How coronavirus pandemic delivery surge gave new life to Blue Apron

A delivery set of Blue Apron Holdings Inc. meal kits is located outside a home.

Dan Acker | Bloomberg | Getty Images

Blue Apron has been on a roller coaster ride since its IPO in 2017. The stock of the meal kit delivery company first flirted with potential write-off in 2018 when it fell below $ 1. , and it was back around $ 2 in March just as the market bottom stock. Earlier this year, it was reported that a number of options were being considered just for staying alive, including private ownership or even the sale of the business.

At the end of the fourth quarter of 2019, the company had just over 350,000 customers, down 9% from the previous quarter. Blue Apron CEO Linda Findley Kozlowski has recognized the “strategic alternatives” that the company has considered since assuming the role of CEO in April 2019. But since then, the world has been rocked by Covid-19 and economic repercussions.

As negative as these repercussions were, state governments imposed restrictions on on-site shelters throughout the pandemic, making delivery companies like Blue Apron an essential service in the coronavirus economy. According to Nielsen dataAmerican customers spent approximately $ 100 million on meal kits for the month ending April 11, nearly double sales for the same period in 2019.

Blue Apron’s growth has been limited compared to its competitors, such as Berlin-based HelloFresh, which achieved US revenue of $ 450 million in the first quarter, while doubling its American customer base and increasing 66% year-over-year revenues. However, Blue Apron added 200,000 customers in the first quarter – a step in the right direction for a company that, not long ago, found itself on respiratory support.

Amid orders for on-site shelters, Blue Apron shares rose 400% from mid-March to mid-April, which gives some investors hope that restaurant closings could revive a valued business at nearly $ 2 billion at the time of their IPO in 2017. For Kozlowski, it is time to continue its momentum despite a report of mixed results which showed a decline in net revenues from year to year , but an increase from quarter to quarter.

The former chief operating officer of Etsy said she was hired just over a year ago to help the company return to growth, which started with a strategy she had defined in August 2019, and which is now accelerated thanks to Covid-19. The execution of this strategy has meant an effort to reach new customer segments with marketing campaigns targeting single people and empty nesters, strictly against couples and young families who are the main customers of the initial growth period of Blue Apron. “Before my time, there was not as much capital available to invest in marketing,” said Kozlowski.

In the first quarter of 2020, marketing expenses represented just under 15% of Blue Apron’s net sales, up from 10% in the first quarter of 2019. For historical comparison, marketing represented almost 25% net revenues in the first three months of 2017, before Blue Apron was made public.

Investing in marketing was also the main reason the company started looking for “strategic alternatives” in early 2020. But “we never said” sell the company “,” said Kozlowski, referring to a February Reuters report. “We said that a wide range of things was a possibility, and in particular, [the options being considered] was to provide the ability to invest in marketing in addition to the product initiatives we were doing to achieve the second half of our growth plans. “

These marketing expenses have also come under pressure from the unexpected coronavirus outbreak.

“Although marketing remains an essential part of our business, we have slowed down and adjusted our marketing expenses according to the increased demand that we have observed. We have temporarily transferred part of our marketing budget to increase production and engage our existing customers with content, social engagement and support to stay at home, “noted Blue Apron in his recent call for results.

Blue Apron is recruiting more temporary staff for its distribution centers and reducing the variety of recipes offered so that it can process more orders. Now is the time to take great steps to dominate the cement industry.

The offer announced by Uber for Grubhub reflects the broader drive to consolidate delivery models at the time, and as gains accumulated for some companies faster than others during the pandemic. Delivery to restaurant saw third highest growth in online orders behind electronics and groceries, according to Earnest Research.

According to the data, Blue Apron tracks DoorDash, Grubhub, Uber Eats, Postmates and HelloFresh. DoorDash, in particular, took advantage of the crisis to gain an increasingly dominant position in the distribution of meals. Meanwhile, Instacart has jumped into the online grocery category.

Kozlowski admits there is a high cost to marketing $ 1.5 billion meal kit delivery space. The saturation of the market presents challenges to survive in all circumstances – in particular for young companies, whether private or unprofitable.

In November 2019 Plate, another industry leader, has moved from offering meal kit delivery services to selling meals at local grocery stores in order to differentiate itself. And for some of these struggling businesses, a new threat has emerged in the form of licensed grocers and restaurant chains offering alternative delivery of meal kits, such as the salad and sandwich kits from Panera Bread, Chick-fil-A Chicken Dinner Kits and Shake Shack’s Hamburger. kits, all of which were introduced in response to late sales in the midst of the pandemic.

Blue Apron financial outlook

In a recent analysis of the meal kit industry, Deutsche Bank noted that Blue Apron now expects second quarter sales to rise to “high” to reach $ 130 million and this would make “the first quarter of growth for the company since the start of its operational problems in mid-2017. “

According to Canaccord Genuity, the 25,000 active customers it added in the first quarter was its first net positive growth to this extent in two years, due to demand from Covid-19. “There is a growing demand for repeat customers who order more frequently and an additional demand for new customers who see the category as an alternative way to stock up and book meals. … We expect growth to continue”, said the Deutsche Bank analyst team. covering the meal kit sector wrote.

Blue Apron’s performance in the first quarter was encouraging for Kozlowski, as it said it was not primarily due to the surge in the distribution of coronaviruses. “I wanted to understand [whether or not] we achieved quarter-over-quarter and first quarter growth in our customers and revenues with our plan or with Covid. And for us, it was with our plan, which is important to me when I think about longer term planning. “

In the first three weeks of April, demand increased 27% from March for Blue Apron. Blue Apron forecasts year-over-year net sales growth in the second quarter. “Different people have seen different Covid impacts at different times, but we started to see interest in the product at the very end of the first quarter,” said Kozlowski, adding that the second quarter should be the impact period on the most important sales.

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