Blue Apron Shares Hit New Low, As Anyone Can Do 'Meal Kits,' Even Walmart
Summary
- Former unicorn gets trampled.
- More than 150 startups and the grocery giants are targeting the same business.
- But Americans are not so convinced.
Shares of Blue Apron (NYSE:APRN) dropped 5% Monday morning to a new low of $2.59 after Walmart (WMT) announced that it would expand its presence in the meal kit market. "One-stop meals," it calls them. They're part of its offering on its website of "meal kits, farm crates and specialty food boxes." The company said the meal kit offering would expand from the 250 stores where it has already rolled out the service to 2,000 stores.
Walmart combines the online ordering process with its vast brick-and-mortar presence and global supply chain. So, it has a better chance of making money in this niche than Blue Apron. These meal kits would serve two people and range from $8 to $15 a box. A check on its website for meal kits reveals prices upward of $30 for two to four meals with "free shipping."
Walmart belatedly has made mega-efforts to not get run over by e-commerce in general and by Amazon (AMZN) in particular. It has been investing in its online grocery business. Sam's Club announced last week that it partnered with Instacart to offer food delivery in several states. It's also rejiggering some of its suddenly shuttered Sam's Club stores into distribution centers for the online grocery business.
Supermarket chain Albertsons Companies (ABS) piled into the meal kit market in 2017, when it launched same-day delivery and "Drive-up & Go," and when it acquired meal kit startup Plated. In November, Albertsons announced that it was partnering with Instacart to offer "nationwide on-demand grocery delivery service" with "deliveries in as little as an hour."
Kroger (KR) announced last December that it was expanding its meal kit service, which it had rolled out earlier in 2017, to 200 stores. These "Prep+Pared Meal Kits are a growing part of Kroger's Our Brands portfolio," the company said.
Target (TGT) announced last December that it had acquired Shipt, a same-day grocery delivery service active in over 70 markets in the US. A competitive meal kit offering will likely follow.
Amazon hasn't yet announced a full-blown meal kit service, though it has experimented with it. But the company announced in February that it would start grocery deliveries from its Whole Foods stores via its two-hour Prime Now delivery service. And meal kits can't be far behind.
Among the meal kit startups, Blue Apron is still the largest in terms of market share, but its share is dropping, hounded by an ever-increasing number of competitors, including the German meal kit company HelloFresh (FRESH) that managed, like Blue Apron, to get an IPO done last year. There's Home Chef, Sun Basket, Green Chef, Purple Carrot, Gobble, Marley Spoon, MealPal...
In short, 150 meal kit startups were founded over the past five years, according to a report cited by the Wall Street Journal in January. It's easy to create the app, but it's hard to deliver fresh ingredients on such short notice on time. And it's impossible to make money doing this, given the costs of logistics, the costs of customer acquisitions, and the lack of economies of scale. A number of these startups have shut down after they burned through their investors' money.
Meal kit customers appear to lack a sense of consistency and loyalty, according to another report cited by the WSJ: "An estimated 70% of customers of Blue Apron Holdings Inc., the largest such provider, stop regularly buying its meals six months after signing up, while more than 80% of HelloFresh S.E users weren't active."
The venture capital community has finally gotten the memo. "We are not funding meal kits, and I don't know a single VC that is actively looking at the space," Ian Sigalow, co-founder of Greycroft Partners, told the WSJ. His firm was a lead investor in Plated that was taken off their hands by Albertsons. Lucky them.
Nevertheless, in 2017, about $274 million was invested in 18 meal kit companies. While that's down from a peak of 25 deals totaling $308 million in 2015, it still way above zero. So, as of last year, investors were still buying the hype. That may not be the case anymore this year.
Meal kits had become one of the many hyped investment opportunities that would change the world and the way we live, or whatever - only to flounder once reality set in.
Whether meal kits are going to remain a thing or get folded into online grocery and delivery services, one thing is for sure: there are zero barriers to entry, and if Americans like using this service, all the giants in the grocery business will jump into it. Another thing also may be true: these services may remain a money suck forever due to the logistics involved and the prices people are willing to pay.
Blue Apron was valued at $2 billion during its last round of funding in June 2015. It was one of the most hyped unicorns that would change the world. But by the time its IPO was promoted in June 2017, enthusiasm had already waned, and the IPO price was cut from a range of $15-17 a share to $10 a share. Just months after the IPO, the company started laying off workers and shutting facilities, as it was running low on cash.
At the price this morning of $2.59 a share, Blue Apron's market capitalization has dropped to $500 million, down 75% from the "valuation" during the last round of funding. There are still hopes that another big retailer will buy it, but those hopes are fading every time a big retailer, such as Walmart today, goes another route.
Despite protestations to the contrary, the brick-and-mortar retail meltdown continues with a mechanistic air of inevitability. Read... "The Brick & Mortar Retail Meltdown, February Update."
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