Is Blue Apron Even Going To Exist In Five Years?

Meal kit businesses are all the rage, but whether or not they are really viable as stand-alone businesses is an open question.

Is Blue Apron Even Going To Exist In Five Years?
[Photos: courtesy of Blue Apron]

One of the food delivery industry’s biggest and most well-funded meal-kit subscription companies, Blue Apron, has filed its intent to go public. The company’s stated goal is to take on grocery stores and dining out. “We believe our customers choose to buy Blue Apron meals instead of shopping at grocery stores, ordering takeout, or eating at restaurants,” its filing reads.


But while interest in meal kits is growing, there isn’t strong evidence that most people are ready to give up entirely on the grocery aisle. Meanwhile, Blue Apron’s marketing department is spending an exorbitant $94 per customer to get people to sign up for its service–and in the last year, its customer growth rate has actually slowed. So is Blue Apron really cut out to be a public, stand-alone company?

Meal-kit subscription companies fancy themselves innovators, refashioning grocery shopping for a digital world. But not everyone is equally enchanted by this newfangled shopping experience. Recipe cards and quick meal prep packages represent less than 1% of retail food and alcohol spending in the U.S., according to a recent report from research firm Morningstar (Editor’s note: Fast Company‘s owner, Joe Manuseto, is executive chairman of Morningstar.)

Among meal-kit adoptees, the metrics are more encouraging. Food box loyalists are known to spend 13% of their weekly grocery dollars outside the traditional grocery store, the report notes. The research asserts these kits could be the catnip that convinces consumers to shop for groceries online–not just for meal kits, but as part of their regular grocery routine (online grocery shopping has had many false starts as it attempts to go truly mainstream).

That puts Blue Apron in an interesting role—a pied piper luring the masses to online grocery shelves. Though Blue Apron was one of the first to offer meal-kit subscriptions, it’s not alone. There are countless meal-kit offerings out there from a bevy of providers–both brand names and newcomers. These adversaries are all aggressively waving their own coupons and rock-bottom deals as they attempt to attract customers.

Notably, one in four Americans has tried a meal kit–with 70% continuing to purchase them, according to Nielsen. All the price competition, however, enables someone with an interest in meal kits to hop from one platform to the other, sopping up discounts as easily as bread in pasta sauce. That means not all meal-kit consumers are staying loyal to just one service.


Given the high cost of customer acquisition–thanks to hyper-competitive pricing and epic marketing budgets–turning this product into a consistent profit generator is one of the biggest challenges Blue Apron and businesses like it face. The whole scenario calls into question whether meal-kit subscriptions are a sustainable business on their own–or if they are better off as components of a larger digital grocery spread.

The Challenge

Meal-kit subscription services endure a lot of customer drop-off. In its filing to the SEC, Blue Apron notes that while its high spending has grown its customer base, its expansion efforts have the potential to lose steam. “Over time our customers on average order less frequently or sometimes cease ordering.” That statement is echoed in Morningstar’s data, which reports that a year after trying a meal kit, only 8% to 18% customers remain with that particular service. Some of that drop-off is circumstantial–for example, you might not restart a meal-kit subscription you paused while you were away on vacation.

That’s problematic because meal kits–especially those hoping to capture a wider market like Blue Apron–are limited in their ability to increase prices on kits without losing customers to competitors offering better deals. “Meal-kit startups can’t raise their prices too significantly because they’re competing with traditional groceries as well as other meal kits, which limits margin potential. Therefore, their main way to grow is by adding customers, pushing them to focus heavily on costly customer acquisition,” says CB Insights’ Natan Reddy, a tech industry analyst.

Signing up and keeping loads of customers in this space is a fraught endeavor. Meal kits are at once trying to change a deeply ingrained customer behavior and attempting to introduce them to a new brand. In order to get people on board, they need to spend heavily on marketing—particularly cost-intensive offline marketing like television ads. On top of that, they have to keep their product affordable–they can’t make up for the cost of their high marketing spend with higher prices on their products. Because many of these players, like Blue Apron, have received a lot of venture funding, they’ve been comfortable spending a lot to get customers, says Reddy, “even in the face of reportedly high churn.”


