Blue Apron (APRN) benefited from the increase in people eating at home during the pandemic, as services that delivered food to your door became almost a necessity and less of a luxury. The meal-kit delivery specialist saw its customer count rise, its orders per customer increase, and the average revenue per customer it generated jump.
Yet even with that massive tailwind, Blue Apron was not able to turn a profit consistently. Now, meal-kit sales growth is set to dramatically decelerate.
If Blue Apron couldn't make a profit during the best of times for its business, how can it survive now that economic normalcy is returning?
A slow burn
Meal-kit sales are likely about to plummet. Data from Coresight Research estimates the 70% growth rate meal-kit companies enjoyed during 2020 is about to rapidly become undone. With restaurants fully reopening almost everywhere, people will want to dine out in droves. The market analysts forecast meal-kit growth this year will only rise 18%.
While growth is growth, Blue Apron likely won't be able to benefit from it much. Where it had once been the industry leader by far, its star has dimmed considerably over the years. Today, HelloFresh (HLFF.F 1.16%) and Sunbasket account for over half of the meal-kit industry's sales, while Blue Apron represents just 8% of the market.
It had a brief moment of profitability during the pandemic, but it ended last year with a GAAP loss of $46 million, or $3.06 per share, and even on an adjusted basis EBITDA was a loss over $1 million.
The first quarter of 2021 saw Blue Apron return to its money-losing ways, with net losses of $15.7 million, or $0.88 per share, while adjusted EBITDA worsened 5% year over year to a loss of $6.1 million. And now business is going to slow down?
Too many cooks
Although meal kits are not unpopular, subscription-based food delivery is expensive, and supermarkets have launched their own brands or bought an existing meal-kit company to compete. Albertsons, Kroger, and Walmart have all introduced meal kits in their produce and frozen food sections while expanding the availability of precooked and ready-to-cook meals.
Although meal-kit growth is expected to outpace U.S. grocery store sales, which Coresight says will drop 2.8% this year as people dine out again, it also predicts meal kits will continue to see growth erode in the years to come.
Blue Apron should have kept trying to sell the business and not delude itself into believing it could effectively compete.
Cutting the apron strings
Blue Apron serves a tiny niche market and has proven unable to break out from it. Even during a crisis of global proportions it was unable to sustain profitability. Also, its stock offering last month chose to dilute shareholders for a quick cash raise, one that significantly undercut where the stock had been trading prior to the announcement, sending shares even lower.
With more competitors, more dining options available, and no real way to grow into a money-making operation, I see Blue Apron as a stock to avoid.