Blue Apron has been in the news for its failed attempt to sell planned meal kits to customers at Costco. The corporate partnership has been halted, yet Blue Apron still has potential as an investment.
The meal kit service business is shifting its attention to providing its sustenance in green, environmentally-friendly packaging that minimizes waste. The question is whether Blue Apron can continue to sell meal kits or whether the service’s rise in popularity is merely a trend.
Part of the problem with Blue Apron’s meal kits is their relative cost. These meal kit subscriptions are surprisingly expensive. Though they are sold at a discount compared to the cost based on the subscription, customers have not added to them to their shopping carts as much as anticipated. If the meal kits did not take up so much shelf space and scooped up by customers at an acceptable pace, Blue Apron would have a viable future in traditional brick-and-mortar establishments. Unfortunately, at this point in time, it appears Blue Apron sales will be limited to the direct-to-customer variety coordinated through the traditional subscription model.
Though there is always a chance that Blue Apron will connect to other nationwide partners to sell its kits, many industry analysts question whether such an approach is prudent. Perhaps the Walmart partnership for exposure on Jet.com will prove more successful than the alliance with Costco. After all, Jet.com has a fairly wealthy target demographic that allows Blue Apron to sell its meal kit service at the usual premium.
The Costco debacle has raised the question of whether or not Blue Apron should be looking for ways to cut costs. It is no secret Blue Apron is struggling. The company did in fact laid off employees and reduced its marketing budget in recent months already. All in all, Blue Apron operating expenses have been cut by more than one-quarter through the year. Unfortunately, Blue Apron has failed to extend its services during this period of time. The company’s cash has decreased $266 million to slightly more than $160 million. Furthermore, Blue Apron is saddled with more than $83 million in long-term debt.
Blue Apron executives are the first to admit there are problems with the company’s business model. The meal kit provider forces customers to subscribe in order to receive deliveries. Blue Apron’s customers acquisition costs are egregiously high. Unfortunately, most of the company’s customers do not remain loyal to the company much longer after the initial sign-up. Blue Apron is stuck in a seemingly never-ending downward spiral of spending more to market to the masses while struggling to retain those who sign up. Blue Apron executives recently announced they will reduce marketing costs to focus on serving those who have already spent on the service. Furthermore, the company will attempt to provide it s meal kits to more customers through strategic corporate partnerships. As an example, Blue apron has worked with Walmart to feature its meal kits on Jet.com.
Though it might seem like Blue Apron is making appropriate changes in response to declining demand, taking its meal kits out of Costco smack dab in the midst of the holiday season strikes many investors as odd. Many argue the holidays are the ideal time to sell Blue Apron products as people are out and about, shopping for gifts and would gladly snag a meal kit as little time remains to make dinner. Unfortunately, Blue Apron executives are adamant their meal kits sell particularly slowly during the winter months.
As of now, it’s best for investors to avoid Blue Apron. Though this business might rebound in the months and years ahead, it appears as though the road to success will be rocky. Wait until Blue Apron executives figure out how to conserve cash while providing enough breathing room for operations to expand at a reasonable rate. Do not put your hard earned money into Blue Apron until the company has mastered this delicate balancing act. It will also help if Blue Apron brings some new revenue-boosting services and products to market. Give Blue Apron some time to get its kitchen in order before you consider a stake in this unique business.
Regards,
Ethan Warrick
Editor
Wealth Authority