When I met with Sunbasket CEO Adam Zbar last month, he claimed his company could be profitable tomorrow if not for its marketing spend. The same seems to be true for Blue Apron. Though it enjoyed a quarter of profitability from January to March last year, in the first quarter of 2017 it took a loss of $52 million. Already this year it’s spent $61 million on marketing, setting it up to nearly double last year’s spend. Yes, you read that right.

Not The First

Customer acquisition is an age-old problem in the digital grocery world. Both Webvan and Peapod attempted to build web-based grocery delivery in the late 1990s. Webvan went under and Peapod, which went public, found an acquirer in Royal Ahold N.V. The main issue for both? Not enough orders and mounting costs. By coming under Royal Ahold N.V., which owns Giant and Shop & Stop retail grocery stores, Peapod was able to access a ready customer base.

What Peapod has done in the years since it was acquired is well worth paying attention to. Peapod still does grocery delivery, but exclusively for its parent company stores. It also has its own meal kits, which it sells in tandem with its online grocery service. That allows customers to do their normal weekly shopping in addition to buying instructional meal kits. Incorporating a la carte meal kits into a bigger, a la carte online and offline grocery service allows customers to be flexible in their approach as they shop for food. They don’t need to cancel a subscription meal kit service if they go on vacation because they are buying meal kits individually, and Royal Ahold N.V. doesn’t have to worry about customers dropping off after they come back from a holiday the way most meal-kit subscription services do. Even if customers don’t race online to order a meal kit when they get back home, they’ll probably run to the grocery store to pick up some staples for their first meal back.

This need for fluidity makes obituaries for retail grocery businesses appear premature: “I think people love going to the grocery store to find new products and to be a part of their social community and it is just a part of the fabric of how people exist,” says Andy Levitt, CEO of vegan meal kit Purple Carrot.


Blue Apron and many meal kits are rigid in format and as such largely supplemental to traditional grocery stores. That makes them potential targets for acquisition by grocers with a digital strategy—like Peapod’s scenario in the early aughts. Because Blue Apron’s meal kits are something of a luxury–not necessary products that a standard household can’t live without–it makes them susceptible to getting nixed when belts need to tighten.

Other Opportunities

Blue Apron’s last uttered valuation was $2 billion, making it unlikely to get bought up—and this may be a part of why it’s going public. At the end of March, the company had $61 million in cash, but its working capital was negative $84.8 million. It’s possible that Blue Apron is going public to raise more money. The last time it raised privately was in 2015.

Another reason: Right now Blue Apron is still considered an emerging company, which entitles it to disclose less in its public filings. Once it starts earning more than $1.07 billion in revenue, that stops being the case. If it waited until after it was earning more, Blue Apron would have to report on executive compensation and more readily comply with certain accounting standards.

Going public in the immediate future gives the company a little bit of shield from prying investors and reporters while it figures out how to become reliably solvent. To that end, there are still unexplored revenue channels that Blue Apron has yet to take advantage of.


“We view the meal-kit service category as another means through which packaged-food firms can position their products to get in front of consumers,” Morningstar’s report on meal kits notes. Consumer packaged goods companies like Unilever or Nestle might pay for product placement in boxes, helping to spur an additional channel of revenue for Blue Apron.

There’s also opportunity in Amazon. With Amazon Fresh, the Everything Store is exploring a bid at online grocery and is considered the biggest threat to the brick and mortar grocery stores. But when it comes to meal kits, Amazon may offer a boost. Right now the platform is selling a meal kit from Martha Stewart and Marleyspoon through a partnership. If this initial foray goes well, it stands to reason that Amazon could team up with other meal kits, making it a distribution platform rather than a meal-kit brand of its own. On Amazon, meal kits have a chance to reach the masses they so desperately need to support their companies, possibly helping to reduce consumer acquisition costs (depending of course on the potential the terms of being featured on the site). Such an alliance could also benefit Amazon. Meal kits could act as a lure to its larger grocery store offering, giving customers access to both meal kits and all the usual items they might need in a given week.

Meal kits may be convincing some shoppers to consider going online, but it will never fulfill all their needs. Whether Blue Apron’s business model can fulfill the desires of investors has yet to be seen.

About the author

Ruth Reader is a writer for Fast Company. She covers the intersection of health and technology.