Blue Apron Delivers Inedible Results

Hungry for a good stock? Maybe avoid meal-kit delivery stocks.

Blue Apron (NSDQ: APRN), one of the trailblazers in the group, saw its stock tumble to all-time lows last week after reporting a disastrous number. Revenue fell 25%, customer count declined 24%, and losses widened.

Talk about feeling queasy (see stock price chart):

From a great idea to acceptable execution, the carcasses of defunct business plans litter the road. Meal-kits, boxes filled with simple recipes and pre-measured and portioned ingredients delivered to your doorstep, sounded like a fabulous concept.

Ask any time-starved worker about the most dreaded question in the English language and “What’s for Dinner?” might take first prize.

Blue Apron’s concept sounded like a dream come true. Hungry and harried customers would sign up for a membership with a credit card and toss together an elegant meal in 15 minutes.

Executing on that plan was a little more difficult. It’s one thing to ship out books or sturdy merchandise in cardboard boxes. But these meal-kit companies took on a logistical challenge that even Amazon (NSDQ: AMZN) has yet to entertain.

First off: the labor required to pre-measure and portion ingredients into sealed and secure containers is expensive. Most competitors have yet to automate most of the packaging. Workers line assembly rows in temperature controlled warehouses packing boxes.

Without machinery handling every step of the way, human error is sure to erupt. I can only imagine the frustration a Blue Apron customer felt when realizing the pesto packet for his veggie tortellini dinner was missing. It’s one thing to forget cilantro for your creation, but a $10 per person meal delivery company can never inadvertently omit an ingredient. Such mishaps have decimated Blue Apron’s results.

Then there is the delivery quagmire. Perishable goods are notoriously difficult to ship. Dry ice and insulated boxes are expensive and required for every single delivery. Managing inventory of perishable goods in a grocery store is a challenge. Dealing with waste, spoilage and in-stock levels of flounder, mushrooms, and lettuce is proving daunting for meal-kit companies.

Starved for Growth

And yet, these companies continue to attract investors starved for growth.

Walmart (NYSE: WMT) just signed a deal with privately owned Gobble to sell its meal kits in stores.

“With more than 75 million items on, we continue to look for new options to offer customers. This includes specialty food items like the meal delivery kits by Gobble, farm fresh crates and snack boxes that give customers convenient options to plan and prepare meals,” a Walmart spokesperson recently told Fortune magazine in an email statement confirming the partnership.

But that’s not the first meal-kit company to find its way into grocery stores. Kroger (NYSE: KR) offers kits made by Home Chef and German competitor Hellofresh started stocking its kits in Giant Food and Stop and Shop stores in June. Blue Apron’s introduction of its kits into Costco (NSDQ: COST) stores hasn’t helped it much. U.S. supermarket chain Albertsons acquired meal-kit rival Plated in September.

For these companies, it might be a race to the back of the veggie drawer, that cringe-worthy spot that most produce goes to die. Blue Apron and Hellofresh are racing to stay price competitive, offering $40-$60 off the first few deliveries. Prices per portion are almost the same.

And while distribution in grocery stores alleviates the problems of delivering product directly to the customer’s door, it presents the obvious question of competing with the array of cheaper prepared food sitting right next to those boxed kits.

Add to that the trend of grocery stores offering pre-sliced and portioned fresh meat and vegetables themselves and one has to wonder how long any of these companies can stay alive.

It’s pretty astounding that Blue Apron went public at all. The initial public offering (IPO), which debuted about a year ago, is trading at one fifth its $10 deal price. It has been a big black eye for underwriters. Hellofresh trades in Germany and has fared better due to its ability to continue growing revenue and customer counts. Of course, those metrics were positive for Blue Apron for a period as well.

With a scarcity of public plays on this group, the best idea might be secondary stocks impacted by the shift in grocery store strategies. It’s worth it to have an expert on hand who knows which stocks might go sideways due to uncertainty and how to profit while a stock goes nowhere. That’s an appetizing thought.

But tastier still are the steady, market-beating returns generated by my colleague Jim Fink, chief investment strategist of Options for Income.

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