Meal-delivery startups show signs of tech disrupted

Blue Apr on, a leading U.S. meal-delivery startup, pitches itself as “disruptive technology,” but a recent BuzzFeed article shows that the tech is what’s being disrupted. Blue Apron is at the mercy of physical- world constraints, just like the brick-and-mortar businesses it’s competing with. As tech looks to muscle its way into more parts of the economy, this may become a theme.

The customer experience via Blue Apron is optimized by technology: A few clicks of a mouse or taps on a smartphone, and meal kits begin to arrive at your door every week. But the infrastructure needed to support that process is anything but.

Like Amazon, Blue Apron needs large fulfillment centres to manage orders and process inventory. It has to abide by food- safety regulations, and has large warehouses where people work in near-freezing temperatures.

A question worth thinking about is what Blue Apron, and the meal-kit business as a whole, would look like if it hit some sort of mass penetration. BuzzFeed reports that Blue Apron has 4,000 employees distributing eight million meals a month. That could feed 0.04 per cent of the U.S. population (130,000 people eating Blue Apron meals for every lunch and dinner for a month). To grow to feeding five per cent of the population, assuming no economies of scale, this industry would need roughly 500,000 workers stuffing meals into boxes.

The meal kit delivery business’s problem is that it’s a combination of three existing models, none of which are attractive. The grocery-store business is one with notoriously low profit margins and valuations. Kroger had US$110 billion in revenue in 2015 and has a market cap around 25 per cent of that; the sector is battling food deflation. The restaurant sector is battling soaring labour costs, a challenge Blue Apron is dealing with too. And as Chipotle can attest, scaling a fresh food business has challenges scaling technology doesn’t. As for the logistics side, Amazon is a well- entrenched and well-capitalized incumbent, daunting for any startup to compete with.

With book sales, a title that retailed for US$28 in a store might be online for US$ 13. But with meal- kit delivery, the economics may go the other way. How many people are willing to spend US$10 a meal and 30 to 60 minutes of prep time, when that $10 can buy a no- assembly- required meal at a restaurant?