If you pay attention to the stock market, you may have noticed a new company on the New York Stock Exchange. Blue Apron, a meal kit delivery service, joined the market back on June 29th. It opened at $10 per share, but has since dropped to $7.41 as of the market opening on July 20th (Check out how it’s doing today at https://finance.yahoo.com/quote/APRN?p=APRN).
Why has it struggled? First, let’s get a good understanding of what Blue Apron provides customers.
Launched in 2012 by Matt Salzberg, Ilia Papas, and Matt Wadiak, Blue Apron eliminates the middle man to deliver fresh food that users can create with an in-home cooking experience. Blue Apron markets to those who are tired of eating out and value the in-home cooking experience that comes with making food with the family or someone special.
It emphasizes the farm-to-table concept and aims to eliminate food waste.
Meal kits start as low as $8.99 per serving for a family of 4.
Here’s an outline of their plans:
|2 Person Plan||Family Plan (serves 4)|
The meal kit comes packaged in a refrigerated box so the food stays fresh.
Blue Apron also offers a wine delivery service that come with suggestions for pairing wine selections with recipes.
The site includes prep time, cooking tips and techniques, tools from the test kitchen (to buy), ingredients, and instructions for recipes.
Addressing Blue Apron’s Customer Base
Blue Apron takes some key metrics into consideration in analyzing their data. They calculate the number of customers “by counting the total number of individual customers who have paid for at least one Order from Blue Apron across our meal, wine or market products sold on our e-commerce platforms in a given reporting period.”* Here are some other metrics they use:
|Average Order Value||Mix of product offerings chosen by customers, mix of promotional discounts, and purchasing behavior|
|Orders per Customer||Customers’ purchasing patterns, including repeat purchase behavior|
|Average Revenue per Customer||Customers’ purchasing patterns, including repeat purchase behavior|
Blue Apron has discovered that 92% of their net revenue for 2016 and through March of 2017 has come from repeat customers.* Repeat customers are valuable to any business.
First of all, it is much cheaper to retain a customer than obtain a new one. Secondly, repeat customers will often act as an advocate for your business if they had a positive experience.
Blue Apron is also aware that it experiences seasonal trends in sales. Seasonal trends refer to the business cycle that a company goes through, having more sales in one quarter than another quarter.
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For Blue Apron, it recognized that the first quarter is the time when it experiences the most customer engagement. Thus, the first quarter will also have the highest marketing expense as a percentage of revenue.
Blue Apron is on track to spend much more on marketing in 2017 than it has in the past:
|Marketing Budget (in millions)||% Increase|
|3 months ending March 2016||$16.5||N/A|
|3 months ending March 2017||$50.0||303%|
Now, why would Blue Apron want to be registered as a publicly traded company and go through the costly and detailed process of an IPO?
This post on Investopedia gives some basics of an IPO.
The main reasons to do so are that an IPO creates capital for the business and can present a sense of credibility to the public. Companies must comply with detailed federal regulations and disclose their financial statements to the public.
Publicly traded companies also have more liquidity for investors.
From a numbers perspective, Blue Apron has struggled. According to an article by the New York Times, it has never been profitable despite growing sales each year and suffers from some company abandonment- 60% of users quit after 6 months.
Much of its costs have come from advertising and trying to grab a significant share of the competitive meal-delivery service market. Podcast advertising is a large expense for them.
|Ratio||2015||2016||2017 (Thru March)|
|Debt to assets||31.54%||77.52%||96.59%|
Looking at a few financial ratios, we see that although it is true Blue Apron has never been profitable, they seem to be moving in the right direction when looking at profit margin, but that could change for the rest of 2017.
WATCH: Blue Apron CEO says we've grown our business 10x in past 2 years
Areas of concern are the falling current ratio and quick ratio which measure a company’s ability to meet current liabilities. They have both fallen over the past 2 years, so hopefully the influx of cash from the IPO can help with this.
Blue Apron faces a lot of competition, which is part of the reason it’s stock price has struggled.
Some of the main players in the meal kit delivery service are HelloFresh, Home Chef, and PeachDish. The market it is competitive, and One reason analysts have pointed to is Amazon’s deal to buy Whole Foods for $13.7 billion.
As a brand, Blue Apron must look to distinguish itself from the other meal kit companies. Businesses in this industry can separate themselves by their brand, reputation, customer satisfaction, price, product quality, reliability and timely fulfillment, and flexibility.
Most of the plans are similar in price, and it is often up to cooking experience, customer service, and packaging to distinguish among the competition.
Blue Apron has tried to do so by developing a line of wines that pair well with recipes, but HelloFresh also did so as of May 2017. Blue Apron has a “Market” where users can buy supplies that Blue Apron cooks with in its test kitchen.
While the “Market” seems like a good idea, it cannot compete with a company like Amazon when it comes to providing retail products.
For example, Blue Apron’s Market offers a non-stick pan for $99. Amazon has the same pan for the same price, but if users are seeking lower prices, they can find a similar product for as low as $26.83 elsewhere on Amazon. My suggestion would be for Blue Apron to stick to what they mainly offer.
Maybe instead of offering products it uses, it could start to offer the farm-fresh ingredients it uses in recipes for consumers to purchase individually. However, as a business expands its products and area of service, the number of competitors also increases.
In conclusion, we are not trying to persuade you to invest in Blue Apron.
By thinking about the logistics and marketing aspects of the company, you can learn as an entrepreneur. Blue Apron knows the type of customer it attracts and uses specific metrics to measure customer attributes. When we do financial modeling for customers at ProjectionHub, we take these factors into consideration.
What to expect from Blue Apron's IPO
Each plays a critical role in developing an idea for how much revenue your business will be able to accumulate. In starting your own business, you need to be able to track what customers purchase and how much they are willing to pay for products.
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Knowing what marketing tactics bring in the most revenue allows you get the most return on investment. Analyze your market. What does the competition do, and how can you distinguish yourself from it?
*The numbers and much of the data in this post about Blue Apron were found in it’s initial prospectus filed with the SEC at https://www.sec.gov/Archives/edgar/data/1701114/000104746917003765/a2232259zs-1.htm#ca16601_prospectus_summary.
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Filed Under: Financial Modeling, Market Potential, News