3 Companies That Could Eat Blue Apron's Lunch

Blue Apron (NYSE: APRN) seemed to pick the worst time to go public last June, just weeks after Amazon (NASDAQ: AMZN) bought Whole Foods. And since then, the grocery sector has been a hot spot for deals and partnerships as big names like Amazon and Walmart (NYSE: WMT) race to stay ahead of the pack.

As part of the increasingly competitive grocery environment, all the big names are suddenly expected to have a meal-kit delivery service. This has been dangerous for Blue Apron: Because meal kits are the only service it provides, if it fails to make money off meal kits, it's in trouble. By contrast, Walmart and Amazon have many revenue-stream options.

While Blue Apron may not enjoy the competition, at least it should take solace in the fact that these big names must believe meal kits are not a passing fad. Amazon and Walmart are presumably aware of the revenue potential from the meal-kit market, which research firm Packaged Facts values at $5 billion.

As Blue Apron looks to close its first year as a public company in about three months, things aren't looking much better than they did last June. The meal-kit market, which was once a place for small start-ups, is being overtaken by larger companies with more money, a larger customer base, and better delivery logistics. Here are three of those companies.

1. Weight Watchers

Weight Watchers (NYSE: WTW) filed a patent application for "fresh smart portions delivered" in September. Any hope Blue Apron had that Weight Watchers had lost interest in this pursuit was dashed on March 8 when Weight Watchers announced that its meal kits would be sold in partnership with FreshRealm, which distributes meal kits in its refrigerated shipping pods, at grocery stores in the second half of 2018. Blue Apron's stock fell over 16% that day to $2.07.

The Oprah Winfrey-backed company may be joining the meal-kit game years after Blue Apron, but it's still light years ahead in many ways. And that underscores one of Blue Apron's largest headaches: Despite getting in on the meal-kit game back in 2012, that hasn't given it a leg up on more recent entrants. There's nothing preventing bigger names from jumping into the game a hundred paces in front of where Blue Apron had to start out.

Just look at the current revenue growth at the two companies. Weight Watchers reported 17% year-over-year growth in revenue to $312 million in the past quarter. Meanwhile, Blue Apron's revenue stumbled 13% year over year to $187.7 million in 2017's fourth quarter.

While Weight Watchers hasn't yet released its meal kits, it's bound to take some of Blue Apron's market share when it does. And Blue Apron is already struggling with subscriber growth. While Weight Watchers posted a 23% year-over-year gain in subscribers to 3.2 million in the latest quarter, Blue Apron saw its customers decrease 15% year over year (and 13% quarter over quarter) as it lowered its marketing spend and laid off hundreds of workers.

2. Walmart

Walmart caused a stir when it first started selling meal kits in December. The company must be pleased with the results so far because last Monday, March 5, it announced that it would expand the sales of meal kits from 250 stores to 2,000 stores this year.

Customers even have the option to order a meal kit online at lunch and pick it up on their way home form work for dinner time. That's a significant advantage over Blue Apron, which requires its customers to select a delivery date based on their zip code.

It's not all that surprising to see Walmart making aggressive moves into the online-grocery space considering its $3.3 billion purchase of online retailer Jet.com back in the second half of 2016. In recent years, Walmart has spent billions to boost its online presence, including the purchase of online brands Bonobos and Modcloth.

The efforts are paying off for Walmart, which reported a 23% increase in e-commerce sales, including a 44% increase in online sales in the U.S. Walmart is also seeing encouraging results in its physical stores. The company reported a 2.6% increase in same-store sales last quarter, marking its 14th consecutive increase. In addition, same-store traffic was up 1.6%.

"Existing customers have become advocates for popular initiatives like online grocery and free two-day shipping, and as a result, new customers, suppliers and partnerships are coming to Walmart," CEO Doug McMillon said during the earnings call.

Walmart's focus on online-retail logistics and operations means delivering meal kits in a convenient and fast manner, akin to Amazon Prime deliveries, is something that's well within its grasp.

3. Amazon

Amazon is well-known as the top online retailer that's nailed down fast deliveries and low prices. But one of its best advantages over Blue Apron is its large base of Prime subscribers. For Blue Apron, acquiring new customers is a costly task. Blue Apron claimed in its IPO filings that the average cost of acquiring a subscriber was $94. But estimates from third parties suggest it could be as high as $460. Meanwhile, Amazon has an estimated 90 million U.S.-based Amazon Prime subscribers, according to an October report from Consumer Intelligence Research Partners.

Once Blue Apron gains new customers, it has to figure out the logistics of accommodating more orders. Last November, Blue Apron was having issues at its fulfillment center in Linden, New Jersey. The company said that the center was weighing down its profits because it was new.

Amazon, however, can use any of its fulfillment centers that are already up and running like well-oiled machines to send out meal kits. The company first started testing a meal-kit delivery service in Seattle, the home of its headquarters, last summer. In addition, Prime members in four cities are now eligible for free two-hour grocery deliveries from Whole Foods, and Amazon plans to expand this program by the end of 2018.

Watch out for what's next

Each of these three companies is working hard to go after the same market that Blue Apron is counting on. Whichever one proves most successful could end up leaving Blue Apron with nothing to do but clear the table and wash the dishes.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.