- Blue Apron raised $300 million from its initial public offering on June 28, but this amount, coupled with the company's borrowing capacity, may only sustain it for another year, reports Bloomberg.
- The company's IPO raised just two-thirds of the $510 million that it had initially targeted. Since the stock went live, the market has proved anything but bullish as Blue Apron's share price has already lost 20% of its value after a week of public trading. Experts say the company may need a secondary offering.
- Prior to its IPO, Blue Apron has relied on outside funds from Fidelity Investments and Bessemer Venture Partners, as well as a revolving credit facility to fuel its growth.
Blue Apron is spending a lot of money to acquire customers, which gains valuable market share — but also puts it deeper in the red. The meal kit-delivery service has already acknowledged it requires more cash to sustain operations let alone pay down any debt. Is the unprofitable Blue Apron a wise investment? And should another round of public funding fall through, what other avenues are available?
The company, founded in 2012, noted several risks in its company prospectus — including the high cost of acquiring and retaining customers, changing consumer preferences and the possibility that it may never post a profit. Company revenue grew from $78 million in 2014 to $795 million in 2016, but at the same time its losses increased to $55 million last year from $31 million two years earlier.
A huge concern is that about a fifth of Blue Apron’s spending goes towards getting people to try its services. Marketing expenses increased 180% last year, well outpacing revenue gains of 133%. This upside-down and unsustainable business model operating in an increasingly crowded and competitive online food delivery market is not exactly what one would call a Wall Street darling.
Blue Apron’s stock is already down about 20% since its IPO, closing at $8.06 a share Thursday from its IPO price of $10 a share last week. Following its IPO, the company is using the money for company operations rather than paying down its debt. A secondary offering is in the works, but the company could face an uphill battle in getting investors to bite. Instead, it may be forced to increase borrowing under its revolving credit facility yet again.
Despite the name appeal and being a leader in a popular category, Blue Apron's financial challenges are only likely to worsen as more retailers enter the space and the company is forced to get more aggressive in acquiring and retaining customers. These early challenges don’t bode well for other potential IPOs in this space, either. Organic food delivery service Sun Basket, founded in 2014, could very well reconsider its plans for an IPO later this year.
As a result, consolidation in the meal delivery industry could come much sooner than anyone may have thought. Already, startups Sprig, SpoonRocket and Maple Food have closed operations. Mergers among surviving players could make some sense going forward. Besides Blue Apron, the list includes venture capital backed Chef'd, Gobble, HelloFresh, Plated, Purple Carrot, Salted and Sun Basket, among others.
An acquisition by a bigger player could be another scenario worth considering. Several grocers including Kroger, Publix and even Amazon have been looking to do more with meal kits and home delivery. Several food companies such as Hershey, Conagra and Campbell have entered the space as well, and many manufacturers are starting to partner with grocers on meal kits.
A company like Blue Apron certainly could whet the acquisition appetite for big food companies and potentially provide a new growth stream. It will indeed by interesting to watch how it plays out in the evolving food industry.