Blue Apron meal kits Photos by Schott Eisen/Getty Images News/Getty Images

Meal kits deliver flavor, but not profits

Blue Apron posts $31.6M loss in first quarter as a public company

Meal kit delivery services might not be making any money, but they certainly are staying on top of food trends.

A new report from food analytics and consulting firm Datassential shows that meal kits are providing consumers with the new ingredient and flavor experiences they are seeking.

According to Datassential’s recently published Foodservice @Home Keynote Report, 33% of current meal kit subscribers said a key reason for using the service is the ability to try new ingredients without buying large quantities. More than half — 58% — of consumers who do not subscribe to a meal kit service said the ability to try new dishes they would not consider making at home is appealing.

Datassential has added the menus of 11 meal kit services to its “Insider” database, which has long been tracking the menus of traditional foodservice outlets and other prepared foods venues such as supermarkets. Since it began tracking meal kit menus last year, Datassential has added more than 4,400 dishes from these companies to its database.

“These dishes are often surprisingly adventurous, featuring plenty of ingredients and flavors in the ‘Inception’ and ‘Adoption’ phases of the Menu Adoption Cycle,” Datassential wrote in a recent summary of the research, referring to its system for tracking the lifecycle of menu ingredients.

Among the emerging ingredients found on the menus of meal kit providers are enoki mushrooms, hearts of palm, black garlic, piri piri and dukkah, the report found. These and other ingredients are being used to create such globally inspired dishes as an Indian Pizza from Palo Alto, Calif.-based Gobble and a Katsu-Style Catfish from New York-based Blue Apron.

“Meal kits promise to introduce subscribers to new ingredients and cuisines, often through safe experimentation,” the report stated. 

Revenues up, but no profit

While meal kit companies might be succeeding at proving new flavors and experiences for consumers, they are not bringing home the bacon themselves.

Blue Apron, the largest of the meal kit providers, on Thursday posted a loss of $31.6 million for its second fiscal quarter, which ended June 30. It was the company’s first earnings report since its initial public offering.

The loss compared with net income of $5.5 million in the year-ago quarter. Year-to-date, the loss totaled $83.8 million, compared with net income of $8.6 million in the first half of 2016.

Revenues were up 18% in the second quarter, to $238.1 million, compared with a year ago, driven by an increase in customers and orders. The company said its customer count increased 23% year-over-year, but declined 9% from the first quarter to the second because of a planned cut back in marketing spending.

The marketing expense was $34.5 million, or 14.5% of net revenue, in the second quarter of 2017, compared with $60.6 million, or 24.8% of net revenue, in the first quarter.

In a conference call with analysts, Matt Salzberg, Blue Apron’s CEO, said the company is in the process of shifting its marketing strategy to focus more on “monetization and engagement,” rather than customer acquisition.

He said the company’s customers behave “more like e-commerce customers or CPG customers” rather than subscription customers.

“There’s more we can do to monetize them across an entire lifecycle,” said Salzberg.

Blue Apron is also currently in the process of rolling out a “more diverse and personalized product assortment” to its customers, he said in the call.

The company’s stock has plummeted since its June IPO at $10 per share, and was trading at $5.10 on Friday.

Meanwhile Berlin, Germany-based HelloFresh, which operates a meal kit delivery service in nine markets around the world, including the U.S., posted a loss of 34 million euros (about $40.3 million) on revenues of 205.3 million euros (about $243 million) in its fiscal first quarter, which ended March 31. 

HelloFresh, which is owned by publicly held Rocket Internet, had been preparing for a public spinoff in 2015 but canceled due to lack of investor interest, according to reports.

Expensive and restrictive

In addition to the challenges these companies face in the costs of acquiring and retaining customers, they also face delivery expenses, and must battle perceptions that they are too expensive for many consumers and too restrictive in the choices the offer.

For those reasons, retailers might have the best opportunity to deliver on the promise of meal kits as convenient solutions for busy customers, said Bill Bishop, chief architect at consulting firm Brick-Meets-Click.

“Probably the retail store is the right place to launch it,” he said. “There has to be some flexibility for the consumer, and more variety in the mix of solutions. There has to be something for the price-oriented buyer, and something for the connoisseur.

“If retailers can provide that, they will actually be aligned with where most households are trying to go.”

Several traditional supermarket retailers have jumped into the meal kit space, including Kroger Co. with its Prep + Pared line and Publix Super Markets with its Aprons Meal Kits line.

Suppliers have also been strongly interested in meal kits. El Segundo, Calif.-based meal kit provider Chef’d just raised $25 million from pork producer Smithfield Farms, on top of the $10 million investment from Campbell Soup Co. announced earlier this year. Fresh Direct, the New York-based online grocery retailer, also invested $200,000 in Chef’d. 

Bishop said he believes retailers have to take the lead on providing meal kits, however, with the help of suppliers.

“But that’s not the way it’s happening yet,” he said.

 

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