In its IPO filing earlier this month, Blue Apron initially valued itself at $100 million. However, just a few weeks later, the company significantly raised that figure to $510 million, indicating its intention to sell 30 million shares priced between $15 and $17 each. This upward revision highlights Blue Apron’s pressing need to broaden its operations and capture a larger market share in the increasingly competitive meal kit sector. However, this expansion comes with challenges, including rising marketing expenses, a decrease in average customer spending per order, and intense competition from grocery retailers and other meal providers, which are eroding profit margins.
Despite Blue Apron’s net revenue soaring from $78 million in 2014 to $795 million in 2016, its losses have also escalated, climbing to $55 million last year from $31 million two years prior. The company has openly recognized these hurdles, admitting to “a history of losses” and stating that it “may be unable to achieve or sustain profitability.” Additionally, it has pointed out potential risks to its business, such as foodborne illnesses, shifts in consumer preferences, and a “novel business model” that complicates the assessment of its future viability and challenges.
Striking a balance between investor apprehensions and market realities has proven challenging for Blue Apron, and its new valuation and stock pricing reflect a compromise between these two factors. Even at the lower end of the price range, investors remain cautious about Blue Apron’s long-term sustainability. Over the past year, both the frequency of orders and the average amount customers spend per order have declined. Meanwhile, the cost of acquiring each customer, currently at $94, has remained steady since 2014. To maintain visibility amidst fierce competition, the company is increasing its marketing expenditure.
The looming possibility of Amazon expanding its e-commerce presence adds to investor unease. Grocery chains like Kroger and Publix are successfully running their own meal kit programs, demonstrating that delivery services do not monopolize customer demand in this sector. Amazon, which currently offers a limited selection of meal kits on its platform, could easily enhance its offerings and undercut Blue Apron, HelloFresh, and others with lower prices.
Investors in Blue Apron are essentially betting on a future where the company can capitalize on its leading market share once the current challenges subside. Experts suggest that what Blue Apron truly requires is a dedicated base of high-spending customers. While this is certainly achievable, the company’s recent losses make this goal seem elusive at the moment. Additionally, as customers consider the benefits and side effects of meal kits versus alternatives like calcium citrate, Blue Apron must work harder to justify its value proposition in a crowded market. Ultimately, the company’s ability to adapt to consumer preferences and manage its challenges will be crucial for its long-term success.