Meal-kit companies originally built their businesses using subscription models and deep discounts that didn't result in long-term customer loyalty. But to create a sustainable, profitable business, Blue Apron is changing its strategy.
To achieve the profitability it is forecasting for the first quarter of 2019 and the full fiscal year, Blue Apron has stopped pursuing less profitable customers and cut back on marketing. Executives said those changes will result in declining revenue and customers but will increase the revenue per customer. In the fourth quarter, Blue Apron had 557,000 customers with an average revenue per customer of $252.
The New York-based company announced on its quarterly conference call that it is launching a new scaled-back version of its meal kits Friday with Walmart's Jet.com. The $7.99 Knick Knacks meal kit comes with the sauces, spices, grains, dairy and recipe for a two-person meal and lets customers use store-bought produce and protein.
Knick Knacks was the result of Blue Apron's pilot with Costco, which introduced the company to the challenges of brick-and-mortar retail. Excluding meat and produce in the meal kit extends the product's shelf life and provides a more flexible option for customers. Although it is choosing to launch the product with the e-commerce retailer, Blue Apron CEO Brad Dickerson said that Knick Knacks could work in brick-and-mortar retail.
It originally partnered with Jet in October to reach customers outside of its stalling subscription business. The company expects that the new product's profit margins will be similar to those for its current meal kits.
In late December, the company launched a partnership with WW, formerly known as Weight Watchers. Dickerson said it has resulted in higher-than-expected demand from new and existing customers. The company is planning to improve its meal-kit offerings to appeal more to customers interested in health and wellness.
Because January tends to be a popular month for WW and Blue Apron, higher demand stressed the meal-kit company's capacity. WW had been promoting the partnership at its studios and through emails. According to Dickerson, the wellness company has pulled back some on marketing the partnership but plans to ramp that up soon.
"In summary, we are really pleased with the interest in the product, and that's really been without any significant messaging and push from WW to date," Dickerson said on a conference call with analysts.
Blue Apron reported narrower-than-expected losses Wednesday. It said it lost 12 cents per share, 5 cents less than analysts surveyed by Refinitiv had projected. It also beat on the top line, reporting revenue of $140.7 million, compared with an estimate of $137.4 million.
Shares of the company, which has a $283 million market value, rose as high as 10 percent in early trading Thursday before losing most of those gains. Near midday, it was down about 2 percent. In December, Blue Apron's shares fell below a dollar, and sank as low as 65 cents.
Correction: This story was revised to correct the time references to Blue Apron's earnings report and stock trading.