Blue Apron (NYSE:APRN) posted its second consecutive disappointing earnings report on February 18. The meal-kit provider posted earnings per share (EPS) and revenue that were both significantly lower than analysts’ expectations.
This is the second consecutive quarter the company has missed on both the top line and bottom line. However just looking at the revenue side, it is now four straight quarters that Blue Apron has not hit analysts’ revenue targets.
And to make matters worse, the company continues to miss despite the fact that analysts have been lowering their revenue expectations every quarter.
A Good Idea Isn’t Enough
I’ve never used Blue Apron, but I know others that have. I respect the concept. I do believe there is an audience of time-starved consumers who don’t lack the desire or ability to cook, but they don’t like the meal planning process.
The problem that is becoming apparent is that there are not enough of those people to make Blue Apron a viable entity.
But that’s not the only reason. One of the selling points of Blue Apron was that it would be easy for consumers to channel their gourmet ambitions. Following step-by-step instructions paired with quality ingredients would create a culture, if not a country, of home cooks.
But this is where Blue Apron ran into problems. Some of these problems they couldn’t foresee and others were hiding in plain sight.
First, the company couldn’t have foreseen that the idea of having fresh ingredients sent to your home would be a catalyst for grocery stores to change their business model. Grocery shopping for many consumers is now about curbside or even home delivery. So one of the time-consuming parts of meal preparation is now less time-consuming.
Some people say this change came about because Amazon (NASDAQ:AMZN) acquired Whole Foods. But I think the seeds were sown when a company like Blue Apron started to give discriminating consumers an alternative to grocery shopping. Blue Apron tapped into an idea, it was just an idea that they couldn’t protect.
Second, many consumers are discovering that they really just don’t like to cook. I believe part of this has to do with the rise of programming such as is found on Food Network. Consumers have elevated expectations of what weeknight dinners are supposed to look like. And if they can’t produce at that level, they don’t want to try.
And part of it is that consumers can now have prepared food delivered to their door from their phone. The rise of meal delivery services is creating yet another layer of competition for Blue Apron. Why should consumers try, and possibly fail, at a recipe when they can have something delivered that they know the whole family will enjoy.
Blue Apron Never Had a Moat
From the beginning, Blue Apron was not alone in the meal kit space. Before Blue Apron issued its ill-fated initial public offering (IPO) in 2015, there were already multiple names like HelloFresh, Plated, Sun Basket and Home Chef competing in the same space. And now Walmart (NYSE:WMT) and Kroger (NYSE:KR) are among several grocery chains who have come up with their own meal kits. This is giving consumers the benefits of meal kits without the commitment, and some would say hassle, of a subscription service.
But unfortunately for Blue Apron, their supply chain – which is already stretched – doesn’t work without a subscription service. And that gets the crux of the issue for Blue Apron. The company has a revenue problem. They can perhaps find ways to shave costs here and there. Ultimately, they need to have revenue. And there simply does not appear to be enough of it.
A Recipe for Disaster
I mentioned above that I like the concept of Blue Apron. If my budget and lifestyle accommodated it, it would be fun to try. I like to cook. But that’s just it. Spending nearly $60 for two meals a week (for two) can be a bit pricey in any economy, particularly when you’re competing with other options.
As an investor, you have to consider that Blue Apron is missing on declining revenue expectations in the middle of one of the strongest economies the United States has ever seen. If ever there was a time that consumers might be willing to extend themselves for something like a meal kit service, it would be now. But they aren’t. Or if they are, they’re using lower cost (and perhaps lower quality) services.
And that is a recipe that makes the Blue Apron model, and ultimately the stock, unsustainable. The company has essentially been on red alert ever since its initial public offering (IPO) in 2015. If Blue Apron is going to survive it may be as part of another company.