Daily Management Review

Blue Apron can't invent a recipe of success


08/14/2017


Blue Apron has reported for the second quarter - its first report as a public company. It turned out that the food delivery service is in a rather difficult situation. Sales were higher, and marketing costs were lower than Wall Street analysts had expected.



ih via flickr
ih via flickr
American company Blue Apron offers delivery of food in a new format: a customer receives not the finished product, but ingredients for cooking and recipes for the dishes. The company was founded in 2012, and entered the stock exchange in June of 2017. The initial offering price was $ 10 per share. Experts were concerned about the amount Blue Apron was spending on attracting new customers, so the company's report was reassuring to many - but only at first. Soon analysts noticed that the total number of customers of the service decreased, and the company's shares fell 17.63% to a record low since the IPO.

However, the company's problems did not end there. While Wall Street discussed costs of attracting new customers to replace those departed, Blue Apron has got a much more serious cause for concern: the overall level of spending. According to the quarterly report, the company has spent 118.3 million dollars - it's almost 2 million dollars a day.

If Blue Apron continues to spend money at the same rate, then nothing will remain on its accounts by the end of the first quarter of next year. Most likely, it will be possible to partially cut costs, although hardly for a considerable amount. In the last quarter, the company spent more than $ 90 million to modernize and expand its distribution centers. In the near future, it will not have to spend money in this area. Yet, even without this, Blue Apron's expenses are impressive.

The company found itself in a situation of "chicken and eggs." Analysts expect Blue Apron’s spending to drop as soon as it expands enough operations to take advantage of the scale effect. But for this, it needs to get more customers, and to attract customers, it will be necessary to greatly complicate production and accounting: add more dietary dishes, more variety of combinations, more flexibility when ordering for a considerable period of time ahead. All this costs money.

Spending of Blue Apron - at least now - is not decreasing as sales are growing up, as many expected. The company's revenue compared to last year increased by 18%, but the cost of goods sold are growing much faster - over the same period they increased by 28%. And then there is this unpleasant situation for customers, which may require even greater marketing costs. This is clearly not a recipe for success.

source: bloomberg.com






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