Blue Apron slices IPO price

Los Angeles Times - - BUSINESS - By James F. Peltz and Sa­man­tha Ma­sunaga

Meal de­liv­ery start-up Blue Apron is about to find out whether there’s an ap­petite for its shares.

The 5-year-old com­pany, which sends cus­tomers a weekly box of recipes and ac­com­pa­ny­ing in­gre­di­ents, is gear­ing up for an ini­tial public of­fer­ing Thurs­day on the New York Stock Ex­change. But Blue Apron faces an in­creas­ingly com­pet­i­tive mar­ket: Be­sides other cook-ity­our­self start-ups, there are also meal de­liv­ery kits that in­volve only mi­crowav­ing and an ex­plo­sion of res­tau­rant de­liv­ery apps; huge com­pa­nies such as Ama­zon.com are also eye­ing the space.

In a trou­bling sign, Blue Apron slashed its IPO price range Wed­nes­day morn­ing, say­ing it ex­pected to price its shares be­tween $10 and $11, sig­nif­i­cantly lower than its orig­i­nal es­ti­mate of $15 to $17 a share. Late af­ter­noon, the com­pany re­port­edly set­tled on a price of $10 a share.

The sharply lower price in­di­cated that in­vestors have height­ened con­cerns about how Blue Apron, which re­ported nearly $800 mil­lion in rev­enue last year but is un­prof­itable, will fare in the fast-chang­ing mar­ket

for food shop­ping.

“The com­pe­ti­tion for stom­ach share is fierce,” said Aaron Turner, an an­a­lyst at Wed­bush Se­cu­ri­ties. “The onus on Blue Apron af­ter they go public is to main­tain their user growth, but to do so in a cost-ef­fi­cient man­ner. And some­times that can prove chal­leng­ing.”

Blue Apron also has to con­tend with fickle cus­tomers, many of them mil­len­ni­als.

Joshua Lawton-Belous first tried Blue Apron two years ago when he and his wife wanted to save time on gro­cery shop­ping.

“It was de­li­cious,” he said. Blue Apron’s meals also al­lowed them to try new dishes, and “I loved the idea that I didn’t need to go out and buy huge amounts of spices for one meal,” said Lawton-Belous, 33, who lives in Austin, Texas.

But af­ter five months the cou­ple stopped or­der­ing. “I don’t want to spend 50 min­utes cook­ing any­more when I could just go to a res­tau­rant or go to Whole Foods,” he said.

Whole Foods might be­come an even more ap­peal­ing choice for shop­pers now that on­line gi­ant Ama­zon.com has agreed to buy the up­scale gro­cery chain for $13.7 bil­lion.

With con­sumers al­ready press­ing for health­ier foods and more con­ve­nient ser­vice, there’s wide­spread spec­u­la­tion that Ama­zon will use Whole Foods as a spring­board for ex­pand­ing its gro­cery de­liv­ery ef­forts and al­ter­ing the food-shop­ping land­scape over­all — at an af­ford­able price.

Cus­tomer re­ten­tion is one of the big­gest chal­lenges for Blue Apron. More than half of meal-kit sub­scribers in gen­eral can­cel their sub­scrip­tions within the first six months, CNBC re­ported last month, cit­ing data from the pur­chase-an­a­lyt­ics firm Card­lyt­ics.

Even so, “it would be a mis­take for in­vestors to dis­miss meal-kit de­liv­ery ser­vices” in good part be­cause their cus­tomers “are of­ten some of the most lu­cra­tive and in­flu­en­tial cus­tomers for tra­di­tional gro­cers, spe­cialty gro­cers and restau­rants,” the re­search firm Morn­ingstar said in an April re­port.

That’s also why Morn­ingstar said that once Blue Apron goes public, it ex­pected “gro­cers to tar­get a num­ber of other lead­ing meal-kit ser­vices as ac­qui­si­tions.”

Blue Apron is sell­ing 30 mil­lion shares of Class A stock un­der the ticker sym­bol APRN. An ini­tial share price of $10 gives the com­pany an over­all mar­ket value of about $1.87 bil­lion.

The com­pany also has Class B stock with su­per­vot­ing rights held by the com­pany’s founders, man­age­ment and ma­jor in­vestors, who to­gether still con­trol about 98% of the vot­ing power at Blue Apron, ac­cord­ing to the fil­ing.

