Understanding Blue Apron's IPO And The Future Of Meal Kits

Meal kits may be here to stay, but is Blue Apron?

June 6, 2017

Originally published on Forbes.com.

On-demand food delivery keeps getting tougher and tougher, more complicated and more fragmented. There are third-party delivery-only services that pick up from partner restaurants (like UberEATS), those that produce the food to be delivered by others (Marley Spoon) and companies that produce all the ingredients you need to make a recipe (meal-kits) and deliver them to your door including Blue Apron, DoorDash and Postmates. Headlines touting brands like Foodzie, MunchOnMe and SnapFinger have all but disappeared. Most of the news these days are about these start-ups shutting their doors; late last month Sprig, with one over the best funding rounds for food delivery of over $55 million, joined the ranks of Maple and SpoonRocket and closed. Rumors are that Munchery is on its last legs.

So is it a good time for Blue Apron to announce it will be going public? And will it be able to raise the $100 million they seek?

Its S-1 filing with the U.S. Securities and Exchange Commission showed that net revenue grew from $84 million in 2014 to $795 million last year while losses grew $31 million to $55 million. The filing also states clearly that “Blue Apron has a history of losses, and we may be unable to achieve or sustain profitability.”

According to the filing, Blue Apron spent $144 million in 2016 on advertising and marketing to attract and acquire customers. Meal kit brands’ formula is to give away two or three meals to get people to try them, but Blue Apron’s filing shows that the value of their average customer order has fallen slightly as has the number of orders per customer -- 4.5 orders in the first quarter of 2016 vs. 4.1 orders in the same period this year. That's not surprising given the number of new competitors in the meal kit space, including Martha Stewart’s line, which is being offered by Amazon Fresh and can be ordered for same-day delivery, often to be delivered within a couple hours.

It seems everyone is seeking a bite of the U.S. meal kit market delivery market, pegged at $1.5 billion in 2016 sales and on the way to multi-billions within five years, projects Packaged Facts. Nielsen put the sales of meal kits in U.S. grocery stores at $80.6 million for the year ending March 4.  

There is lots of speculation on Blue Apron's future, and that of its competitors. The reality is that just delivering high-quality ingredients may not be enough. In this era in which we want our foods delivered “now,” we may have pushed this convenience into a dark hole where it's just too difficult to deliver on that promise – yet alone having to order two or three days ahead as is the case with Blue Apron. The other reality is that supermarkets including Kroger, Publix, Hy-Vee and Mariano’s to name just a few, are stepping up with high-quality meal kits that we can pick up on our way home, which might be the fatal bullet for the burgeoning meal kit industry, no matter how much money they raise.

Another common complaint from meal kit consumers, especially from Gen X and Millennials who are the core users, is that the amount of packaging that comes with meal kits smacks in the face of sustainability, which for these generations is a must have.

Nielsen’s March study of 2,015 consumers: The Mindset of the Meal Kit Consumer reveals that one in four adults in the U.S. has purchased a meal kit either in store or through delivery, and that 70% continue to buy them after their first purchase. The study also finds that men are 40% more likely to purchase the meal kits (across all age groups) than are females, with Generation X and Millennials 321% more likely to purchase than are Boomers and those older.

Meal kits are certainly driven by consumer demand: 81% told Nielsen that they believe meal kits dinners are healthier than prepared foods sold in their supermarket; a notable finding as the study also found that 60% of Americans are now using their diet to help prevent ailments.

The advantages go beyond ease of preparation, healthfulness and more exciting recipes. Blue Apron’s own study conducted by BSR, a nonprofit focused on sustainability issues, earlier this year reported that preparing food at home with a meal kit actually cut food waste by 62% over using grocery store ingredients - a concern that has risen to top of mind for all consumers, especially Millennials and Gen Z. BSR studied a week of Blue Apron meals, measuring how much food came into the company's facility and how much was left as waste after prepping the meal kits and donating some extra food to a local nonprofit. Then they compared that to the average waste for those ingredients—based on USDA numbers—in grocery stores. The Blue Apron facility threw out 5.5% of food; grocery stores threw out 10.5%.

They then surveyed 2,000 Blue Apron customers to find out how much they threw out in meals that week—maybe they didn't like a particular ingredient, or they didn't eat a full meal. Compared to USDA food waste stats for the same ingredients, home cooks threw out 7.6% of the food in Blue Apron meals and would throw out an estimated 23.9% to make the same meal from store bought ingredients.

What is clear is that meal kits are here to stay -- the question is whether Blue Apron is.

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