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The Spoon

Daily news and analysis about the food tech revolution

IPO

Report: DoorDash May Go Public in 2020 Amid Broader Delivery Consolidation

DoorDash could file for an IPO as soon as the fourth quarter of 2020, according to “sources familiar with the matter” who spoke to Bloomberg.

The third-party delivery company is reportedly “taking steps” to go public in November or December of this year through a traditional IPO, rather than a direct listing, which the company had considered earlier this year.

The potential IPO comes at a time when the third-party food delivery sector is seeing a steady stream of mergers and acquisitions, from Just Eat Takeaway.com buying up Grubhub to the more recent deal from Uber to snap up Postmates for $2.65 billion.

DoorDash itself has largely stayed out of that M&A activity. The company acquired Caviar for $400 million about a year ago. Since then, DoorDash has been largely focused on diversifying its business. It launched its first ghost kitchen facility in October 2019. And since the start of the pandemic, DoorDash has teamed up with convenience stores like 7-Eleven, launched its own “ghost convenience store,” and, just last week, started an on-demand delivery [— LINK — ] service for groceries.

Those moves make sense in light of the fact that the restaurant industry has been one of the hardest-hit business types by the pandemic. Demand for third-party delivery may be up, but many restaurants — both independents and large chains — are closing down, which means DoorDash may need new lines of business to have a shot of being profitable (which, according to Bloomberg, it is not).

Like other restaurant third-party delivery companies, DoorDash is also navigating a substantial amount of controversy. In April, DoorDash, Grubhub, and others were the subject of a class-action lawsuit alleging third-party delivery companies used their market power to push restaurant prices higher during the pandemic. In June, the San Francisco DA sued DoorDash over worker misclassification, and if a ballot measure that would loosen restrictions over gig worker classification in California does not pass in November, DoorDash (and others) will face another threat to its chances for profitability. That’s to say nothing of commission fee caps, much-maligned tipping policies, and other gripes a growing number of the general public has against third-party delivery companies.

DoorDash was last valued at nearly $16 billion and, throughout the pandemic, has been an “essential service” more and more folks are using as the future of restaurant dining rooms remains uncertain.

Like everything else these days, the timeline for the company’s IPO could change based on, among other factors, the trajectory of the pandemic.

DoorDash Confidentially Files for IPO

Food delivery service DoorDash has confidentially filed to go public. TechCrunch reports that the company has filed a draft registration statement on form S-1 with the Securities and Exchange Commission, according to a press release from DoorDash. The company didn’t name a specific time for the IPO, noting only that its expected to take place “after the SEC completes its review process.”

DoorDash, which has raised $2.1 billion is valued at $13 billion, is currently the leader among third-party delivery services in terms of marketshare, having unseated Grubhub from the number one spot in 2019. The company operates in all 50 U.S. states as well as parts of Canada and Melbourne, Australia, and in October of last year, DoorDash accounted for 35 percent of consumer spend on third-party delivery.  

But will that lead be enough to sway the public market that DoorDash is a good buy? The Wall Street Journal reported last December that three-quarters of DoorDash’s markets weren’t profitable. While third-party delivery services are expected to gobble up 70 percent of all delivery orders by 2022, the entire third-party delivery services market is in the midst of an existential crisis.

Some of that crisis is self-inflicted as companies like DoorDash employed shady tactics when it came to paying its drivers. DoorDash is also among a group of gig economy companies spending $90 million to defeat California’s AB 5 law, which reclassifies contractors as employees. The entire third-party delivery model is built around cheap labor, and if more workplace regulations are enacted, then that could greatly impact the industry’s ability to make money.

But restaurants themselves are starting to question the value of third-party delivery services. In addition to tiring of the high fees for the pleasure of being on an app like DoorDash, more restaurants are realizing the value of owning the direct relationship with the customer, and not handing that over to someone else.

Then there is the whole issue of timing. DoorDash is setting to go public months after Postmates, another third-party delivery service, pulled its own IPO plans. And we are in a post WeWork debacle world, where numbers are more highly scrutinized than ever.

DoorDash going public is good news for us at The Spoon. It’s going to generate a ton of news to report and transparency into the third-party delivery world when it holds quarterly earnings.

Now we’ll just have to see if it’s going to be a good move for DoorDash, and other players in the space with similar ambitions.

