Meal-kit delivery services are so popular these days that it is hard to remember that only just a few years ago, this concept was brand new, and people weren’t even sure the business model would last. Of course, today it is pretty clear to see that meal-kit companies are all the rage, even if many people have had no experience with them (or know anyone who has).
But the fact is, the sheer volume of competing meal-kit services does not seem to be reflected in the global number of meal-kit subscriptions. And one reason for this—a big reason, at that—is that these companies developed an industry based on subscription models and deep introductory discounts that continue to prove ineffective at retaining a higher long-term subscription rate.
Essentially, meal-kit services have a loyalty problem.
The truth is: meal-kit services are actually somewhat pricey in terms of what you get. While you certainly get what you pay for in terms of convenience, not everyone—ie, most consumers—are not prepared to pay the premium price over a long period of time. As a matter of fact, because there are so many services—and all with cheap introductory offers—it is feasible that many consumers who like meal kit services simply cancel one service to take advantage of another.
So how does a meal-kit service stay in business? How do they generate profit? Well, Blue Apron has been working on this sustainability problem and they think they may have found a solution. In order to finally achieve profitability for Q1 2019 (and for the entire year), Blue Apron has reduced efforts on the less profitable customers as well as their overall marketing. Basically, as described by company executives, this does not necessarily add profit but while it causes revenue to decline it increases the revenue generated per active customer.
To put this into perspective, slightly, Blue Apron had only 557,000 customers in Q4, generating about $252 of revenue, on average, per customer.
But with that, the New York-based company also announced this week, the launch of a new product. Scaling back their meal kits, Blue Apron is partnering with Walmart’s Jet.com to offer a $7.99 Knick Knack kit which gives you everything you need to make a recipe except for the produce and the protein. While the program was initially a pilot with Costco, it makes a lot of sense to partner with another company who can deliver proteins and produce along with a pre-set kit of spices, sauces, grains, and dairy (and the recipe).
Investors seem to be pleased by this move: shares rose 10 percent in early trading on Thursday, helping the company to recover from its December slump which dropped the value to as low as $0.65 per share.