The restaurant industry is constantly fretting about outside competitors making their lives harder, and sometimes for good reason.
Convenience stores have taken coffee business from Dunkin’ Donuts and probably some quick-eats business from McDonald’s and Burger King. Costco is a massive competitor with its cheap hot dogs and pizzas. Whole Foods’ deli is nuts, and we still think its Amazonian guidance will make it a big player down the line.
But we can cross one player off the list: meal kits.
For this, we point out Blue Apron.
The meal kit service went public in 2017, arguing at least in part that it could take significant business away from restaurants. One independent study that year argued meal kits could take “millions of occasions” from restaurants and especially full-service businesses.
The idea is that consumers would get the convenience of food delivered to their home that they prepare themselves—providing a high-quality, hot meal where they have their TVs and Netflix and internet connections and don’t have to wear pants.
There’s one big problem with this theory: the dishes.
A person can never go wrong arguing in favor of more convenience. Anybody who has watched the restaurant industry over the past couple of decades understands this. Consumers have shifted more and more spending to takeout. They’ve fueled delivery services and fast-casual chains. They also get a huge percentage of their meals from drive-thrus.
But meal kits offer partial convenience. They do the shopping. They provide the right portions so consumers don’t waste ingredients they’d otherwise not use—a major point in their favor, as the kits’ fans have argued to me in the past whenever I’ve uttered something less than a full endorsement.
But meal kits don’t prepare the meal and they don’t do the dishes. Never underestimate the dishes as a reason consumers eat out.
As such, they are aimed at people with more money than time, but they couldn’t generate the mass consumer use that would make them a major player in the food business.
And it was clear even in 2017 that Blue Apron would struggle to hang onto customers and meet the lofty expectations of its IPO.
Revenues grew tenfold from 2014 to 2016 and continued into 2017 thanks to marketing. But the company spent a lot of money on marketing and would lose customers over time.
And as noted this spring by Restaurant Business sister company Technomic, meal kit services had considerably less loyalty than delivery companies. Blue Apron’s customer retention was just 15%—thus the need for all that marketing spending.
Which brings us to now. Since that 2017 IPO, Blue Apron’s stock has plummeted. It recently closed below $1 a share, a symbolic level similar to the trading price of Buffalo Wild Wings franchisee Diversified Restaurant Holdings.
Blue Apron has lost 90% of its market share since the offering, which Bloomberg said made it the third-worst IPO this decade.
Or, as my friend Nick Upton pointed out on Twitter, if you invested $10,000 in Blue Apron at its IPO you’d have $900 right now.
To be sure, the meal kit business is not Blue Apron. And this isn't to say that meal kits aren't a potentially good service with quality recipes for busy professionals. But that is a niche market, not a revolutionary change in the way consumers eat.