Week in Restaurants: Moe’s Goes Digital, Denny’s Adds Pay-at-the-Table Features

Some weeks are all about the incremental developments. Such has been the case over the last few days, with much of the news in the restaurant-tech space about chains adding new tools and features to their digital-focused operations. As the weekend sets in, here are a few more of those developments. 

Moe’s Southwest Grill Plans Digital-First Locations
Joining the growing number of restaurant chains experimenting with off-premises-focused store formats, Moe’s Southwest Grill announced this week it will launch its first-ever “all-digital/kiosk-only” locations in the first quarter of 2020, one in Pittsburgh, PA and the other in Charlottesville, VA. Each store will be equipped with four self-order kiosks and accept cash, Apple Pay, and, for, University of Pittsburgh students, university credit cards. Both locations will also offer limited in-house seating and one traditional cash register.

Denny’s Adds Pay-at-the-Table Feature
Denny’s, beloved pit stop of roadtrippers everywhere, plans to add tabletop devices in its restaurants that allow customers to pay for their meal, rather than having to wait for a server to run a credit card. The Spartanburg, S.C.-based chain has teamed up with restaurant tech company Presto, whose partners also include Applebee’s, Red Lobster, and Outback Steakhouse, among others. An initial deployment of Presto tablets at Denny’s is slated for 2020, and guests will be able to pay, complete feedback surveys, and access loyalty points on the devices. As of now, they will not be able to order food. 

Now You Can Reorder Your Favorite Chipotle Meal With Alexa
Chipotle added a little extra beef to its existing Alexa efforts this week by announcing a reorder skill for the device that functions just as it sounds. Customers download the Alexa app, enable the Chipotle skill, link up their Chipotle profile, and say something like “Alexa, tell Chipotle to reorder my favorite for delivery.” While a very incremental development in the world of restaurant tech, as voice-enabled technologies improve and become more integral to the order process, we’ll see more restaurant chains offering similar functions for repeat customers.

DoorDash May Go for a Direct Stock Listing Instead of an IPO
There have been plenty of rumors about DoorDash’s IPO, which we first heard rumblings about in August. But according to Bloomberg, DoorDash many now opt for a direct stock listing, which would allow it to enter the public markets without incurring the burden of investor pressures that go hand-in-hand with IPOs. This is an approach both Slack and Spotify took when they entered the public markets, and it’s one that lets companies save on bank fees. Whether this is the better approach for food delivery companies, who continue to struggle with the problem of becoming profitable businesses, remains to be seen.

Postmates Raises $225M, Now Valued at $2.4B Ahead of IPO

Third-party delivery service Postmates has raised another $225 million in funding, TechCrunch reports. The round was led by GPI Capital and brings the service’s total amount of funding to roughly $1 billion. Postmates is now valued at $2.4 billion.

The San Francisco-based company confidentially filed for an IPO in February of this year. At last check, the company will make its IPO paperwork public this month and is expected to debut on the stock exchange at some point during the fiscal third quarter of 2019.

As TC writes:

. . . last-minute financings are critical for companies poised to run out of cash and in need of an infusion prior to hitting the public markets. The motives for Postmates last-minute financing are unclear, however, the company will certainly begin trading on the stock market at an interesting time.

Postmates would follow third-party delivery rivals Grubhub and Uber Eats into the public markets. Rival and current market leader DoorDash is also rumored to be going public.

But as we’ve written before, the long-term viability of third-party delivery is still in question. Postmates and DoorDash might be valued at massive sums right now, but as a model, third-party delivery has yet to become profitable.

It’s also an almost-constant source of controversy these days. From shady tipping policies to proposed caps on commission fees, these services have received endless headlines calling into question the ethics of the model. Meanwhile, California’s Assembly Bill 5, which was just signed into law, is a major blow to companies like Uber and DoorDash and will most likely have a ripple effect across other Democrat-led states.

Recent numbers put third-party delivery app users at 44 million users in the U.S. by 2020. When Postmates lines up next to its rivals in the public market, it will also be joining the struggle to somehow turn a profit from those millions of users.

Beyond Meat Reports $40M Q1 Earnings, Predicts $210M Net Revenue for 2019

Today Beyond Meat had the first earnings call since they went public last month.

The company blew growth expectations out of the water and reported net revenue of $40.2 million in Q1 of 2019, which is an increase in 215 percent since the same period in 2018. It reported a first-quarter net loss of $6.6 million, or .95 per share.

