Blue Apron’s IPO Faces Huge Challenges

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If a company was spending a quarter of its revenue to find customers that cost about $94 each to buy a subscription-based product with a price tag of about $10 a person, many investors would be afraid to go near it.

If they learned an estimated 60 percent of customers stopped using the service after just six months, they might just run the other way. Yet this is the situation for five-year-old Blue Apron, the gourmet “make it yourself” meal delivery service and its $3 billion valuation.

Blue Apron’s Financial Problems and Solutions

On the eve of its IPO, Blue Apron had to admit some pretty alarming things.

Despite having about a million customers and $790 million in annual revenues, the meal prep company is struggling to keep its head above water. It lost $53 million in the first quarter of 2017, compared to a small profit a year prior – a figure largely influenced by a significant increase in marketing costs as a percentage of revenue. That figure was up 10 percent year over year, at a whopping 25 percent.

Despite efforts at lowering the cost of buying and delivering food by building their own warehouses, as well as acquiring a winery and beef farm, profits still aren’t where they’re expected. Blue Apron has given a valiant effort of getting a bite of the $600 billion US grocery market pie, but unless it can slow customer churn, it may go the way of cooked-meal delivery companies like Maple, SpoonRocket and Sprig, Inc., all of which are now former-cooked-meal delivery companies.

Blue Apron’s Risky IPO 

Blue Apron realizes it’s on the razor’s edge right now, admitting in its IPO filing that its ability to retain customers represents a very real risk. This is, unfortunately, the nature of some types of startups, according to market experts.

“With hyper adoption also comes hyper abandonment,” Brendan Witcher at Forrester Research explained in an interview with The Wall Street Journal. “What the market needs to do with these startups is wait until the novelty effect has worn off – that is really the key.”

It’s possible the new has worn off Blue Apron after five years of life, but only time will tell. The company has a new marketing strategy in mind it believes will turn the tide of marketing spending per customer. Along with ads that will appeal to a customer base more likely to make their own meals for $10 a head, Blue Apron is tasked with the challenge of continuing to create provocative dishes that will appeal to this group of customers if it is to succeed where others have failed.

 

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