With Blue Apron Holdings (NYSE:APRN) stock diving under $1 a share, it's common to see articles blaming the competitive threat from Amazon.com (NASDAQ:AMZN) for the meal kit company's declining fortunes.

Although Amazon's announcement of its forthcoming acquisition of Whole Foods Market did wreak havoc with Blue Apron's IPO in June 2017, causing the offering price to drop to $10 per share from the expected range of $15 to $17 per share, the organic foods grocer has had little practical impact on the meal kit business.

Amazon's entrance into the supermarket industry certainly suggested the space could be upended, but the problems at Blue Apron were much deeper than that, and in the year and a half since Blue Apron went public, the failures of the meal kit maker's operations -- problems that were evident even before the IPO -- have proved to be the true cause of its decline.

Tablet with online food ordering menu

Meal kit delivery turns out to be a very inefficient business model. Image source: Getty Images.

Flawed business model

Delivering meal kits to a customer's door is expensive, and it's even more expensive to continuously have to acquire new customers. Ever since Blue Apron's first earnings report as a public company showed bigger-than-expected losses, the meal kit company has had a difficult time explaining how it is going to be profitable.

So long as it spent a lot of money marketing its business, Blue Apron could attract more customers. Yet as soon as it let up on the gas, the numbers fell. Worse, it can't keep customers once it acquires them, with an estimated retention rate of only 15%. That means it must always be trying to find new customers.

Yet across almost every single metric Blue Apron measures itself on, it has seen declines. At the end of the third quarter, its number of customers, the number of orders they place, the value of the orders, and the amount of money Blue Apron makes off each customer were all down significantly from last year.

Metric

Q3 2017

Q2 2018

Q3 2018

Customers

856,000

717,000

646,000

Orders

3,605,000

3,122,000

2,647,000

Average order value

$58.16

$57.34

$56.79

Orders per customer

4.2

4.4

4.1

Average revenue per customer

$245

$250

$233

Data source: Blue Apron Q3 2018 SEC filing.

Increased competitive threats

Blue Apron's problems are twofold: growing competition (though not from Amazon) and changes in the way customers buy meal kits.

The biggest change may have come when supermarket chain Albertson's bought Blue Apron rival Plated and made its meal kits available in its stores. It soon seemed every grocery chain was either buying a meal kit company or making store-brand meal kits available in its refrigerator cases. From Kroger to Walmart (NYSE:WMT), meal kits were becoming ubiquitous, and as people became able to purchase them when they did their grocery shopping, often very cheaply, it negated the need to sign up for a pricey subscription service.

Blue Apron eventually did relent and began offering its meal kits in a limited number of Costco Wholesale stores, and then offered on-demand delivery without a subscription. Customers could go online and order a kit for that night's dinner, which would be delivered within several hours. More recently, Blue Apron struck a deal with Walmart's Jet.com to have its meal kits available for purchase through a dedicated storefront.

The future is bleak

Ultimately, the meal kit subscription model has largely proved unworkable. It's too costly to acquire customers, and keeping them is difficult. Even Hello Fresh, which has surpassed Blue Apron as the leading meal kit company, can't keep them around, and at 11% has a worse retention rate than its rival.

With no barriers to entry, the market has been flooded with meal kits, which has commodified the product. Despite its first-mover status, there's not much value left in a meal kit from Blue Apron as opposed to one from Hello Fresh, Plated, or even Great Value.

The problems inherent at Blue Apron's IPO have only been exacerbated by time, and while Amazon's potential competitive threat may have caused analysts to take a fresh look at the meal kit business, it shouldn't be blamed for Blue Apron's subsequent downfall.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.