Amazon And Whole Foods Could Cut Blue Apron's Strings

Convershaken Staff
July 7, 2017

Blue Apron has grown rapidly in recent years, but the meal-delivery start-up may not offer "a better way to cook" once Amazon and Whole Foods join forces.

The business - which sends boxes of pre-portioned ingredients and recipes to subscribers, allowing them to cook several meals a week - publicly listed its shares in late June. Blue Apron's bosses cut their asking price from $15-$17 per share to $10-$11 just before the IPO, after Amazon announced its $13.7 billion takeover of Whole Foods. That wasn't enough for investors, who have slashed its share price from roughly $10 to $8, lowering its market valuation by a fifth to $1.5 billion.

The retreat is partly a reaction to a big price tag: Blue Apron is still valued at more than double its net revenue of $795 million in 2016. The aggressive valuation reflects the company's rapid growth: net revenue more than quadrupled between 2014 and 2015, more than doubled between 2015 and 2016, and rose 42% year-on-year in the first quarter of 2017. 

However, the growth surge hasn't come cheaply. Blue Apron's marketing costs soared more than tenfold to $144 million between 2014 and 2016, and it spent $60.6 million on marketing in Q1 2017 - exceeding its entire budget for 2015. Combined with sharp increases in other operating expenses, those costs have widened Blue Apron's net losses from $30.8 million in 2014 to $54.9 million in 2016, and $52.2 million for Q1 2017 alone.

Blue Apron is spending aggressively to fuel growth and its losses are widening. But the bigger concerns are scale and competition. The company is relatively small: it delivered roughly 4.3 million boxes to 1 million customers in Q1 2017, with an average order value of around $57. Meanwhile, an estimated 50 million Americans subscribe to Amazon's Prime subscription service. And Whole Foods has more than 460 stores across the US, UK and Canada, and turned over $3.7 billion in its latest quarter.

Investors in Blue Apron fear Amazon will marry its logistics expertise, vast distribution network and huge customer base with Whole Foods' premium brand, supplier relationships and stores, supercharging its AmazonFresh grocery-delivery service. Blue Apron's main selling point - delivery of the right amount of high-quality ingredients with an easy-to-follow recipe card - could prove less appealing to customers than the ease and familiarity of Amazon and Whole Foods' reputation for quality produce and ethical sourcing, especially if Amazon slashes Whole Foods' notoriously high prices (the company's nickname is "whole paycheck"). It's also easy to imagine Amazon creating a copycat service and snatching Blue Apron's customers.

Blue Apron has tried to diversify its business by expanding into wine delivery and creating an online marketplace for kitchen utensils; Amazon already offers both. It emphasises quality, value, variety, convenience, sustainable farming and ethical sourcing as key elements of its offering; Amazon and Whole Foods cover all those bases between them. The pair are threatening to steal Blue Apron's lunch; if it isn't careful, its "community of home chefs" could soon become a lot smaller.