Jul 24, 2017

Blue Apron Bulls See Meal Kits Sweeping The Nation, Put Amazon Out Of Mind

Blue Apron has the potential to change how America eats dinner, according to its cheerleaders on Wall Street.


The online meal-kit delivery company received a torrent of positive analyst recommendations on Monday, sending its stock surging by 12%. Shares have been under pressure since the company's June IPO, largely on news that Amazon has begun to experiment with its own meal kits.

However, the bulls see Blue Apron, with its popular meal kits that eliminate the headache of meal planning and grocery shopping, increasingly attracting the dollars that consumers have traditionally spent on groceries and dining out.

As they point out, the size of the opportunity is mouthwatering: Americans spend roughly $800 billion a year on groceries and so far only 1% of grocery shopping is done online.

"We believe Blue Apron can penetrate grocery and restaurant spending," wrote Oppenheimer analyst Jason Helfstein in a note to clients. "This large market should buoy the growth of the meal kit industry, which should drive Blue Apron's revenue growth over time."

Blue Apron, which was founded in 2012, is the largest company in the space but has only begun to crack into the market. It has attracted one million customers and did $800 million in revenue last year.

Blue Apron is probably going after 35 million households, says Barclays analyst Ross Sandler. These are the households that spend at least $100 a week on food.

Other analysts say it's unclear how many families will try Blue Apron and stick with it. As a pioneer in the space, it's in the position of proving what type of demand there is for meal kits. Plus, there are a lot of competitors and customer loyalty has proven difficult to establish.

"The company has been helping define the industry as a whole as it grows," says SunTrust analyst Youssef Squali. "As a result, we believe there is some uncertainty to how large the market exactly could be."

Even so, Blue Apron should continue to experience rapid growth, says Squali, who sees revenue increasing 20% year-over-year for the foreseeable future.

The biggest threat to Blue Apron is likely Amazon. It has started to introduce meal kits in select markets and its acquisition of Whole Foods could provide a brick-and-mortar base from which to sell them. Amazon is known for taking a long-term view on profitability and it wouldn't come as a surprise if they threw cash at the meal kits business to gain market share.

Many analysts are choosing to put the risks posed by the e-commerce giant out of mind for now. "We do not believe it is particularly productive to speculate on what Amazon might do in this space, other than noting their involvement is becoming more likely as new evidence emerges, and that Amazon represents a formidable competitor due to its scale, sophistication, and large Prime Customer base," wrote Helfstein.

Plus, Amazon's forays haven't always been a smash success. For instance, its photo books experiment hasn't been a death knell for Shutterfly. "While hard to compete with Amazon's brand and consumer reach, we note that there are a number of instances where the worst fears from the threat of Amazon's potential entry into a vertical have failed to materialize," says Squali.


by Lauren Gensler