Ventures such as Blue Apron, Hello Fresh, Sun Basket, Home Chef and Plated have enjoyed varying degrees of success in their relatively short lifespans. There's no question, however, that their innovative business model has transformed the way in which consumers purchase food over the internet. Subscribers get weekly shipments that contain nearly every ingredient (except for salt, pepper and olive oil) needed to prepare multi-course gourmet meals, in exact portions, along with detailed recipes to follow.
Sounds great, and initial forays by startups were promising, especially in the case of Blue Apron, which was valued at around $3bn just prior to its June IPO. The company got a dose of reality, though, when that valuation sank to $1.9bn, based on an issue price of $10 per share. (Earlier estimates had been in the range of $15-$17.) And the trading price has sunk since then.
Blue Apron, which launched in 2012, has received high marks from customers for quality, creativity and reliability. At the same time, it is facing problems of customer retention. And new competitors are popping up all the time. Then there’s the threat of a challenge from the mighty Amazon.com, which reportedly is planning to expand its own meal kit delivery service, and could easily overwhelm the sector with its near-bottomless resources.
All of which makes cost control and supply-chain efficiency top priorities for these struggling players in a fledgling business. ArrowStream, Inc. is a vendor of cloud-based supply-chain visibility software, with a large customer base among restaurant chains. Chief product officer Bill Michalski says Blue Apron and similar services have constructed an even higher hurdle with their insistence on acquiring materials from local farmers wherever possible. Such a strategy can work at the outset, he says, but it becomes increasingly difficult to sustain as the company scales. As of today, Blue Apron claims to be partnering with more than 150 farms, and is shipping an estimated 8 million meals monthly.
Blue Apron runs its own distribution based on a vertically integrated model, Michalski notes. That decision allows the company to assert tight control over its supply chain, but it can also generate high costs and put a strain on small suppliers that are regularly being asked to boost output in line with growing demand.
What’s more, Blue Apron’s ability to leverage supplier relationships is limited because of the need to work with multiple providers of a given class of food. Under such circumstances, quality can be tough to enforce consistently across a broad supplier base. “To grapple with that requires a real structure that’s built around supplier qualification, testing and auditing,” says Michalski, adding that the chain restaurant business has long struggled with the same problem.
Michalski believes meal kit delivery providers might need to come up with new methods of distribution as they cope with growth, both in terms of geography and customer numbers. Up to now, there’s been a hesitancy on the part of these upstarts to work with existing food-service distributors. Blue Apron, for one, touts its elimination of the middleman as a means of keeping down costs and ensuring product quality. As the field of competitors becomes more crowded, however, an insistence on direct distribution could become less and less tenable.
Looming over the entire food industry, of course, is the all-important issue of health and safety. Blue Apron is acutely aware of the risk. As it noted in its IPO filing, “Unexpected side effects, illness, injury or death related to allergens, food-borne illnesses or other food safety incidents (including food tampering or contamination) caused by products we sell, or involving suppliers that supply us with ingredients and other products, could result in the discontinuance of sales of these products or our relationships with such suppliers, or otherwise result in increased operating costs or harm to our reputation.”
Note the emphasis on suppliers as the biggest potential weak link in a quality-minded supply chain. Michalski says the restaurant industry as a whole faces a huge challenge as it struggles to make multiple siloed business partners work together as a single company. The problem only gets tougher with meal kit delivery providers, who are often dealing with small, locally based farmers who might lack the knowledge or resources required to monitor product closely as it moves through the chain.
Bottom line: just one mistake that causes death or illness to a customer could kill a meal kit provider. Michalski says the solution starts with access to accurate and timely data, so that a company knows immediately where any potential problems might lie. “In an industry struggling from a margin standpoint,” he says, “you need to be able to pinpoint where your weaknesses are.”
Visibility of materials at each step of the way, driven by automated systems, is essential. Michalski says meal kit services can take lessons not just from restaurants, but from all types of established food-service providers — even those that have failed. (Remember Webvan?)
Big questions about the viability of the meal kit delivery sector remain, but Michalski is confident that Blue Apron and at least some of its rivals will solve their problems of quality, visibility and cost-control — provided they adopt the right technology and internal processes to support it. “There may be stops and starts along the way,” he says “but I’m pretty confident that they’re going to figure it out.”
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