Beyond’s CFO Mark Nelson gave guidance that the company will have a net revenue of over $210 million by the end of 2019. That’s slightly higher than Wall Street’s estimate of $205 million. In response to these positive numbers, Beyond’s shares rose 16 percent after the reporting was released.

The plant-based meat company’s sales are no doubt helped by its well-publicized IPO, as well as its expanding retail and restaurant footprint. Interestingly, the revenue from the two sources is almost split 50-50: grocery store sales accounted for $19.6 million of Beyond’s revenue, while restaurant sales made up $20.6 million.

On the earnings call Beyond Meat CEO Ethan Brown stated that the company would use its new capital to “invest in current and additional manufacturing facilities, to expand its research and development and its sales and marketing capabilities, and for working capital and general corporate purposes.”

Perhaps most notable was Brown’s emphasis on international expansion. He mentioned the high market potential in South Africa and Chile, as well as Europe and Asia. This could help it differentiate from plant-based competitor Impossible Foods, which is only available in the U.S., Singapore, Hong Kong, and Macau.

Despite their impressive stats, Beyond still has lots more room to grow. On the call Brown stated that Beyond Meat has only 2 percent market penetration in the U.S. He hopes to increase that both here and abroad, all while driving down the cost of their products.

That’s ambitious to be sure. Several investors (very reasonably) asked questions about production capacity. If a big fast-food chain, like McDonald’s, opts to add Beyond Meat to their menus, would they be able to quickly amp up production to fulfill those orders? What about overseas? Brown seems confident that their new production partners and manufacturing methods can handle growing demand, but clearly Beyond’s production issues of last year (and Impossible’s current struggles) aren’t far from investors’ minds.

Things may be looking rosy for Beyond right now, but the company still has plenty of competition who wants to take a bite out of their customer base. Impossible Foods recently raised $300 million and is planning to head into retail later this year. Nestlé’s meatless Awesome burger is hitting shelves in the U.S. this fall. The Swiss company currently sells a different plant-based burger, called the Incredible burger, at McDonald’s in Germany. Tyson Foods, who recently parted ways with Beyond Meat, is also releasing their own new line of plant-based protein products this summer.

What Does Beyond Meat’s IPO Mean for Impossible Foods?

Yesterday Beyond Meat made headlines when it became the first plant-based meat company to go public.

But this is just the beginning. Ever since we first heard rumblings about Beyond’s IPO we’ve been thinking about what this means for the plant-based meat space in general. Sure, Beyond is the first alterna-meat company to go public, but so far the future is looking rosy; Bloomberg notes that the company had the biggest IPO pop since the 2008 financial crisis. Its shares nearly tripled in price on the first day of trading and it’s still up on Day Two.

With its success, Beyond is paving the way for other alterna-meat companies to go for IPOs of their own.

It’s not hard to guess who will be next. The Redwood City, Calif.-based Impossible Foods is Beyond Meat’s most public competitor. Both companies are using high-level technology to create “meat” that’s good enough to fool even hardcore carnivores, making big plays into restaurant chains and grocery (Impossible plans to be in retail by the end of this year). Heck, their CEOs even have the same last name: Brown.

Impossible may have entered the scene later — it was founded in 2011, Beyond in 2009 — but in some ways it seems almost more prepared for an IPO. It has raised $387.5 million, almost triple Beyond’s pre-IPO $122 million. Impossible also has a bigger fast food chain presence: it’s on menus at Burger King, Qdoba, and White Castle, while Beyond has a smaller footprint at Carl’s Jr., Del Taco and A&W (only in Canada). Both Impossible and Beyond recently came out with a revamped meaty recipe 2.0, but Impossible’s won the “Best of the Best” award at CES and has been making much bigger waves in the media.

Outside the startup realm, Beyond’s success could also incentivize Tyson to accelerate its own fledgling plant-based protein program — and even nudge other large corporations like Nestlé or Unilever to start their own.

For its part, Impossible Foods was very supportive of Beyond Meat’s time in the limelight. Impossible’s CFO/COO David Lee tweeted out a nice message yesterday aligning their mission with Beyond’s, starting that “Clearly the mass market is ready for us both!”

Hint, hint.

Beyond Meat Becomes the First Plant-Based Meat Company to Go Public

The day has finally come.

This morning Beyond Meat, maker of the popular plant-based burgers, went public. The El Segundo, Calif.-based company raised $241 in its IPO by pricing 9.6 million shares at $25 per share. This is an increase from its original plan to release 8.75 million shares offered at $19-$21. It will have an initial market cap of roughly $1.5 billion.

