Credit: Blue Apron

Blue Apron’s impending IPO has been the subject of much speculation and anticipation in the recent months, especially as the meal kit delivery market has experienced great fluctuation in the past few years.

The S-1 filing has been analyzed by hordes of financial analysts, but perhaps the most important deep dive into Blue Apron’s documents was around its customer acquisition costs and ongoing challenge to retain a core customer base.

Daniel McCarthy, a professor of marketing at Emory University, conducted an analysis of Blue Apron’s subscriber retention and churn rates using data found in the S-1 and financial modeling. The S-1 itself leaves out the raw data on the company’s retention and churn rates, but what McCarthy found using marketing costs and costs per customer, he could determine the number of customers they acquired in any given period.

So what did he find?

Blue Apron likely acquired around 2.9MM subscribers over its life and then lost 1.9MM subscribers to finish Q1 of this year with 1MM total. Using a customer-based corporate valuation model, McCarthy plugged in the customer numbers and found that close to two-thirds of Blue Apron’s customers leave within 6 months. The meal kit startup spends, on average $94 to acquire new customers but only makes $25 per month in gross profit off of that new customer – meaning it takes about four and a half months to break even. A problem when many new customers aren’t sticking around for that long.

Does Blue Apron have a problem, or does the problem lie with meal kit delivery in general?

It’s hard to say that the problem is inherently Blue Apron’s but rather that they have struggled with being an early leader in the market and enjoyed success before competition flooded the space. With an array of meal kit options to choose from and dozens of offers for a box of free meals to try new services, customers are harder to lure and even harder to keep. Marketing and customer acquisition is going to keep getting more expensive as more companies try to compete for dollars and as the novelty of meal kits begins to wear off.

“Blue Apron isn’t getting nearly as much out of its marketing spend as it once did. The company’s marketing expense more than doubled in the first quarter.”
The Motley Fool

The other challenge that the entire meal kit industry faces is the stickiness of their basic product. Meal kits are often easy for consumers to try – companies make it simple to sign up and offer quick delivery and attractive new customer promotions. But they are a huge departure from the way we have been taught to shop for and purchase our food – and while they might be more convenient in some ways, they are inconvenient in others. If the kit doesn’t come in time, a last minute trip the grocery store is needed. Or if the meals that come all seem too complicated or involved, it might sit in the fridge and spoil while the customer picks up quick take-out. As much as we want to believe we’ll eat healthy and cook gourmet, fresh meals every day of the week, life often gets in the way.

Eating meal kit style is a behavior change. Some find it enjoyable and enlightening, introducing new flavors and methods of cooking in foolproof ways with ready to cut and cook ingredients. But ask anyone if they’ve tried Blue Apron or any of their competitors, and you’re likely to find many of them will say yes, but are no longer an active customer.

How might Blue Apron and the rest of the industry change this? The move to put meal kits into grocery stores for pickup is certainly one way, getting rid of the timing and delivery piece that may deter some from continuing with the service. It also fundamentally changes the subscription mode and doesn’t solve for that business model much except to change it entirely.

There’s no question that Blue Apron’s IPO will be watched by many and read as a sign of the future of meal kits as the convenient and healthy future of cooking.

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