Blue Apron Holdings (NYSE:APRN) is moving further away from its subscription-based model, partnering with Walmart's (NYSE:WMT) e-commerce wing, making Jet.com the first online retailer to sell its meal kits. Because selling meal kits via subscription has proved unsustainable, and Jet's more upscale customer demographic looks like a good match for Blue Apron's premium food offerings, the partnership is being viewed as one that can potentially revive the meal kit maker's fortunes.
While there appears to be a lot to commend the plan on the surface, it is too limited in scope and repeats some of the mistakes of the past. The partnership won't be enough to reverse Blue Apron's slide.
Switching to an on-demand model
Blue Apron is getting a dedicated shop on Jet's new City Grocery site serving people in New York City, Jersey City, and Hoboken. It features a rotating selection of two-serving recipes specifically made for Jet customers that can be delivered either the same day or the next day. It's another indication the meal kit maker is distancing itself from the subscription-based model it was founded on.
During Blue Apron's August conference call with analysts, CEO Brad Dickerson said the company would be looking to test on-demand, nonsubscription delivery and that investors should look for announcements in the coming months. The City Grocery experiment is the latest of these moves.
Last month Blue Apron paired up with food delivery specialists GrubHub and Seamless to offer one-hour delivery options. Because meal planning is typically a last-minute task, getting an easy-to-prepare meal kit into consumers' hands as quickly as possible makes sense.
Jet.com relaunched City Grocery in September as a rebranded effort to focus on customers in major metropolitan cities. To do so, it intends to have locally oriented brands available, such as the Bedford Cheese Shop and Just Bagels in New York.
To accommodate orders from customers in New York City, as well as Hoboken and Jersey City across the Hudson River in New Jersey, Jet.com is building a dedicated fulfillment center in the Bronx.
A recent check of the Blue Apron space on Jet showed all the meal kits sold out, though I don't know if that's attributable to high demand or low inventory.
Becoming a commodity product
Blue Apron needs this to work. Revenues plunged 25% to $178 million in the second quarter as orders plummeted 30% after it lost nearly a quarter of its customers. This underscored the shortcomings of the subscription model.
Customer acquisition costs are exceptionally high because there is high turnover, with estimates on customer retention rates at just 15% (though that's better than at industry leader HelloFresh, which has retention rates of only 11%). It needs to constantly spend tens of millions of dollars on new marketing to attract customers, and whenever it lets up on the gas pedal, as it did last quarter, customer numbers fall.
Having its meal kits available in supermarkets like those of Costco Wholesale and available for on-demand ordering on its own site or through partnerships such as with Jet.com should cut those costs tremendously. The problem is that it further commoditizes meal kits and pushes prices lower. Kits at Costco tend to sell 30% cheaper than through Blue Apron's subscription plan.
Because virtually every supermarket now has meal kits available, either their own or through a partnership with a manufacturer, they've become an easily accessible dinner option for shoppers, and it becomes increasingly difficult for Blue Apron to charge premium prices. The Jet partnership at least helps target upscale customers, which may install a floor under its prices.
Yet Jet.com is a work in progress, too. The site underwent an overhaul earlier this year and emerged targeting urban shoppers. Groceries are a new focus, though the company president says no one has successfully combined general merchandise sales and grocery orders online before. He thinks Jet.com can change that dynamic. Still traffic at the site is down sharply, falling some 21% over the last six months, according to one tracking site.
Finding more outlets to sell its meal kits is necessary to keep Blue Apron afloat. While that will contribute to the further commoditization of meal kits, making them more broadly available may at least help it make up in volume what it is losing on price.