This move on Beyond’s part is huge news for the alternative protein landscape. As the first plant-based meat company to go public, the success (or failure) of Beyond’s shares will be an indicator for the strength of the alternative meat industry. If it does well, others like Impossible Foods — whose patties will soon be at Burger Kings nationwide — are likely to follow.

It’s too early to make a call on how Beyond will fare, but there’s reason to be optimistic. Beyond’s shares were priced at the higher range, indicating a high level of interest from investors and consumers. There’s also the fact that the alternative meat space been experiencing a meteoric rise over the past few years. According to Nielson, U.S. sales of plant-based meat rose 24 percent in 2018 alone.

The company will trade on the Nasdaq under symbol BYND. So far it has raised $142 million from backers like Cleveland Avenue and Obvious Venturers, as well as celebrities like Bill Gates and Leonardo DiCaprio. It used to count Tyson among its investors, but the poultry giant pulled out its investment once it started developing its own line of plant-based meats.

Beyond’s plant-based meat is available in 30,000 grocery stores and restaurants including fast-food chains like Carl’s Jr., Del Taco, and Canada’s A&W. In addition to Canada, Beyond is also on grocery shelves/menus in Italy, the Netherlands, Belgium, the U.K. and Israel.

Though Beyond has yet to turn a profit, the company posted a 20 percent gross margin in 2018, up from a negative margin in 2017. Its gross margin for Q1 of 2019 is just over 25 percent, indicating an upward trajectory. Beyond’s sales also grew by 170 percent in 2018.

Now that the company is public, we’ll see how it reacts to the short-term demands of investors.

If you want to keep up to date as Beyond navigates its IPO, make sure to subscribe to Future Food: our weekly newsletter analyzing the alternative protein space.

UPDATED:

Beyond Meat has dubbed tomorrow, May 3rd ‘Beyond Day.’ Basically, it just means they’re giving you free/discounted Beyond burgers, tacos, etc. We’ve listed all the deals below:

**All offers limit one per person, while supplies last:

  • Carl’s Jr. – Free Beyond Famous Star with Cheese
    • Where: All Carls Jr. locations (Nationwide)
    • When: Friday May 3, 6am-Close
    • How: Redeem with the purchase of a medium or large drink
      • At the register say “Happy Birthday Beyond”
  • Del Taco – Free Beyond Taco or Beyond Avocado Taco
    • Where: Participating Del Taco locations (Nationwide)
    • When: All day Friday, May 3 (12:01am-11:59pm)
    • How: Free Beyond Taco or Beyond Avocado Taco in the Del Taco app with any purchase.
  • Bareburger – Free Beyond Burger
    • Where: All Bareburger locations (Nationwide)
    • When: Friday, May 3, 3-6pm
    • How: Redeem with the purchase of a side and a drink.
      • Download the Bareburger app and show the server the app on your phone
  • Veggie Grill – Free VG Beyond Burger  
    • Where: All Veggie Grill locations (West Coast & Chicago)
    • When: Friday, May 3, 2-5pm
    • How: Redeem with the purchase of a fountain drink
      • Must be a VG Rewards App member
  • Epic Burger – Free Beyond Burger  
    • Where: All Epic Burger locations (Chicago)
    • When: Friday, May 3, 4-7pm
    • How: Redeem with the purchase of a side and a drink.
      • Mention the offer at the register
      • Any additional add ons will be extra
  • Retail Offer – $3 Off Any Beyond Meat Product

Beyond Meat Prices Its Public Offering, Could Be Valued at $1.2 Billion

Beyond Meat, maker of plant-based chicken, crumbles, and burgers, just set the terms of its initial public offering.

According to a regulatory filing, the El Segundo, California-based startup could raise as much as $184 million for its IPO. Beyond plans to offer 8.75 million shares priced between $19 and $21 each. If it follows through, the company would be valued at as much as $1.21 billion.

Additionally, the filings show that Beyond’s losses shrank while its revenue grew. In 2018, Beyond lost $29.9 million on revenues of $87.9 million. This is down/up from 2017, when the company lost $30.4 million on revenue of $32.6 million.

This makes sense, as Beyond continued its expansion at grocery stores across the U.S. throughout 2018, launched an R&D new center and added a second production facility to keep up with white-hot demand for alternative protein.

