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How Amazon and Walmart Ate Blue Apron's Lunch

By Adam Levy - Jan 21, 2020 at 8:20AM

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These retail giants didn't take the direct approach to compete on meal kits, but instead offered a better solution.

When Blue Apron (APRN 7.74%) initiated its IPO in 2017, meal kits were trending. That led many investors to overpay for the stock despite several warning signs, and it made grocery chains look into acquiring or creating competitors. Albertsons bought Plated. Kroger bought Home Chef. Walmart (WMT 1.97%) and Amazon (AMZN 3.66%) experimented with building their own kits.

In 2017, I said Walmart and Amazon could eat Blue Apron's lunch by leveraging their infrastructure and scale to create efficiencies in the meal kit delivery business. I was wrong -- meal kits at Walmart and Amazon stores have all but disappeared.

But I was also kind of right. Instead of using meal kits, consumers have shifted to buying regular groceries online to pick up in-store or delivered straight to their door. That trend took off in 2019 as Blue Apron continued to flounder.

Fresh vegetables and cheeses on a wood table.

Image source: Blue Apron.

Ditching the Apron

Over the last two years, customers have left Blue Apron in droves. In March of 2017, the company counted over a million customers. Two and a half years later, it had just 386,000.

Blue Apron dealt with operational challenges during that period, but it also refocused its marketing efforts to attract what it deemed as higher quality customers. The reduction in marketing spend led to a massive drop in gross additions, while customer retention remained challenged.

Not all meal kit companies have seen such drops in customers. HelloFresh (HFG -0.23%) saw U.S. customers expand from 710,000 to 1.48 million during that same time period.

But HelloFresh is an exception in the market, and its customer gains barely offset the losses at Blue Apron. Popular meal kit company Chef'd shut down suddenly in mid-2018 to focus exclusively on in-store distribution since home-delivery operations were unsustainable. Albertsons shut down Plated last year. And Sunbasket shut down its Midwest offices to focus on profitability.

The rapid growth in meal kits investors were expecting in 2017 and 2018 never materialized. And the shift in usage is evident in the number of consumers that started buying their groceries online in 2019.

Online grocery shopping goes mainstream

Last year saw a surge in online grocery shopping, as Walmart and Amazon expanded their efforts in the space. The percentage of consumers reporting buying groceries online surged from 48% in 2018 to 66% in 2019, according to a TABS Analytics survey.

Walmart expanded its curbside pickup service to 3,000 stores by the end of the year, up from about 2,100 locations a year ago. Delivery locations expanded from 600 locations to 1,400 during the same period. Online grocery sales are fueling Walmart's e-commerce growth, which climbed 41% in the third quarter.

Meanwhile, Amazon's online grocery business remains strong. Sales of grocery staples on its online marketplace continue to grow while it expands the availability of fresh food delivered from Whole Foods Market locations. Thirty-six percent of consumers report buying groceries from Amazon last year, more than any other retailer.

And those numbers ought to keep growing in 2020, as both Walmart and Amazon push to make home grocery delivery cheaper and easier for consumers than going to their local supermarket or subscribing to a meal kit service.

Amazon removed the subscription fee for AmazonFresh -- its two-hour grocery delivery service -- and it's quickly expanding to more markets. The moves led to a 30%-plus increase in adoption of the service, according to Morningstar analysts.

Walmart introduced Delivery Unlimited last fall, which, as the name implies, offers unlimited delivery of fresh and frozen groceries for $98 per year. Management said it was pleased with the early response to the offer in its prepared remarks on the company's third-quarter results.

The expansion of affordable and convenient home delivery options for groceries will very likely cut into the growth of meal kits in 2020. Usage of grocery delivery surpassed meal kits in 2019, according to a survey from CivicScience.

And while Blue Apron might expect its active customer numbers to turn around this year, it might be too late for it to take on the growing trend of online grocery sales happening at Amazon and Walmart.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,302.93 (3.66%) $81.38
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$128.48 (1.97%) $2.48
Blue Apron Stock Quote
Blue Apron
APRN
$3.34 (7.74%) $0.24
HelloFresh SE Stock Quote
HelloFresh SE
HFG
$34.81 (-0.23%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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