Blue Apron (NYSE: APRN) reported disappointing earnings results last week. While its revenue came in above expectations, it reported a bigger loss per share than most were hoping for.
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But that's not even the bad part of Blue Apron's report.
The company's net income results were below expectations because it's facing difficulties ramping up its new Linden, New Jersey, fulfillment center. The problems have caused increased order mistakes and late deliveries, leading to lower customer retention rates.
In the meantime, Blue Apron has cut back on marketing spend, as bringing in new customers at this point doesn't make much sense considering the fulfillment issues. Without its huge marketing spend, Blue Apron showed a 93,000 sequential net loss in total customers.
All of this led to an extremely disappointing outlook for the second half of 2017. Management expects revenue between $380 million and $400 million, which is actually less than it made in the second half of last year.
With Blue Apron resetting and fixing its logistics issues, it opens the door for the competition to steal its customers away. There are dozens of small competitors vying for Blue Apron's customer base, but the real threat comes from big retailers. Amazon (NASDAQ: AMZN) is already testing meal kits, and the addition of Whole Foods Market (NASDAQ: WFM) stores later this year could allow it to scale very quickly.
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Blue Apron's biggest problem is Amazon's biggest strength
While Blue Apron's struggles stem from its ability to improve automation and scale its operations, that's basically Amazon's core business. Whether it's fulfilling retail orders, serving enterprise computing, or helping merchants store and sell goods, Amazon is really good at scaling businesses and using automation to do it. For example, Amazon uses robotics in its warehouses to make its workers more efficient and accurate.
Amazon is great at integrating technology into the retail experience. That's exactly what Blue Apron is trying to do with its Linden fulfillment center, but it's not as easy as Amazon makes it look.
Amazon's latest foray is into groceries. It experimented with a cashier-less retail format for groceries earlier this year. Some are speculating some of that technology could eventually find itself a home in Whole Foods stores after Amazon's acquisition is complete. More likely, though, is that Amazon will put some of its automated fulfillment technology in the back of Whole Foods stores to expand its grocery delivery service.
Amazon already has the basics of the technology Blue Apron is trying to develop. With the addition of Whole Foods, it'll have immediate scale for grocery purchasing and delivery.
The time to strike is now
Amazon has already expressed interest in meal kits, but it's been very slow with its rollout of its grocery delivery business AmazonFresh. Since launching the program ten years ago, Amazon has only expanded it to 16 cities. Granted, it's increased the pace of new cities in the last couple years, it's still not even close to a nationwide service.
If Amazon is serious about meal kit delivery, it needs to act quickly to take advantage of the opportunity Blue Apron is providing. Blue Apron CEO Matt Salzberg told analysts that he believes the company has identified the problems it's facing with the transition to Linden. While it might take a couple of quarters to rectify the issues, Blue Apron is clearly dedicating its resources toward solving the problem as it takes a break from attracting new customers.
Amazon has taken big leaps before. Most recently, it expanded Prime Instant Video globally from just a handful of countries. While taking things slow to learn and perfect processes is Amazon's preferred strategy, the opportunity right now is too good to pass up.
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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Whole Foods Market. The Motley Fool has a disclosure policy.