Real cost of Blue Apron ‘free shipping’
When you shell out $60 for a box from Blue Apron, you’re paying for a few things. Food, of course — much of it organic, non-GMO and humanely raised. Those cool, glossy recipe cards, which lay out what you’re about to make.
But the real reason meal kits are so expensive has little to do with what’s in the box. Industry analysts estimate that 20 to 30 percent of the price of a meal kit is spent just getting it delivered “free” to your house.
That markup will become especially important, given that Amazon — which is known for its sophisticated shipping and logistics network — agreed last week to a deal to buy Whole Foods.
“You see a lot of companies leaving the market because they can’t handle the costs,” said Erik Thoresen, a principal at the food industry consulting firm Technomic. “This is definitely one of the biggest headaches for them.”
Blue Apron’s boxes are heavy, after all — and many travel long distances. They must always arrive on time and in pristine condition.
Those considerations add up. And they’re responsible, in large part, for the high price of meal kits: $10 per serving, according to market research firm NPD, compared with $4 for the same meal when the shopper buys ingredients at the grocery store.
Thoresen and other analysts cautioned in interviews that it’s not easy to generalize between companies, because all have different agreements with thirdparty couriers and each uses different materials for insulation and packaging. The top national brands — Blue Apron, HelloFresh and Plated, among them — are all able to use their volume to negotiate special rates, Thoresen said.
Even with those special rates, however, shipping is expensive. When you place an order with Blue Apron, it is shipped from one of three facilities — in New Jersey, California and Texas.
Blue Apron opened the Texas site in late 2015 to help bring down the cost of shipping to customers in the Midwest. And the company continues to adjust both the packaging of its boxes, and the company that delivers them, on a ZIP code by ZIP code basis. In other words, even if you and a friend down the street both order from Blue Apron, different trucks might deliver your (differently insulated) boxes.
Blue Apron reported in its recent IPO filings that efforts like these brought its shipping costs down in 2016. But the combined cost of both food and shipping and handling — the only hint Blue Apron gives as to its delivery costs — totaled more than half a billion dollars.
“There’s a reason all of these companies focus only on premium ingredients and ‘date night’ meals,” said Lawrence Chen, co-founder of meal-delivery startup Sooma. “They have to, just to justify the high shipping costs.”
Sooma has attempted an alternate model, though it’s not quite off the ground yet. Chen said he and his cofounders are trying to build a meal kit whose cost closely mirrors the price of its ingredients — and is accessible to middle-income patrons. To do that, Sooma delivers simple, conventional meals, such as pork tacos and baked ziti. And it doesn’t ship anything: The service is focused on high-density urban areas, where delivery drivers can pick up kits at commercial kitchens and drop them off to customers.
It works far more like ordering a pizza than ordering a package — which has allowed Sooma to charge as little as $4.30 per serving in its early tests.
Whether alternate models like this one catch on with larger companies remains to be seen. (Critically, the Sooma model can’t operate outside of large cities.) But Thoresen, of Technomic, is optimistic: long-term, he thinks, meal-kit services face the stiffest competition from companies such as Uber, which operate vast, distributed and on-demand delivery networks.
Amazon will also be a factor, he acknowledged: Even before the Whole Foods acquisition, the online behemoth was dabbling in meal delivery, and building out its own in-house shipping operations to compete with the likes of FedEx and UPS. Analysts are already speculating about how the acquisition may threaten both traditional grocers and meal kits, which don’t have Amazon’s edge in logistics.
Any competition in shipping is good for consumers, Thoresen said.
“It’s exciting,” he said. “There will be new ways for people to acquire ingredients and prepared meals that we don’t even have a category for yet.”