New Blue Apron Partnership Will Not Keep It – The Fool Motley

Blue apron background (NYSE: APRN) away from its subscription-based model, associating with Walmartof (NYSE: WMT) E-commerce wing, making Jet.com the first online retailer to sell its meal kits. Given that the sale of subscription meal meals has proven unsustainable and that the more upscale customer Jet demograph seems to perfectly match Blue Apron's upscale food offerings, the partnership is considered a likely partnership to revive the fortune of the kit maker.

While there seems to be plenty to recommend on the surface, this plan has too limited scope and picks up some of the mistakes of the past. The partnership will not be enough to reverse the slide of Blue Apron.

Switch to a model on demand

Blue Apron will open a dedicated store on Jet's new City Epicerie website, serving locals from New York, Jersey City and Hoboken. It offers a rotating selection of two-portion recipes specifically designed for Jet customers that can be delivered the same day or the next day. This is another indication that the meal kit manufacturer is distancing itself from the subscription-based model on which it was based.

In a Blue Apron analyst conference call in August, CEO Brad Dickerson said the company would try to test non-subscription demand play and investors should look for ads in the coming months. The City Grocery Experience is the latest.

Last month, Blue Apron teamed up with food delivery specialists GrubHub Transparent to offer delivery options of one hour. Since meal planning is usually a last-minute task, it makes sense to prepare an easy-to-prepare meal kit in the hands of consumers as quickly as possible.

Jet.com revived City Grocery in September as a renowned effort to focus on customers in major metropolitan cities. To do this, it intends to have local brands, such as Bedford Cheese Shop and Just Bagels in New York.

To meet orders from customers in New York, Hoboken and Jersey City across the Hudson River in New Jersey, Jet.com is building a dedicated distribution center in the Bronx.

A recent Blue Apron space check on Jet showed that all meals were sold, but I do not know if this is due to high demand or low stock.

Become a basic product

Blue Apron needs this to work. Revenues fell 25% to $ 178 million in the second quarter, while orders fell 30% after losing nearly a quarter of its customers. This highlighted the weaknesses of the subscription model.

Customer acquisition costs are exceptionally high due to the high turnover rate and customer retention rate estimates of only 15% (although this is better than the industry leader, HelloFresh, which loyalty rate of only 11%). It has to spend tens of millions of dollars on marketing to attract new customers, and every time it slows, the number of customers decreases.

Having his meal kits available in supermarkets like those of Costco wholesale and available for an order on demand on its own website or through partnerships such as Jet.com should significantly reduce these costs. The problem is that it makes meal kits more trivial and lowers prices. Costco kits tend to be sold 30% cheaper than the Blue Apron subscription plan.

Because virtually all supermarkets now have meal kits, either on their own or in partnership with a manufacturer, they have become an easily accessible dining option for shoppers, and it's becoming harder for Blue Apron to charge higher prices. The Jet partnership helps at least to target high-end customers, who can set a floor below its price.

Yet Jet.com is also a work in progress. The site underwent a redesign earlier this year and has emerged targeting urban buyers. The grocery store is a new goal, but the company's president said no one had previously successfully combined merchandise sales and grocery orders online. He thinks Jet.com can change this dynamic. Still according to a tracking site, traffic on the site is down sharply, by some 21% in the last six months.

Finding more outlets to sell his meal kits is necessary to keep Blue Apron afloat. Although this contributes to the increased trivialization of meal kits, their wider spread could at least help it to compensate in volume what it loses on price.