Blue Apron’s blues belies promising meal solutions category

Since its IPO in June, Blue Apron has been pummeled on all fronts, best reflected in a stock price that declined by almost half in less than two months. Investors bemoan modest customer growth (up 23 percent year-to-year when comparing Q2 2017 to Q2 2016), more modest order growth (up 19 percent over the same time period) and eye-popping customer acquisition costs (an analysis in Recode pegged customer acquisition costs at $460 per customer).

Perhaps more distressing are the challenges that the company has had in customer retention. An analysis of Slice Intelligence data comparing purchase frequency between 2015 and 2016 shows that Blue Apron is not making much headway finding a loyal base of core shoppers. In 2015 – early in the company’s young existence - only 33 percent of Blue Apron shoppers received 6 or more orders. In 2016, when we would have hoped to see a growing group of shoppers that had made Blue Apron a part of their lives, that number was virtually unchanged, at 32 percent.  

Despite the challenges that Blue Apron has experienced, we remain bullish about the meal solutions category because it plays into three of the key needs that are driving the US consumer economy today.

• Convenience: When we asked online shoppers in a survey last summer about why they bought online, they told us clearly that convenience, more than price or selection, was the principle reason that they buy online. This is notably different than the early days of e-commerce where the opportunity to save money was the main reason that people bought online. Meal kit solutions save time and effort in the selection of recipes, procurement of ingredients, and of course, in the preparation of meals. 
• Good, transparent food: American consumers, particularly the more affluent consumers that still dominate online sales, are becoming increasingly dubious of processed foods. The desire to buy food that is high-quality, authentic, and free of preservatives dominates amongst affluent consumers, and is present and growing amongst mainstream consumers. Meal kit solutions offer a level of ingredient transparency that no other meal format, including restaurants, can offer.  
• Abhorrence of delivery expense: From the beginning of the time of e-commerce, shipping expenses have been the bane of online shoppers’ existence. This is a cost that retailers increasingly absorb, relieving consumers of the appearance of paying for the shipping expense. The reality, of course, is that those costs will not be subsidized forever. Meal kit solutions push the e-commerce category in a healthy direction, upping basket sizes by delivering valuable combinations of products in a coherent ‘solution’. We constantly advise clients to look at the meal kit solution space to generate innovative new ideas in their own categories like combining products into bigger, solution-oriented baskets.  

So, while Blue Apron is on the right side of several key consumer trends, the fact remains that two elements of Blue Apron’s model are problems today, and forever:  

- Shipping costs of refrigerated goods from a remote warehouse via third party shippers is extremely expensive. There is no known solution that will help make this price drop in a significant way any time soon.  

- Consumers require more flexibility than recurring subscriptions can provide. Our lives are busy and we cannot depend on having the luxury of three nights at home where we have the time to cook and eat a nice meal. We need far greater control.  

While the current form of meal kit solutions clearly has some challenges to work through, we believe that the category is nascent, and will ultimately have an enormous impact on the grocery category, both online and offline for decades to come. Think of meal kit solutions today as akin to boxed cake mix in the 1930s.

- Meal kit solutions that are delivering to consumers players must tweak (or possibly re-engineer) their models to allow consumers far greater flexibility over what they receive and when they receive it. They need to allow consumers to modify their Tuesday shipment as early as Sunday and consumers should be able to choose two meals or five, depending on the week ahead. In Amazon Prime Now markets, meal kits are available within a two-hour delivery window.

- Brick and mortar retailers are already dipping their toes into this space, allowing consumers to buy meals à la carte when they’re at the store. This is a big enough opportunity that they ought to be doing more than toe-dipping to get ahead of online native players.

- Blue Apron and its competitors should leverage their strong brand equity by exploring deals with brick and mortar grocery chains to offer consumers the flexibility they crave, and to facilitate trial by new customers.

- The big opportunity for online-only players in the meal kit solution space is clearly a collection of small niche opportunities. Food allergies, dietary restrictions, fitness regiments, etc. all add up to a massive consumer opportunity, albeit a logistically challenging one.  

- For manufacturers of proteins, meal kit solutions offer transformative potential, as proteins such as chicken, beef, pork, fish, etc. are the core ingredients in most meal kits. Tyson Foods is leading the pack in this regard today, but this is an opportunity for all protein manufacturers, small and large.

- For manufacturers of complementary packaged recipe ingredients, such as ketchup, mayonnaise, and vinegar, the revenue potential is interesting, but the sampling opportunities are even more compelling for brands that are not household staples. 

With a panel of 5 million online shoppers, Slice Intelligence gives the most detailed, and accurate digital commerce data available, and is reported daily.

Slice Intelligence is the only service to measure digital commerce directly from the consumer, across all retailers, at the item level, and over time. Our retailer-independent methodology precisely measures commerce as it happens. By extracting detailed information from hundreds of millions of aggregated and anonymized e-receipts, Slice can map the entire Purchase Graph, connecting each and every consumer to all their purchases.

Slice gets its data from e-receipts – not a browser, app or software installed by the end-user – so its measurement reflects comprehensive shopping behavior across multiple devices, over time which are key in an increasingly omnichannel retail world. Slice Intelligence is the exclusive e-commerce data provider for the NPD’s Checkout Tracking e-commerce service.