Blue Apron — Stormy Waters Ahead

Big Red Car here with his Blue Apron on. Haha, that’s a joke y’all, just like everything else about Blue Apron.

If you don’t know about Blue Apron, a meal kit delivery company which just went public, let the Big Red Car ‘splain it to y’all.

Blue Apron went public on the NYSE recently at $10/share having been “underwritten” by Goldman Sachs, Citigrope (haha), Morgan Stanley, and Barclays as the leads. It sold 30MM share and raised $300MM.

Yesterday, it was revealed that Amazon (recent offerer for Whole Foods) registered the trademark: “We do the prep. You be the chef.”

The filing said that Amazon would be preparing food kits for cooking and assembly as a meal. OK, so you recognize that, right? That’s Food Aprons core competency.

The Illuminati read this to mean Amazon/Whole Foods is going after Blue Apron and others in the meal kit delivery business. Just to be clear Blue Apron is the largest in the business followed by HelloFresh (German company). But, Amazon/Whole Foods has an incredible installed base, complete command of the order/delivery business, and an incredibly well focused existing customer base. Plus, Whole Paycheck is already a huge volume buyer of … wait for it … FOOD.

Blue Apron IPO

Blue Apron was whispered to come out at $17/share, but hit the Street at $10. Today, it is trading at $6.56/share and the only analyst following it just put out a price target of $2/share. Hello, America!

Looked at another way, Blue Apron was to be valued at $3.2B and came out valued at about $1.9B and is trending downward from there. To put this in perspective, the last time APRN raised $$$, it had a pre-money value of $2.2B — so the IPO was a “down round.” Ugh!

To go a little financial nerdy on y’all, APRN’s valuation was 1.6X 2017 EST Revenue which is much higher than the grocery industry which trades at 0.7X 2017 EST Revenue. It is much lower than eCommerce companies which trade at 3.1X 2017 EST Revenue.

The pre-IPO numbers were not very attractive:

 1. FY 2016 $54.9MM loss on $800MM gross revenue.

 2. Q1-2017 $52.2MM loss on $244.8MM gross revenue.

 3. FY 2016 marketing expense was $144.1MM. Wow!

This marketing expense is an insight into a very troubling overview — the CTA (cost to acquire) a new customer is exploding while the revenue per customer is declining whilst margin is decreasing.

That, dear friend, is a recipe for disaster. Still, the company got public and its stock is trading.

Last word on APRN — their lockup period is not close to expiring yet and the stock is getting hammered. This could get very ugly.

Amazon and meal kits

Amazon has been at the meal kit business in a subtle and sly way — it is delivering meal kits for the likes of Martha Stewart and her “martha & MARLEY SPOON” website. They are direct competitors with APRN.

The impending Amazon/Whole Foods marriage has to give anyone with a kitchen a bit of pause. Whole Foods has the 25-34 demographic under control while Amazon is the premier logistical organization on the planet. Their Amazon Pantry is not chopped liver and their ability to get you things right away is an accelerating capability.

Since we’re all accessing the same foods — maybe Whole Foods has a big buying advantage here, why not? — how does one differentiate their service?

Meal kit services are expensive with an average cost per person per meal at $10. That means a $400 price tag per month for weekdays if you buy three meals per day per person. Margins are going to become very important.

Wrap it up, Big Red Car. Where you headed?

OK, sorry. Here are some fun facts/predictions and, then, the Big Red Car will STFU.

 1. Prediction: Blue Apron does not survive. What is left a year from now, gets acquired by Amazon to buy their customer list.

 2. The meal kit delivery space gets frothy — you have Blue Apron and a myriad of midgets, soon to be Amazon/Whole Foods, martha & MARLEY SPOON, and, now, Campbell’s Soups has announced they are looking at a startup in the same space. Advantage Whole Foods as they are already huge buyers of food.

 3. The Amazon/Whole Foods meal kitting is not a huge step forward. They already have takeout in their stores. The Big Red Car often buys a scallop on wilted spinach dinner at the WF flagship.

Amazon is already handling delivery for martha & MARLEY SPOON, so there is that.

 4. The APRN IPO was a bad bit of business. Priced below last round valuation. Deflating price which barely made it out the door. Bad timing.

 5. It will take a year, but game, set, match Amazon/Whole Foods. When the lockup comes off at APRN keep your feet under you because stuff will start falling onto them.

Headed out to do some meal kitting myself @ Green Mesquite BBQ, y’all.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car — meal kit a Detroit muscle car, y’all, with a nice 10W40 on ice, eh?

 

 

  • Tim Bates

    Blue Apron is a tale told repeatedly in the halls of Innovation, you base your business model on a brand and not a unique value that others can’t chance and all you do is open a category. This enables the Amazons’ of the world to do what they do, Capture a market more efficiently based on scale reach and means.

    They do not have a unique tech advantage or path to the customer, Just another software application.

  • sigmaalgebra

    Uh, Blue Apron? That’s not like the Blue Horseshoe from the movie about Wall Street? An, nah!

    But for startup analysis 101, (A) where are the big margins, (B) where is the proprietary advantage, (C) where is the technological advantage, (D) where is the proprietary intellectual property, (E) where is the network effect, (F) where are the economies of scale, (G) where is the ability to beat competition? Little issues like those.

