Blue Apron (NYSE:APRN) this week reported yet another quarter of declining revenue, down 34% year over year in Q2. Active customers fell to 449,000, down from 550,000 during the first quarter. But management says a turnaround isn't far off.
Management says it expects to show year-over-year revenue and customer growth in the second half of 2020, and it outlined its plan to reach that goal during its second-quarter earnings call.
A more focused market opportunity
The most important detail in Blue Apron's plan to turn things around is its new definition of its addressable market. Blue Apron previously thought it had a massive market opportunity.
"Our market opportunity is broad, as we believe our customers choose to buy Blue Apron meals instead of shopping at grocery stores, ordering takeout, or eating at restaurants," management wrote in the company's S-1 filing with the SEC. The company pegged the total value of its market opportunity at around $1.3 trillion.
The problem with that is it assumes Blue Apron's meal kits are a good product for everyone. That's clearly not the case.
On the second-quarter earnings call, management focused its market opportunity on the 50 million households with over $70,000 in yearly income and fewer than five people. Those are households that can better afford the higher price of partially prepped food delivered to their doorsteps instead of weekly trips to the grocery store or going out to eat.
Management is also focused specifically on the opportunity those families present based on average meal kit orders, not necessarily looking to increase the amount its customers order, just the number of customers. As such, it values the total opportunity at $45 billion -- a far cry from the $1.3 trillion previous executives outlined in its IPO registration filing.
Management also went into more details about how it sees online grocery customers as the customers it'll actually be able to reach, but how that industry is growing rapidly into the total addressable market. What's more, it points out meal kits represent just 28% of the online grocery market.
Having a clear definition of what its customers look like -- high-income households with zero to three kids that already do some online grocery shopping -- will make its marketing spend more efficient and its messaging stronger.
Working directly with consumers
Blue Apron started partnering with other distributors last year, including Costco, Grubhub, and Walmart's Jet.com. The idea was to give consumers a more flexible, on-demand product. But the result was less of a direct relationship with the customer and less control over the Blue Apron brand.
The company ended its partnership with Costco last November. Management announced the end of the Jet.com partnership during the earnings call.
Blue Apron is going to refocus on engaging consumers on its own platform. It plans to roll out new options for additional weekly recipes and unique foods it believes will interest its target customer base. A recent example of those moves is the company's partnership with Beyond Meat.
What to expect
After several quarters of declining marketing spend, investors should expect the company to step up its advertising in order to execute its strategy. CFO Tim Bensley also noted increased capital expenditures in order to improve the e-commerce platform and fulfillment capabilities. As a result, investors should expect lower profits in the back half of the year compared to the first half. Bensley forecast adjusted EBITDA between breakeven and negative $7 million for the full year.
Blue Apron is already showing improvements in its more focused customer base. Average revenue per customer increased 6.1% year over year in the second quarter, accelerating from the 3.1% growth it saw in Q1. That will be one of the key metrics to watch while active customers continue to shrink over the next year. It'll also be important for it to remain stable if and when Blue Apron returns to customer growth in the second half of next year.
New CEO Linda Kozlowski has put a plan in place, and she appears focused on the right things. It's worth paying close attention to how the company's execution plays out over the near term as an indicator of whether it's on track to meet its long-term plan.