Beyond Meat has raised $122 million, and it’s not just the company’s investors (which include Cleveland Avenue, DNS Ventures, Tyson Foods and celebrities like Leonardo DiCaprio and Bill Gates) watching this IPO closely. Beyond could be a bellwether for other startups and established players in the alternative protein space.

For example: Beyond Meat rival, Impossible Foods, has raised $387.5 million and its ability to go public will be impacted by the success or failure of Beyond’s offering. Additionally, Big Food companies have been upping their investment in alternative proteins: Nestlé is rolling out several new alterna-meat products, Unilever bought the Vegetarian Butcher, and Canadian meat processor Maple Leaf Foods acquired Lightlife and Field Roast. A Beyond Meat bummer on the public market could chill some of the investment heat the sector has.

Beyond no doubt knows the responsibility that’s on its shoulders: not only to its employees and investors but also to the plant-based food space on the whole. And since it announced that it would go public last November, it has been hustling to make sure the IPO goes well. The company has accrued a possé of celebrity endorsers, brought on big name fast-food restaurant partnerships like Carl’s Jr. and Del Taco, released a new version of its Beyond Meat recipe, announced a new ground version of its “meat” to be released this year, and is also prepping new category products like sausage patties. Just today, Beyond announced that it will be on grocery shelves in Canada starting next month.

CNN reports that Beyond plans to start trading in early May, and needless to say all eyes (including ours) will be on that debut.

Postmates Grabs $100M in New Funding Ahead of IPO

As first reported by Recode, food-delivery heavyweight Postmates has raised another $100 million in equity funding ahead of its IPO. The round includes participation from Tiger Global and other current shareholders, as well as a new investor to Postmates, BlackRock.

The new round comes on the heels of Postmates’ $300 million funding round from September 2018, which gave the company unicorn status and a $1.2 billion valuation. The new round kicks that valuation up to $1.85 billion, according to Recode sources. The funding is also just ahead of a projected IPO, which Postmates hired JP Morgan to advise on.

Postmates, which currently serves 550 U.S. cities, says it’s now available in 60 percent of U.S. households and does about 3.5 million deliveries per month. But in the $3.5 billion food-delivery industry, competitors are just as aggressive.

DoorDash, historically Postmates’ most direct competitor, nearly tripled its valuation last year to $4 billion. Uber Eats, meanwhile, was on track to cover 70 percent of the U.S. by the end of 2018. Uber’s IPO was also slated for the first half of 2019, though that may be delayed thanks to a slowing down of the entire IPO market as a result of the partial government shutdown.

No word yet on whether Postmates’ forthcoming IPO will also be affected by the shutdown. In the meantime, the company can look forward to rolling out is delivery robot, Serve, onto the streets of Los Angeles this year.

Beyond Meat Files for IPO, is First Alterna-Meat Company to Go Public

Beyond Meat, maker of plant-based burgers, sausage, chicken strips and more, has filed for a U.S. initial public offering (IPO).

Rumors first started circulating last month when CNBC reported that plant-based meat company had hired J.P. Morgan, Goldman Sachs and Credit Suisse to help lead their IPO. On Friday Beyond filed for an initial size of $100 million. The company has applied to list on the Nasdaq Global Market under the symbol BYND.

El Seguno, CA-based Beyond Meat sells its non-GMO plant-based meats in over 32,000 retailers, as well as Del Taco, T.G.I. Friday’s and A&W. According to Crunchbase, the company has raised $72 million in funding thus far. Tyson Foods, the largest meat company in the U.S., has a 5 percent stake in Beyond Meat, and the company also boasts investments from Bill Gates, Obvious Ventures, and Leonardo DiCaprio.

In the past Beyond has struggled to keep up with high customer demand; they even had to delay their U.K. launch, expected in August, despite the fact that in June they added a second production facility aimed at tripling production. (Beyond recently rolled out in U.K. supermarket chain Tesco’s last week.)

With the demand for plant-based proteins growing by leaps and bounds, paired with the rising number of flexitarians around the globe, Beyond Meat’s post-IPO future looks bright.

This will be the first public stock offering for the recent smattering of companies making meat-like alternatives out of plants. If successful, Beyond Meat’s IPO will make it easier for others in the space like Impossible Foods to and Seattle Food Tech to follow a similar path. The success or failure of Beyond’s IPO could also have implications for the nascent cell-based (AKA lab-grown) meat space, which itself has seen a lot of investment this year.