    I can tell you what I did for a fast dinner last night: In a 2 quart classic Farberware pot (I like so much I have a big supply still new in the unopened boxes!) I dumped in a lot of Worcestershire sauce and a lot of hot sauce (like commonly used in hot chicken wings), and a can, IIRC 18 ounces, of Campbell’s Chunky Beef Sirloin Burger soup (the one without the potatoes), and placed on low heat. In another such pot, I put 1 cup of dry, raw, long grain white rice and 2 1/4 cups of water, placed on high heat, when it simmered turned the heat to as low as possible, added a lid, set a timer for 20 minutes, got out a luncheon plate, a big spoon, a soup spoon, and a 1 1/2 quart Pyrex glass casserole dish, and started watching the old WWII Victory at Sea about how the US Navy beat the heck out of the Japanese Empire. When the timer wen off, I dumped the rice into the glass bowl and used the large spoon to get all the rice. Then I used the large spoon to push the rice aside and poured in the soup, using the large spoon to get all the soup. Then that was dinner, where the soup spoon moved some of the mixture, rice flavored with the spicy soup, to the luncheon plate and then to my mouth as I saw again what Spruence and Nimitz did at Midway.

    The soup was right at $2. The rest was not very expensive. $10 for a meal? Likely not much interested.

    But, I can get $10 for a meal now: At my local Chinese carryout, the 1 quart servings with rice make a good meal for one and go for about $10 each. I can get a nice pizza for less than $20, and half of that makes a good meal. At my local Sam’s Club I can buy a pizza, relatively large and good, for less than $10 that will make at least two good meals.

    I can get some onions, cut them roughly, and brown them in a skillet, and add them to a 2 quart Pyrex casserole dish. Then I can cut up 6 hot dogs and brown and add them to the casserole dish. Then, sure, add Worcestershire sauce, hot sauce, some yellow mustard, and two cans of Bush’s baked beans. Stir and heat in my nice microwave oven until there is some reduction of the liquid and some browning on top. Cost is much less than $10, and can get a dinner and a lunch out of it.

    Another dish is to take from Sam’s Club a 40 ounce or so can of chunks of chicken breast, drain, put it in a bowl of 2-3 quarts, stir to break up the chunks and turn them into shreds, add bottled BBQ sauce, mix, cover, and refrigerate. It keeps nicely for some months. For a fast meal, measure out 1 cup of that mixture, add some hot sauce, warm in a microwave, toast six slices of bread for three sandwiches, and get out some coleslaw. Assemble for three decently good sandwiches.
    If don’t like the chicken option, then roast a fresh picnic pork shoulder, about 10 pounds,
    on a rack, in a pan, in an oven at about 220 F,
    for about 16 hours or until the internal temperature is 170-180 F. Separate the lean chunks and continue as for the chicken.

    For the slaw, shred some green cabbage and make wet with bottled ranch dressing. The slaw will still be good for months. I’d like to know some good ways to shred common green cabbage — all the instructions I’ve seen or read so far are not even trying to be good information.

    For what Blue Apron is doing, there’s an obvious problem: It’s a local business where Amazon has little or no advantage and where local vendors can have an advantage.

    There’s another problem: IMHO, a lot of what people actually need is some cooking instruction such as here above. Some video clips at YouTube would help, too.

    The TV cooking shows and the cookbooks? They don’t want to be instructional or practical. Instead they want to be entertaining as in fictional story telling, vicarious escapist fantasy emotional experience entertainment (VEFEEE).

    E.g., I’d like to know how to make the usual dishes at the common US Chinese carryout restaurants. Indeed, I have on the back porch, just off the kitchen, a propane burner that works well with my Chinese wok. I’ve improvised a decent Moo Shu Pork, but I’d like to know MUCH more.

    If there is a market for such prep-done dishes, then the local grocery stores or Sam’s Club can do that. Heck, a neighbor could do that. For delivery, if drones can work, then anyone with a cutting board and a chef’s knife could use a drone for the delivery.

    Ah, put a Web server in the microwave oven and the stove. On the way to work, put the pots, casserole dishes, etc. in place. Then at work use a Web browser to start the cooking and monitor it. Then have the hot dinner, e.g., a great pot roast, done when get home.

    You mean some people actually spent good money investing in Blue Apron?

    Big question: Just where did they get that really strong funny stuff they’d been smoking.

    Bigger question: How come they have so much money to throw away?

    • SFG

      Your (H) is “in the cross-hairs of Amazon”. I wish them luck. But we’ve seen the blue apron story before. The banksters should have never taken this flying pig public in the 1st place and everyone knew it!

      • sigmaalgebra

        Looks like a Big Short!

  • SFG

    Great post as usual. Never even heard of blue apron. We were right about SNAP falling on it’s ass, and no doubt you are correct that APRN is just going to be a fly on AMZN’s windshield. For that matter, I’d rather put cooked food into a box and bring it home to eat, versus dealing with cooking the box of ingredients (as foo-foo organic as they MIGHT be) . And WP does the cooked food thing rather well. Looking forward to some positive changes coming soon to WP. I don’t mind paying up for Amazon’s service.

  • JLM

    .
    Blue Apron? Going to get ugly now that Amazon has signaled its entry into the meal kit business, no?

    http://themusingsofthebigredcar.com/blue-apron/

    How ugly? $2/share and the company doesn’t survive as an independent entity beyond a year from now.

    BRC
    http://www.themusingsofthebigredcar.com

    #blueapron #amazon #wholefoods #mealkitindustry