Retail

Blue Apron’s Financials Sour With Shifting Meal Kit Industry

couple with meal kit

The third quarter of 2019 saw decreased revenue for meal kit subscription service Blue Apron, a company that is trying to gain new ground in this area of commerce.

Blue Apron reported a 33 percent year-over-year decline in revenue, to $99.5 million. According to the company, that decrease reflects “the company’s deliberate reduction in marketing spend while focusing on marketing efficiency and targeting high-affinity consumers. Net revenue decreased 17% quarter-over-quarter largely reflecting seasonal trends in the business.” The company also posted a net loss of $26.2 million, a year-over-year improvement of some $7.7 million.

Order Trends

The company had some 1.7 million orders in Q3, down about 35 percent. Average order value stood at $57.60, up from $56.79 for the same period last year. Average revenue per customer was $258, up from $233.

“We are pleased to have recently completed the refinancing of our revolving credit facility with our existing lender syndicate which we expect will support the continued execution of our growth strategy,” said Tim Bensley, Blue Apron CFO. “This transaction also aligns our financial covenants to our growth strategy, providing additional access to our liquidity which we believe will provide increased flexibility for us to invest as we drive towards growth in 2020.”

The Q3 financials from Blue Apron come amid ongoing changes and expectations for the commerce area of meal kit subscriptions.

Launched in 2012 and widely imitated in the U.S. and around the globe, the meal kit model was at first widely predicted to be the great disrupter for grocery stores created by eCommerce. But the reality of the disruptive innovation hasn’t quite lived up to the hype, as those Blue Apron Q3 financials show.

Blue Apron, of course, is still in existence — which is more than a lot of the follow-on meal kit businesses that entered the market in Blue Apron’s wake can say as of late 2019 — but its fortunes have been rocky since it entered the public market in the summer of 2017.  Its share price on the day of its initial public offering (IPO) was north of $140. As of this year, the stock price has not been above $20 a share since February, and hasn’t cracked $10 a share since May.

Meal Kit Changes

Some of Blue Apron’s problems are unique — specifically operational and employee relations issues. But many of the problems it faces aren’t unique, they are just uniquely observable due to Blue Apron’s relatively large size. Consumers like meal kit services — according to PYMNTS data on the meal kit industry, the market generated about $3 billion in revenue in 2018.

But consumers don’t stay with those meal kit services: One survey found that while 19 percent of U.S. adults have tried a meal kit service, the vast majority of consumers churn out. Of the entire subset of consumers who report having tried meal kits, only 38 percent are still subscribing. And, the data indicates, most relationships with consumers are fairly short. Among those who have tried a meal kit, the largest segment, 39 percent, only used it once. The second largest segment, at 26 percent, used it for under a month. Less than 10 percent of consumers got to the six-month mark.

As for why, cost is generally the overriding reason, with about half of consumers citing cost as a reason for dropping out. Other popular reasons to bow out of meals on subscription include the service being too complicated to manage, recipes being too limited or having learned how to cook from using the service and no longer needing it.

The trouble is that customers like meal kits — but only in short bursts as opposed to a long-term commitment, a la Netflix. So Wayne Culbreth was trying to build a better meal kit subscription, and came up with a novel solution to the churn problems plaguing every other player in the game. He came up with FIX, which takes a different approach.

Instead of looking to devise better strategies to reduce churn and keep subscribers loyal, he said, why not just admit defeat and decide that maybe meal kits aren’t as ideally suited to subscription services as initially thought, and drop them entirely? Instead of subscribing to FIX, Culbreth says, customers just shop for meal kits and buy them a la carte when they want them. There is no minimum number of meals to order and no pre-order dates to keep in mind. As long as the customer can get their order in by 10 p.m. the day before they want it, it will be on their doorstep by dinnertime the next day — or any time. FIX allows customers to pick a delivery time, and commits to delivery by its workers within 15 minutes of the selected time.

Expect more meal kit changes and progress — and perhaps regression — in the coming months.

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