sales per unit of any fast food chain in America, despite being closed on Sundays. QSR Magazine reported that Chick-fil-A generated $4.41 million in sales per unit in 2016, compared to $2.71 million at Whataburger, which ranked second. McDonald's generated just $2.5 million in sales per unit that year, while KFC raked in just $1.06 million in sales.

But that's not all. QSR also reported that between November 2016 and October 2017, Chick-fil-A retained 81% of customers who dined there over the past 12 months, giving it the highest customer retention rate among U.S. sandwich makers. McDonald's, which leads the burger category, had a customer retention rate of 88%, primarily due to the market saturation of its ubiquitous stores.

Chick-fil-A's smaller market presence makes it a hot destination whenever it enters a new market. When the chain launched in Manhattan in 2015, customers lined up for half an hour to place their orders. Moreover, Chick-fil-A's emphasis on antibiotic-free chicken and low-fat menu items appeals to younger health-conscious customers -- the same demographic Blue Apron targets with its meal kits.

Chick-fil-A's chicken parmesan meal kit.

Chick-fil-A's chicken parmesan meal kit. Image source: Chick-fil-A.

On their own, Chick-fil-A's Mealtime Kits might not represent a major threat to Blue Apron. However, other fast food chains are likely keeping tabs on Chick-fil-A's test run. If the effort is successful, rivals like McDonald's and KFC might launch similar meal kits. Other likely contenders include Panera Bread and Chipotle, which have both carved out "healthy" niches in the quick-serve market. If this happens, Blue Apron could face a fresh wave of formidable competitors with massive distribution networks.

What's Blue Apron's next move?

Blue Apron showed faint flickers of life when it reported its first quarter earnings in early May. The headline numbers were dismal: Revenue fell 20% year over year, customer count dropped 24%, and average order value dipped 1%.

However, its average revenue per customer grew 6% annually as its number of orders per customer rose from 4.1 to 4.4. It also narrowed its net loss and announced a promising new partnership with Costco to test out its meal kits at 15 stores. But that partnership isn't exclusive, and Costco also carries meal kits from Blue Apron's rivals.

Blue Apron faces plenty of competitors beyond Amazon and HelloFresh. Walmart is selling its own in-house meal kits; Kroger recently acquired meal-kit maker Home Chef for $200 million; Albertsons is rolling out Plated meal kits at its stores; and even Weight Watchers has introduced its own meal kits. This bandwagon is getting so crowded that the wheels could come off and strand the weaker players in the mud.

The best case scenario for Blue Apron would be a buyout, since the company has a low enterprise value of around $736 million and an EV/Sales ratio of 0.9. Yet many potential buyers, like Walmart, seem to think that it's cheaper to develop in-house meal kits instead.

The key takeaway

Chick-fil-A's entrance into the meal-kit space is worrisome, but not as alarming as its potential to encourage other fast food chains to enter the market. If that happens, Blue Apron could be buried under a mountain of competitors.