Blue Apron is hemorrhaging subscribers as it expands retail partnerships strategy

In the fourth quarter of 2018, the company saw a small lift in average order value, at $58.12, increase by $1.33 compared to the previous quarter, and average revenue per customer, at $252, an increase by $19 over last quarter. But net revenue decreased 25 percent year over year to $140.7 million, and as of Dec. 31, it had 557,000 customers — a loss of 89,000 customers compared to three months before, and a loss of 189,000 customers year over year. Chief financial officer Tim Bensley said he expects Blue Apron to continue to lose customers as it shifts focus to acquisition and retention of higher-value customers. It’s part of a pivot that began late last year, when the company shifted to a flexible service model, including distribution through retailers, and giving customers more choices, including quick changes to plans, meals that take less time to prepare, and limited-time, specialized meal kit offerings.

At this point, Blue Apron’s partnerships look more like lifelines. Despite the change in Blue Apron’s approach, analysts say the strategy doesn’t adequately address the business model’s core problem: Blue Apron is situated in an uncomfortable middle ground between restaurant delivery services and grocery stores, driving its potential customer reach to a too-narrow customer group. It’s the reason why other food delivery startups have struggled to scale.

Freedonia Group analyst Cara Brosius said Blue Apron’s efforts to move into retail distribution and flexible ordering options likely won’t be enough to make the business model sustainable. Blue Apron said it intends to grow its retail partnerships, and it’s talking to other potential partners. It’s also expanding its retail product selection. Starting Friday, it’s rolling out a pared-down $7.99 version of its meal kit called Knick Knack that will be sold through Jet.com. It will include sauces, spices and grains and other foundational elements of meals that customers can pair with store-bought produce and protein.

“Blue Apron has tried to expand its customer base with partnerships that offer more options for online ordering, but this has not been enough,” Brosius said. “The meal kit subscription delivery model simply doesn’t work for a lot of potential customers. Sometimes people want to cook a meal on a whim and don’t want to wait for a meal kit to arrive one or two days later from Jet.com.”

Blue Apron is touting its WW partnership as an example of how a focus on a specific group of customers — in this case, people who have signed up for WW — will help drive the business to profitability, which it said it expects to achieve later this year. Morgan Springer, co-founder of a now-defunct food delivery startup Sprig, said he thinks selling through WW is a good strategy, but the company’s broader retail plans, including kits that can be combined with store-bought groceries, carry more risk.

“The WW collaboration is a smart move — it’s a really focused audience with specific needs the product can be tailored to, [but] I’m skeptical of the ‘buy your own produce’ angle on the reduced meal kits,” he said. “At that point, they’re just another brand at the grocery store without a ton of experience in that game.”

By going public in 2017, after raising nearly $200 million in venture capital, Blue Apron is an example of the risks that come with putting a next-generation retail model in front of quarter-by-quarter scrutiny from stockholders, the pressure of which could push the company in too many directions as it scrambles to survive. Blue Apron’s biggest hope, Springer said, is to go as niche as possible, like selling meal kits for parents with kids, or kits for specific diets. By going too broad, they risk not being able to differentiate enough to retain customers.

“Their core risk is losing the value proposition as they chase all these angles — ‘why I am buying this versus cooking or takeout?’,” he said.