Blue Apron is a company that sends boxes of uncooked food to your home. When you open the parcel, you find neatly packaged items with easy recipes for turning them into nutritious/delicious meals. Individual and family plans are available, with options for vegans, pescatarians, and other diet tribes. The company made its IPO last month, with shares going for $10 a pop.

Since then the price has sunk down to below $8, after a brief rise to $11. The question is, should investors take the opportunity to buy the dip or give APRN a wide berth?

To form an educated opinion, we’ve got to get a better understanding of Blue Apron’s competition, as well as the grocery industry they’re trying to disrupt.

$APRN lower lows lower highs…vood night son

— Smooty Jones (@smooty) Jul. 7 at 03:36 PM

What is Blue Apron’s Competition?

You said it, Smooty.

My main qualm with $APRN is competition. There’s just so much of it!

Even though Blue Apron has become the household name of delivery meal prep groceries, that doesn’t mean the space isn’t swarming with nearly identical competitors. Here are a few:

Plated

PeachDish

Chef’D

Purple Carrot

HelloFresh

Terra’s Kitchen

Martha & Marley Spoon

Veestro

BistroMD

Sun Basket

Freshly

MagicKitchen

Home Chef

Oh yeah, and Amazon Fresh, Walmart, and Tyson.

I’m gonna guess that this is a niche (can we call it an industry yet?) where a few winners take all. In my last post I talked about how I believe conventional grocery will endure for some time even as the home meal and grocery delivery becomes more ubiquitous. While I accept that grocery may be the new retail, it’s clear to me that not all of the brands above are going to be winners. If Blue Apron is to survive and thrive, they’ve got to become a true paradigm-shifter. At this point, I just don’t see it.

The Financial Case Against Blue Apron

Up till now, we’ve taken the common sense approach to pondering $APRN. Now we’ll get into the numbers. Blue Apron became a hype stock because of their enormous revenues and high margins. More recently, there has been a lot of bad news for Blue Apron.

• 72% of users cancel their subscriptions before 6 months of use. (yikes)
• While Blue Apron revenues approached $1 Billion in 2016, they dropped notably in Q1 2017.
• The company claims its cost to acquire a new customer is $94, but this is the average of the past 4 years. If you take the numbers from 2017 alone, you get something closer to $460.
• Share price is down 20% in a week. (ouch)
• Q1 gross revenue dropped from 33% to 31.2%. (not awful, but have we peaked?)

Final Thoughts

I wouldn’t go anywhere near this stock. Even if they grow, scalability will be problematic. Sourcing items from small farms became a major problem for Chipotle in years past. I don’t see it being any easier for BA.

There is little to protect or distinguish Blue Apron from its competition. And as they continue to draw in new customers with amazing 1st box deals (free! 50% off!), the 28% customer retention is cause for dismay. It’s quite possible that the company is churning through a finite supply of customers, most of whom will cancel. At some point, this customer base will run out. Can Blue Apron survive on 28% loyalty from new customers (who cost $460 each to acquire)? I’m thinking not.

Somebody’s going to win in delivery meal/grocery. I fear that Blue Apron is going to suffer the slings and arrows that come with being the first IPO in the space. Unless they pull off a legendary rally, I see this stock going nowhere.