Can Blue Apron Succeed? Five Questions With A Data Scientist Ahead of The IPO

In some ways, the meal delivery kit craze was one of the ways people started to notice major disruption happening in our food system. Technology and connectivity are finally starting to penetrate the ways we grow, cook, manage, order and think about our food – so it is fitting that one of the major IPOs of 2017 will also be the first meal kit startup IPO. Blue Apron is just a day away from being a publicly traded company on the NYSE where it will trade under the symbol $APRN. The company has already slashed its valuation ahead of the event, estimating stock prices will open between $10-$11 a share.

There’s been a great deal of speculation about the company’s S-1 filing and what their disclosures about revenue, customer acquisition costs and overall company health mean for interested investors.

We sat down with Daniel McCarthy, co-founder and Chief Statistician at Zodiac, a predictive analytics firm and data scientist at Wharton (aka he’s way smarter than us) to talk about the analysis he’s done on Blue Apron’s filing. He’s about to transition into a new role as a professor at Emory University. Daniel has written several interesting takes about the Blue Apron IPO looking deep into their disclosures and extrapolating additional info using data modelling and we wanted to ask him his thoughts about the company’s path to profitability on the eve of the IPO.

The Spoon: Given the challenge Blue Apron has with customer retention and your finding that retention actually gets worse with customer age, does the company have a path to profitability with the current model?
 

McCarthy: No, I don’t see a path to profitability if future customers are similar in retention and spend to the customers that Blue Apron has acquired in the past, especially those acquired over the last twelve months. At the same time, Blue Apron is a high-quality business. I would be optimistic that they could be profitable if they adopted a more LTV-centric way of doing business.

In particular, they should refocus and rationalize their customer acquisition spend around prospects similar to their high-value customers. This could (1) substantially reduce their CAC, which has moved up considerably over the past year, and (2) increase the quality of their subscriber base from a retention and spend standpoint. The downside to this strategy is that it will naturally be smaller, so there is less of a “sky is the limit” growth story to tell. Still, that seems better than being structurally unprofitable.

The Spoon: Blue Apron is reporting “active customers” in their filling as opposed to their subscriber base numbers, which you’ve noted is an unusual way for a subscription service to report their users. Do you have a sense of why?

McCarthy: I think they are reporting active customers instead of subscribers for two reasons.

  1. Active customers will always be a bigger number than total subscribers, so it makes them look bigger. Who doesn’t like to look bigger?
  2. I think that a part of them likes to think of themselves as more like a retailer than a subscription offering. If their customers come in and out periodically over time, they could argue that churn doesn’t matter as much, because the churners will come back at some point.There are a few issues with this line of reasoning. For one, churn matters at retailers too, even though we do not get to observe exactly when customers churn. For two, I think many of their periodic customers are strategic, only showing up when they are able to get a new promo discount. Finally, Blue Apron doesn’t provide us with meaningful data points about how periodic behavior (if there is any) affects the unit economics of their business.

The Spoon: You’ve reported that the revenue that Blue Apron is generating from more recently-acquired customers is less than from customers acquired in the past. Why is this?

McCarthy: They introduced the family plan in 2015, which has a lower price point ($8.99/serving versus $9.99/serving). It could be that we saw a mix shift in 2016 towards people with this plan, and that people on family plans are simply not generating as much revenue than the rest of the subscriber base.

The Spoon: Blue Apron turns a profit on 30% of its customers but their break-even point is moving farther away with each cohort due to declining revenue and growing customer aquisition costs (CAC) for newer customers according to your analysis. Can you tell how fast that percentage is declining?

McCarthy: It’s a great question, and it would be pretty risky to do a simple extrapolation off what we’ve seen over the past twelve months, especially since the rise in CAC has been very dramatic lately.

The Spoon: Subscription services for goods is a popular trend right now, both in the food market and outside. Is there an example of another subscription startup that’s getting customer acquisition right?

McCarthy: Dollar Shave Club has wonderful customer retention. While I generally am leery of relying on business intelligence firms to make absolute statements about retention, I think they are a very helpful tool for making relative comparisons across firms. This chart was very striking in that regard. It really highlights how much better customer retention is at DSC relative to Blue Apron. And that Blue Apron’s retention, while not good, is nevertheless better than their competitor, Hello Fresh.

We’re interested to see what happens to the Blue Apron stock tomorrow as it hits NYSE and how the first meal kit delivery IPO will shift the still growing market. Stay tuned.

Blue Apron’s Biggest Problem Pre-IPO? Finding Loyal Customers

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.