Some merger and acquisition activity may soon be cooking in the meal kit delivery industry.
In his report initiating coverage of Blue Apron Holdings Inc., Matthew Trusz, an equity research analyst at Gabelli & Company, based in Rye, N.Y., gave the meal kit proprietor a “buy” rating, partly because he sees Blue Apron as an acquisition target. The report was released Friday, Feb. 2.
“It is the largest meal kit company in the United States (although Hello Fresh is closing in rapidly) with the most-advanced supply chain,” Trusz wrote. “Grocers are battling fiercely to adjust to the digital world and address intensifying competition. Blue Apron’s sub-$500 million enterprise value is relatively small to these companies. In our view, Walmart is a logical buyer. The company is building out its e-commerce business and already offers some meal kits online via drop-shipping.”
Last week Walmart announced a partnership with Japanese company Rakuten that includes food delivery in that country.
“Walmart does not have the food manufacturing capabilities of, for example, Kroger, and does not already have a meal kit company, like Albertsons,” Trusz wrote. “Like its $310 million purchase of Bonobos, buying Blue Apron would repeat Walmart’s playbook of acquiring a branded e-commerce startup with a more-premium product to its core offerings. Further, Walmart could put Blue Apron’s meal kits into its physical stores, which we believe would meaningfully enhance Blue Apron’s profitability.”
Meal kits have been gaining favor with time-pressed consumers who watch Food Network cooking shows and want to hone their culinary skills.
As a result, other players have been touting their meal kit programs. Last week, Acme Markets, for example, sent an email to its customers alerting them about the Plated meal kit program. The email included an introductory offer of 25% off for the first four weeks, a value of up to $159. Acme is a division of Albertsons, which acquired Plated last year.
Trusz noted that while Blue Apron stock is down substantially from its IPO at $10 a share in June 2017, to around $3 now, that was largely due to logistical issues at Blue Apron’s new highly automated facility in Linden, N.J. “Several data points over the last two months give us confidence that Blue Apron will turn the corner on its Linden facility issues and therefore reaccelerate marketing and revenue growth,” Trusz wrote. “We expect revenue to compound at more than 20% annually to $2.4 billion by 2022, at which time we expect free cash flow to exceed $150 million. Meal kits are a small sub-$3 billion niche of a $780 million domestic grocery market, and grocers need every tool available to fight disruption. We view Walmart as a natural Blue Apron partner or buyer.”
Blue Apron stock closed at $3.07 on Monday, down 0.16% in a volatile day of trading on Wall Street that saw the Dow Jones Industrial Average fall more than 1,100 points, the biggest one-day closing point drop in history.
