Food tech is one of the hottest sectors around. Nearly every week, I am reading about a new company getting funding with many of them getting traction in the market. My last post was on my experience with Gathered Table and for this one I am going to review my experience with Blue Apron.
I had read about Blue Apron and their ‘meal kit’ model before, but did not sign up until my wife and I received the direct mail piece pictured below from them in late March:
This was an impressive marketing piece as it conveyed a high-end brand with quality ingredients while at the same time offering a discount to encourage redemption. I also liked the ‘As seen in’ mention on the back to signal credibility. Erin ended up doing the sign-up so I did not go through that experience, but was told we should expect a fish and two meat dishes to arrive at our door.
The first thing I noticed when the package arrived was that it was shipped from Richmond, CA to my home in Seattle. This seemed like a long way for products to travel that need to be kept cold (meat, fish, etc.) and also resulted in a lot of extra material to keep items from spoiling. The inside of the box also featured a link to a page on their site to learn how to dispose of the packaging, which suggests Blue Apron receives a lot of customer feedback on this issue.
Inside the box were all of the ingredients I needed to make the three meals in clearly-labeled packages. Blue Apron did a great job communicating a gourmet brand through the recipe cards and letter that came with the food:
Each described some of the more uncommon ingredients (epazote and verjus, in my case) in the dishes that separate the Blue Apron meal experience from what most customers put together on a weeknight. The recipe cards were printed on thick, high-quality paper and featured very detailed close-ups of the ingredients, steps in the process, and the finished dishes that made me hungry just looking at them.
We enjoyed each of them with the cod probably being our favorite. Each took me around 40 minutes to make with some of that time hands-on and some of it waiting for things to cook. I was surprised that I still had to do some chopping as that step felt like something Blue Apron could have done for customers to save them time. 40 minutes per meal is approaching my limit for weeknight cooking time, so it seemed unlikely we would be long-term Blue Apron customers even though we enjoyed what we ate.
Replicating Blue Apron Meals
At this point I was curious to learn more about the economics of Blue Apron so decided to replicate the same meals on my own a few weeks later using ingredients purchased locally from Whole Foods. The goals of doing this were to determine:
- The amount of time saved by using Blue Apron
- The cost of ingredients relative to Blue Apron’s price
- How the quality of their ingredients and meals compared to a DIY version
Making a list and getting all of the ingredients back to my home took me 45 minutes. The cost of all of these was $51.26 (vs. a non-promotional price of $60 with Blue Apron). I was unable to buy everything so made a few substitutions like using broth instead of water + demi-glace as Blue Apron had me use and dried instead of fresh epazote.
My wife and I actually enjoyed the second set of meals better and are speculating that the main reason was the presence of higher-quality ingredients in a few places. We felt the fish from Whole Foods was higher quality and we were able to use 100% lamb in the meatballs rather than a lamb and beef blend that Blue Apron used (likely to save costs). We enjoy lots of greens in our meals and in the Whole Foods renditions we were able to amp up the vegetables by using the entire portion purchased (i.e. whole bunch of chard) versus the smaller portion included in the kit.
The end result of this experience left us with this comparison:
- Blue Apron: $60, 2 hours of time, 7/10 meal quality
- DIY Version: $51, 2.75 hours of time, 9/10 meal quality
What Can We Learn About Economics of Business?
Armed with the cost data, I now sought to determine a hypothesis on Blue Apron’s profitability.
Based on some knowledge I have of direct mail, I am assuming a combined production, list rental, and postage cost of $0.50 per piece for what I was sent and a 1% redemption rate which together lead to a CPA of $50. With the increasing costs I have seen in some online channels, my guess is places like Facebook are also yielding a similar CPA so $50 seems reasonable for the cost to acquire customers in paid marketing programs.
Even though I spent $51 on ingredients, I would guess that by buying wholesale instead of retail and taking advantage of some economies of scale, that they can get unit costs of $25 per week. My 15 lb. package was shipped ground using OnTrac and their website tells me it costs $15 to ship from Richmond, CA to Seattle. A volume shipper like Blue Apron could likely negotiate lower rates, but with all of the packing material and handling needed, I am going to assume a $15 all-in cost of shipping. This makes total weekly costs for Blue Apron $40.
We received a $20 discount during week 1 and I am assuming many other 1st time customers get that so the revenue is $40 in week 1 and $60 in each subsequent week.
The net of this scenario is then:
($50 Acquisition) + $0 during week 1 + $20 during week 2 + $20 in week 3 + $20 in week 4…
Using these assumptions, customers become profitable during the 4th week of using Blue Apron. For now at least, we did not reach this milestone and are so far unprofitable customers for Blue Apron. What strategy might Blue Apron take to change this? That is the question I turn to next.
Strategic Positioning of Food Tech Market
A key consideration when determining whether customers of services like Blue Apron choose to repeat is how customers perceive the options in the market. Because this space is so crowded, I created this perceptual map as I see things:
I view the market in terms of the quality of the food (x-axis) and the effort it takes to make it happen (y-axis).
Blue Apron and the other ‘meal kit’ options all seem to be in a similar place with food tending to the gourmet side and the effort also being high since you still need to do a fair amount of work before dinner is on the table.
Lower effort options include the pure delivery services that source from restaurants like Eat24 and Grubhub, as well as those that make their own meals like Munchery and Lish. Eat Local is a retailer in my Seattle neighborhood who makes frozen prepared meals that you pick up from their store and then heat up in the oven.
The other two points are Gathered Table and Yummly. Both of these aggregate recipes but still require you in most cases to do the shopping and cooking.
With this market in mind, I believe Blue Apron or any provider in its place would do best by seeking out a less crowded space that also matches the values of their target customers.
Two Alternative Positioning Strategies
The second perceptual map shows two alternative positioning strategies that would make me more likely to keep using Blue Apron or an alternative ‘meal kit’ provider:
Move to the Right: Becoming more ‘gourmet’ would include adjusting their model to include ingredients on par or better than what I bought from Whole Foods. This would also require shifting to a more local supplier model so products are not shipped from several states away but are locally-sourced when available. This is a product I would be willing to pay more for and would keep me a customer longer. Providers moving this way could also partner with local high-end restaurants to source recipes which would reinforce the fact that customers are making meals in their own kitchen on par with what one would receive from a night out at a $$$$ local option.
Move Down: Reducing the labor could be accomplished by having more of the ingredients be meal-ready. Produce could arrive pre-chopped and ingredients that are added at the same time could be combined. This could save 10 minutes per meal which would make a big difference when considering these kind of services for weeknight dinners.
Preparing meals on busy weeknights remains a challenge for my family and many others like us. It is exciting as a consumer to see the different options in this space and hopefully one will emerge that we find enough value in to use regularly. Blue Apron did not reach this point for us with their current offering, but could get closer to that point by adjusting their product in a few different ways like I suggested. I look forward to continuing to follow the food tech market and will be sure to write a future blog post should a competitor win our regular business.
Originally published at www.ryanmetzger.org on April 27, 2015.