The Musings of the Big Red Car

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?