Dive Brief:
- Blue Apron CEO Matt Salzberg told CNBC that despite the impact Amazon’s acquisition of Whole Foods had on his company’s initial stock listing, he thinks the deal will be “good for us.” He noted the online retailer’s potential to evolve food delivery, but also noted Amazon’s struggles to crack the grocery market.
- Prior to yesterday’s listing on the NYSE, Blue Apron slashed its IPO price to $10 a share from a prior range of $15 to $17. Investor fears around Amazon’s $13.7 billion pending acquisition of Whole Foods are believed to be a major factor. Blue Apron’s IPO raised $300 million on Thursday.
- Salzberg noted Blue Apron’s vertically integrated supply chain and the exclusive deals it gets on 70% of the food it sources as key factors to its current and future success.
Dive Insight:
Salzberg’s comments put a positive spin on what has no doubt been a frustrating situation for the nation’s leading meal-kit provider. Blue Apron’s initial $510 million valuation reflected the company’s need to raise capital in an intensely competitive industry. Just this week, it had to cut its estimated share price by one third after investors grew concerned that an Amazon-Whole Foods deal would introduce a new level of competition into the space.
Right now, that threat remains in the abstract. Amazon currently offers a limited selection of meal kits through various providers. Whole Foods also offers meal kits through Salted and has tested other providers in the past. The combined companies will likely deepen their investment in the category, but to what degree remains unknown.
It’s also true, as Salzberg noted, that Amazon has struggled to scale its grocery delivery services to date. In the ten years since it started AmazonFresh, the company has only expanded to 16 markets. The online retailer adds a new dimension to its e-commerce strategy with an estimated 460 Whole Foods stores, but many other supermarkets have struggled to make money with online shopping through similarly large store assets. Many people assume Amazon will crack the code of grocery e-commerce, but that’s not a given at this point.
On the other hand, no company in the grocery industry has Amazon’s capital, not to mention its technical and logistical expertise. In addition, most grocers do not share Amazon’s willingness and ability to experiment.
For the time being, Salzberg should be very concerned about the meal kit growth Amazon could fuel inside Whole Foods’ stores. Across the industry, grocers such as Kroger and Publix are bringing meal kits into their stores. According to Nielsen, meal-kit sales in U.S. grocery stores totaled $80.6 million last year, with further growth expected.
Home delivery of meal kits is innovative, but it’s not necessarily the most convenient solution. If someone is already shopping Kroger, they may find picking up a meal kit from those stores to be most convenient.
There are other worrying signs for Blue Apron — namely, that the company is losing money. Order frequency and spend per customer has gone down since 2014 while the company’s marketing costs have gone up. Blue Apron needs to greatly expand its footprint or at least get its current customers to order more food. This is a tough proposition, and it opens up the prospect of alternative revenue streams. Could Blue Apron partner with a retailer — perhaps Whole Foods? With meal kit demand growing and companies desperate to stand out, the prospect doesn’t seem all that farfetched.