They in­clude its chief ex­ec­u­tive, 33-year-old Matthew Salzberg, a former ven­ture cap­i­tal­ist who holds nearly 30% of the vot­ing power. The com­pany was founded by Salzberg, Chief Oper­at­ing Of­fi­cer Matthew Wa­diak and Chief Tech­nol­ogy Of­fi­cer Ilia Pa­pas.

In its stock-regis­tra­tion fil­ing, Blue Apron said it av­er­aged 1.04 mil­lion cus­tomers in the quar­ter that ended March 31, up from 213,000 two years ear­lier.

The cus­tomers’ av­er­age or­der to­taled $57.23 in the quar­ter, slightly be­low the$57.77 av­er­age as of March 2015.

Blue Apron’s rev­enue to­taled $795.4 mil­lion last year, up from $77.8 mil­lion in 2014, but it also lost a com­bined $132.7 mil­lion over those three years, in­clud­ing a $54.9-mil­lion loss last year.

One rea­son for the losses is that Blue Apron’s spend­ing on mar­ket­ing also soared in that pe­riod, to $144 mil­lion last year.

The heavy mar­ket­ing spend­ing, along with Blue Apron’s pro­mo­tional discounts for new sub­scrip­tions, is needed partly to at­tract enough new cus­tomers to off­set can­cel­la­tions.

But those who stick with the pro­gram ap­pear to like it; Blue Apron said 92% of its first-quar­ter rev­enue this year was gen­er­ated from re­peat or­ders.

“Ev­ery­thing comes to me pre-mea­sured, and I love that,” said Ce­leste Sales, 48, a hu­man re­sources di­rec­tor in Truc­kee, Calif., and a Blue Apron cus­tomer for two years. Sales said she now goes to the gro­cery store only about once ev­ery three weeks.

Blue Apron pro­vides orig­i­nal recipes that cus­tomers choose ei­ther on the com­pany’s web­site or mo­bile app.

Its of­fer­ings Wed­nes­day in­cluded a bul­gogi beef and soba noo­dle stir-fry with mar­i­nated veg­eta­bles, a seared chicken and pasta salad, and a fresh basil fet­tuc­cine. The firm also sells a va­ri­ety of wines.

“While you do have to do work — you do have to pre­pare, you do have to clean — they’re sav­ing you time in the store and they’re sav­ing you stress of what to make for din­ner,” said Dar­ren Seifer, a food and bev­er­age an­a­lyst at the re­search firm NPD Group.

But the meal kits’ rel­a­tively high prices also are one rea­son con­sumers are leav­ing these ser­vices, he said.

“To prove their value and prove that it’s worth the price, these com­pa­nies are go­ing to have to step up their game,” Seifer said.

Blue Apron has noth­ing to prove to Pamela Castel­lana of Mel­bourne, Fla., who said she re­ceived a free month of Blue Apron as a birth­day gift from her daugh­ter about 18 months ago and was in­stantly hooked.

“The food that comes is so fresh and so good,” said the Mary Kay Cos­met­ics sales di­rec­tor. “It’s just the right amount of food.”

Castel­lana, 55, also praised Blue Apron’s cus­tomer ser­vice, say­ing the firm al­ways has re­sponded to emails within an hour about miss­ing in­gre­di­ents or food that wasn’t ex­tremely fresh, and given her $10 worth of credit.

One time, when her box was mis­tak­enly de­liv­ered three doors away, Blue Apron gave her a full week’s worth of credit.

Castel­lana said that, for her and her hus­band, “we’re lif­ers.”

Wash­ing­ton Post/Getty Im­ages

MIKE IS­ABELLA of Wash­ing­ton, D.C., ref lected in his coun­ter­top, pre­pares a Blue Apron meal. The com­pany low­ered its IPO price to $10 from $15 to $17.

Noam Galai Getty Im­ages for TechCrunch

BLUE APRON co-founder Ilia Pa­pas, left, ap­pears with Maple CEO Caleb Merkl at a TechCrunch event in New York in May 2016. Blue Apron, which will go public Thurs­day, faces an in­creas­ingly com­pet­i­tive mar­ket.

Matthew Mead As­so­ci­ated Press

MORE THAN half of meal-kit sub­scribers in gen­eral can­cel their sub­scrip­tions within the first six months. Above, a home-de­liv­ered meal from Blue Apron.

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