How Blue Apron Is Trying to Cook Up What Customers Want

The kitchen's crowded and changes are needed.

Lisa Jackson
Lisa Jackson
Aug 10, 2018 at 9:17AM
Consumer Goods

Had Blue Apron (NYSE:APRN) been presenting Q2 results on a reality cooking show, the judging chefs' critique would have included a few curse words. The bright spots? A $0.17-per-share loss was an improvement over the $0.47 loss a year ago. Cost of goods was 64.7% of sales, lower than last year's 68.7% level.

Then there's the rest of the story. Quarterly revenues of $179.6 million fell 25% compared to year ago. Despite putting more dollars into marketing -- 19.3% of revenue compared to 14.5% a year ago -- customers continue to leave the subscription-based service, with subscribers down 24% vs. last year. The leadership team, helmed by CEO Brad Dickerson, acknowledges stabilizing operational capabilities is taking longer than expected and it will take longer to see net revenue growth. Blue Apron stock dropped 24% on the day it reported earnings and is trading as of this writing around $2 per share, a steep drop from the $10 price it closed at on its first day of trading in late June 2017. 

Blue Apron wants to stay in the competition

Wooden table covered with fresh fruits, vegetables and spices. Three assembled meals in aluminum trays show combined fresh ingredients.

Image source: Getty Images.

A 2012 entrant in the U.S. meal kit industry, Blue Apron's New York City location fit well with its mission. Fresh ingredients and to-your-door delivery were compelling to city dwellers looking for home-cooked meals with less hassle. And the company hit the ground running in its mission to make home cooking accessible to everyone, from beginners to culinary aficionados. Blue Apron's goal wasn't just to supply ingredients for mac & cheese but to enable preparation of upscale dishes like Tuscan-spiced pork roast with parmesan risotto.

Blue Apron proudly touts quality produce, sustainably sourced proteins, and specialty ingredients, right down to the tablespoon of Tuscan spices it sends in a kit. Early response was Michelin 3-star worthy. By 2015, the company was valued at $2 billion.  But 2017's IPO underwhelmed,and the stock price fell by about half within two months. As Blue Apron tried to regain its momentum, international and domestic competitors raced into the U.S. meal kit kitchen.

Blue Apron has a multipronged plan to remain relevant in the meal kit space, where there is lots of competition and certain built-in pain points for customers, including: 

  • Having to commit to a subscription when they prefer last-minute decisions about meals.
  • Small meal sizes (most kits prepare two to four servings).
  • Complexity and prep time of recipes.
  • Limited choices (from some meal kit services).

Blue Apron saw favorable results from some projects in the first half, like improving efficiency in its fulfillment center operations and partnering with Costco for in-store kits. The company intends to continue focusing on these initiatives, while also putting efforts into the following areas:

  • Improving subscription flexibility to reduce lead time for orders.
  • Adding 25-minute prep, back-to-school meals and partnering with Whole30 for healthy meal options. 
  • Offering menus with regional flavors for in-store and subscriptions.
  • Partnering with influencers like Chrissy Tiegen and co-branding meal kits using recipes from franchises like the animated show Bob's Burgers, which airs on Fox.
  • Testing an on-demand option with third-party distributors.
  • Letting people experience Blue Apron through metro market "pop-up" locations where they can purchase a "grab-and-go" meal kit or participate in a cooking class.

A reality check about meal kits

The U.S. meal kit delivery business was estimated to be worth $4.65 billion in 2017. The count of meal kit delivery companies varies, with some 2017 lists naming almost two dozen options. The services try to carve out points of difference. For instance, you can order 15-minute-prep meals from Gobble, family size meals from One Potato, or a week's worth of smoothies from Green Blender. Some companies don't require subscriptions. Others have flexible plans with weekly or monthly deliveries. Let's face it. It's a big kitchen with lots of cooks who all offer interesting choices.

And don't forget there's a burgeoning to-go meal kit business in grocery stores, and Amazon's in the kitchen, too. Chef'd recently closed up shop before True Food Innovations purchased its assets, highlighting that the industry can be volatile.  

Blue Apron's plans to have multichannel distribution and frictionless customer experiences to get meal kits into consumers' hands when and where they want them make sense. As operational challenges smoothed over the past year, Blue Apron often ranks on the "best-of" meal kit lists. Making it to the final cook-off, though, seems like a tough haul given the Q2 results.

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