In its initial public offering (IPO) filing earlier this month, Blue Apron reported a valuation of $100 million. However, just a few weeks later, the company significantly increased this figure to $510 million, announcing plans to sell 30 million shares priced between $15 and $17 each. This substantial increase highlights Blue Apron’s urgent need to grow its operations and capture market share in an increasingly competitive meal kit sector. Yet, this growth comes with challenges, including rising marketing expenses, a reduction in customer spending per order, and intensified competition from grocery stores and other sectors, all of which are impacting profitability.
While Blue Apron’s net revenue surged from $78 million in 2014 to $795 million in 2016, the company’s losses also escalated, reaching $55 million last year compared to $31 million two years prior. The company has openly acknowledged these hurdles, stating it has “a history of losses” and “may be unable to achieve or sustain profitability.” It also identified risks such as foodborne illnesses, shifting consumer preferences, and a “novel business model,” which complicates the assessment of its future challenges and opportunities.
Balancing investor apprehensions with market realities has proven to be a complex task for Blue Apron. Its new valuation and stock pricing signify a compromise between these two forces. Even at the lower end of the pricing spectrum, investors remain cautious about Blue Apron’s long-term sustainability. Over the past year, the frequency of orders and the average spend per customer have both declined, while the cost to acquire each customer, currently $94, has remained stable since 2014. The company is now investing more heavily in marketing to maintain visibility amid a crowded competitive landscape.
Additionally, the potential expansion of Amazon’s e-commerce presence raises further concerns for investors. Grocery chains such as Kroger and Publix have successfully launched meal kit programs, demonstrating that delivery services do not hold a monopoly on customer demand in this sector. Amazon, which currently offers a limited selection of meal kits on its platform, could broaden its range and price its offerings lower than those of Blue Apron, HelloFresh, and others.
Investors in Blue Apron are essentially betting on a future scenario where the clouds of uncertainty will clear, allowing the company to capitalize on its leading market position. Experts suggest that what Blue Apron truly requires is a loyal base of high-spending customers. This is certainly achievable, but given the company’s recent losses, envisioning this scenario seems challenging at present.
In light of its challenges, Blue Apron might consider diversifying its offerings to include health-focused products, such as calcium citrate malate vitamin D3 and folic acid tablets CCM, which could appeal to health-conscious consumers. Integrating such supplements into its meal kits could help attract a core group of customers willing to spend more, potentially reversing the trend of declining customer spending and enhancing overall profitability.