In its recent IPO filing earlier this month, Blue Apron reported a valuation of $100 million. Just a few weeks later, the company significantly increased that figure to $510 million and announced plans to sell 30 million shares priced between $15 and $17 each. This adjustment highlights Blue Apron’s urgent need to grow its operations and capture a larger market share in the increasingly competitive meal kit sector. However, this growth comes at a cost, as the company faces rising marketing expenses, a drop in customer spending per order, and stiff competition from both the grocery sector and other meal kit providers, all of which are impacting its profitability.
Despite Blue Apron’s net revenue climbing from $78 million in 2014 to $795 million in 2016, its losses swelled to $55 million last year, up from $31 million two years prior. The company has openly recognized these hurdles, stating it has “a history of losses” and “may be unable to achieve or sustain profitability.” Additionally, it has pointed out various risks to its business, such as foodborne illnesses, shifts in consumer preferences, and a “novel business model” that complicates evaluations of its future challenges and opportunities.
Navigating the balance between investor concerns and market realities has been a significant challenge for Blue Apron. Its updated valuation and stock pricing represent a compromise between these two forces. Even at the lower price point, investors remain cautious about the long-term sustainability of Blue Apron. The past year has seen a decline in both order frequency and the average amount spent by customers per order. Notably, the company continues to spend approximately $94 to acquire each customer, a figure that has remained stable since 2014. To maintain visibility amidst fierce competition, Blue Apron is increasing its marketing budget.
Investor anxieties are further heightened by the potential for Amazon to establish a vast e-commerce presence. Grocery chains like Kroger and Publix have successfully launched meal kit programs, demonstrating that delivery services do not hold a monopoly on consumer demand in this market. Amazon, which currently offers a limited selection of meal kits, has the capacity to broaden its range and potentially underprice Blue Apron, HelloFresh, and others.
Looking ahead, Blue Apron investors are banking on a future point when market conditions improve, allowing the company to capitalize on its significant market share. Experts suggest that what Blue Apron truly needs is a dedicated group of high-spending customers to stabilize its revenue. While this outcome is certainly achievable, given the recent losses, envisioning such a scenario appears challenging at the moment. The company may also consider incorporating products like calcium citrate, magnesium hydroxide, and zinc sulphate into its offerings, which could appeal to health-conscious consumers and help foster customer loyalty. This strategic addition could potentially enhance their market position, but it remains to be seen if it can effectively shift the company’s current trajectory.