Dive Brief:
- Kroger’s announcement that it will buy meal kit company Home Chef last week lifted rival Blue Apron’s shares by more than 5%, fueling rumors of a buyout.
- According to Markets Insider, analysts have previously implied that Blue Apron’s best chance for recovery would come from a buyout by a bigger company. Blue Apron has been one of the worst-performing IPOs in recent years, down more than 75% since going public last summer.
- Blue Apron had some momentum prior to Kroger’s announcement, with shares rising on the news of a new CFO, better-than-expected financial results and a new pilot with Costco to get in front of more customers.
Dive Insight:
Analysts have been speculating about a potential buyer for Blue Apron for months, noting that the company’s well-documented lackluster performance means it can’t survive on its own.
There have been some glimpses of a turnaround recently — a new CFO, a pilot program with Costco, a promotional partnership deal with celebrity spokesperson Chrissy Teigen and “unboxed” popup events throughout the country. The new approaches to marketing with the Teigen deal and popup events are particularly intriguing, as high marketing investments have been a major hindrance for the company. Blue Apron spent $144 million to acquire new customers in 2016, up from $14 million in 2014.
If a retail company were to acquire Blue Apron, the meal kit company would benefit significantly from having shelf exposure to shoppers, providing a boost to their bottom line and reigning in marketing costs.
The acquisition rumor mill keeps coming back to Walmart, which finally jumped into the meal kit category in March with three different styles of product. Walmart executives noted they didn’t want to enter the space until they were fully comfortable. While Walmart now has a presence in the category, it’s not particularly sophisticated — offerings include spaghetti and meatballs, chicken enchiladas and meatloaf.
Prepared meals and meal kit competition is too tight to contend with a forgettable product. Blue Apron’s culinary prowess and deep portfolio (and history) could give late-comer Walmart a strong tailwind to catch up to the competition and could either complement or replace its existing meal kits.
But a suitor would have to overlook Blue Apron’s baggage — including subscription losses, executive turnover and high operating costs. The company itself noted in its IPO filing that it “may be unable to achieve or sustain profitability.” Walmart has deep enough pockets to take such a risk for the benefit of its own competitive advantage in the category.
The continued growth of meal kits, recent acquisitions from big players and the success of rival HelloFresh (which just passed Blue Apron as the market leader in the U.S.) show there is still a lot of interest in this space. However, that interest may be waning a bit — according to research firm Second Measure, growth in meal kits industrywide increased 10% year over year, versus 76% the previous year. If this trend continues, Blue Apron’s best hope for growth — and even survival — may lie in an acquisition.