When Amazon.com, Inc. (NASDAQ:AMZN) spends $13 billion to buy an upscale grocery store, the food chains get nervous. But while the looming union of Amazon and Whole Foods Market, Inc. (NASDAQ:WFM) has put every supermarket on the planet on notice, upstarts like Blue Apron Holdings Inc (NYSE:APRN) can still eat the giant’s lunch — as long as it does more than ship meals in a box.
Jeff Bezos already spoiled Blue Apron’s initial public offering with the timing of his merger. Barely a month later, his company is now selling “meal kits” to people who opt into the Amazon Prime Fresh delivery service, which is a direct competitive salvo on the business Blue Apron has already worked so hard to build.
After all, while the global breadbasket is vast, it isn’t infinite. In fact, it’s a zero-sum game. Since we all only eat about three meals a day, every kit Amazon sells is like stealing Blue Apron’s lunch money.
While it isn’t fun to see your valuation drop 35% in the first three weeks of public trading, Blue Apron’s management now has a duty to people who bought in as well as its own corporate mission.
The business model so far hasn’t been working perfectly anyway — as of March 31, the company had given away a staggering 134 million meals to capture a net one million active customers, which is one reason I’ve steered away from APRN stock.
Even though a lot of new accounts come from word of mouth, that’s a lot of free lunch for each household that decides to stick around. As Amazon crowds into the space and wannabe rivals get desperate, the economics aren’t going to get better. They’re going to get worse.
How Blue Apron Can Survive Amazon
I think the best strategy for future growth for APRN shares is to pivot away from selling meals in a box. The company should definitely keep supplying existing customers to keep the revenue flowing, but stop actively chasing new ones right now. Don’t send out one more free meal to someone Amazon can poach later once the consumer is habituated to the convenience.
Instead, Blue Apron should open its platform to every other grocer on the planet that’s running scared, but never invested in a home delivery system. The company can already ship from its fulfillment center and reach 99% of the United States’ population while the food is still fresh. Teaching supermarket chains to ship direct is probably worth a cut of the delivery fees. And there’s no harm in reaching out to the food packagers themselves to offer direct-to-home sales that bypass all intermediaries.
Decades of dot-com wisdom have demonstrated that a business-to-business model is the real sweet spot because you’re letting other corporations do the hard work of customer acquisition and product selection. But I think Blue Apron has real expertise in these fields, too. It just needs to find ways to think outside the meal box to monetize what it knows about diet, appetite and flavor.
The core marketing message here is that people will pay a restaurant-style premium to cook their own food. That value-added experience should translate into cookbooks, marketing work for the kitchen product manufacturers and even menu plans for restaurants, schools, insurance-driven “wellness” programs and traditional grocery chains. If this company plays its cards right, it can become the supply chain for every kitchen in America, cashing in a small royalty with every bite.