Blue Apron May Have Just Saved Its Business

Blue Apron (NYSE: APRN) was headed to the dustbin of relevancy as the value of its meal kit delivery business withered away, but the one-time industry leader may have just salvaged its survival.

After fourth-quarter revenue tumbled 13% to $188 million and the number of customers it served fell 15% to just 746,000 -- down from over 1 million at its IPO -- Blue Apron announced it would be making its meal kits available in supermarkets, in addition to its delivery service.

Getting a seat at the table

Most shoppers still prefer to go to the store to buy their groceries, and Blue Apron was at risk of seeing whatever market it had left sucked dry by supermarkets offering lower-cost meal kits of their own in the stores.

Earlier this month, Walmart announced it would roll out to all its stores this year its own meal kits that would feature premeasured and prepped food ready to cook. It follows Kroger's decision to expand the availability of its own meal kits in its grocery stores and Albertsons' acquisition of meal-kit delivery rival Plated.

Worse, better-known brands were also getting into the meal kit business. In 2016, Martha Stewart launched her own meal kit partnership with Marley Spoon, which began delivering Martha & Marley Spoon in June 2016. Martha & Marley Spoon meal kits became available through Amazon Fresh in March 2017. Weight Watchers just announced that it, too, would be offering its own branded meal kits in stores.

No doubt there are risks with Blue Apron's decision to move its meal kits into the grocery aisle. They will be just another commoditized product featured alongside a growing list of other meal kits (Blue Apron didn't reveal when or where it will start selling its kits in stores), and the premium it charged will likely shrink considerably. Yet the exclusivity of its previous business model was already fleeting and simply not sustainable.

Operating losses tripled last year as it sought to expand and bring more customers in, but it ultimately gave up on those efforts as customer acquisition costs were simply too high. By making itself available in stores, it will be cheaper for Blue Apron to get new customers, or as CEO Brad Dickerson told The Wall Street Journal, "The access to consumers is much broader in this avenue than the avenue we've been operating in the past."

Meals on wheels

While Blue Apron's lack of a competitive moat was revealed by the marriage of Amazon and Whole Foods Market, which joined arguably the best delivery service with the premier name in groceries, the meal-kit delivery business itself has largely proven itself to be a niche market with a finite set of well-heeled customers.

The delivery that Blue Apron offers is a nice touch, but it's a pricier option. Few customers want to spend $60 to $80 per week for three meals, and having meal kits in-store makes them available to a mass audience.

Despite making its kits available in stores, Blue Apron is still not a good investment yet and a buyout probably remains its best hope for salvation. But by taking the mass consumer approach, it may have saved the company from the road to oblivion it was heading down.

Editor's note: This article has been corrected to show that Martha & Marley Spoon meal kits are not stocked in stores.

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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. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN. The Motley Fool has a disclosure policy.