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Americas: Meal delivery service goes for IPO

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Meal delivery service Blue Apron has filed an initial public offering or IPO, which is reportedly among the first in this trendy food segment.

It could also signal the next stage of maturation for the increasingly competitive and crowded meal kit delivery market, according to research firm Packaged Facts, which published the report Meal Kit Delivery Services in the U.S.

For most meal kit companies, the emphasis for the moment is still on the market’s potential profitability.

Although executives at Blue Apron claim to be making money on every meal, Packaged Facts believes that when sales are counterbalanced by the amount of funding raised by investors, no meal kit delivery service is yet profitable.

Moreover, the costs of expansion — including establishing new facilities, hiring more workers, and enticing new customers with deep discounts — could mean it will take a bit of time for most meal kit services to begin making money.

Nevertheless, the meal kit market is growing.

Packaged Facts states the US meal kit delivery market had sales of US$1.5 billion in 2016 and will mature into a multi-billion industry over the next five years.

Based on Blue Apron’s filing, the company is currently seeking US$100 million in capital for its IPO.

In 2014, Blue Apron’s revenue was US$78 million, which jumped to US$341 million in 2015.

Despite doubling its revenue to almost US$800 million in 2016, the company still lost US$55 million in net income last year due to increasing marketing expenses.

Beyond merely offering discounts and other profit cannibalizing gambits to attract new customers, Blue Apron has for a while been shrewdly targeting the increasingly influential Hispanics with Spanish-language TV commercials placed on Hispanic TV stations.

Such foresight is not accidental, but as the IPO filing reveals, it does come at an expensive price.

Last year, Blue Apron spent US$144 million — 18% of its net revenue — on marketing, and that expenditure continues to grow based on early 2017 numbers.

Other challenges for the company have been retaining customers and dealing with a customer base that is spending less per order, the latter of which is partly due to promotional discounts offered by the company.

It remains to be seen what Blue Apron can and will do to reverse this trend, but the company claims it will focus more resources to advertising via offline channels to boost brand awareness, while also focusing on customer retention through options such as increased order flexibility.