- Blue Apron is testing an on-demand, same-day delivery service in the Bay Area in a bid to attract more lucrative customers and turn a profit.
- The trial is its latest effort to attract “high-affinity” customers who order more, spend more, and don’t quit its service.
- Blue Apron’s revenue shrunk 28% in the first quarter of 2019, as orders slid 29% and total customers fell 30%.
- However, the company pointed to higher average order values and average orders per customer as evidence that its new strategy is working.
- Watch Blue Apron trade live.
Blue Apron is testing an on-demand, same-day delivery service in the Bay Area in a bid to attract more lucrative customers and turn a profit.
The meal-kit maker will allow customers in the region to select meals from a similar two-person menu to its subscription offering. Orders before noon will be delivered by a logistics partner between 4 p.m. and 6 p.m on the same day.
The trial is likely to be “one of our key initiatives over the coming few months,” said Blue Apron CEO Linda Findley Kozlowski on the company’s first-quarter earnings call this week. If the trial goes well, the company plans to expand the range of meal kits available and extend the service to more territories.
Blue Apron partnered with Grubhub to offer on-demand delivery in New York City last October. However, its Bay Area trial marks the first time it’s offered the service on its own platform.
The company is betting that demand for same-day deliveries won’t crowd out sales of its subscription boxes.
“We know that this is something that’s actually complementary to the existing subscription offering,” said Kozlowski.
“A lot of our subscription customers have asked for supplementary ability to do on-demand,” she added. “So we think it actually helps drive the entire business forward, not necessarily split it in two different directions.”
Blue Apron’s plan to make money is to focus on “high-affinity” customers who order more often, provide more revenue, and quit less quickly. Its on-demand meal kits are likely to be slightly pricier than its subscription boxes, protecting the company’s profit margins and perhaps even raising them, CFO Tim Bensley said on the call.
“Right out of the box … we’re going to be delivering positive profitability on each box that we shift,” he said.
Blue Apron’s change in focus from quantity of customers to quality has been painful. Net revenue shrunk by 28% to about $US142 million in the first quarter of 2019, according to the company’s latest earnings report. Orders fell by 29% to below 2.5 million, while total customers fell 30% to 550,000.
However, the company reduced its cost of goods to about 58% of net revenue, down from around 78% six quarters ago, by improving its fulfillment centres and streamlining its labour, food, shipping, and packaging costs.
Combined with a sharp drop in marketing spend, that helped to narrow its net loss from $US31.7 million to $US5.3 million.
Average order value inched up from $US56.58 to $US57.15, and orders per customer climbed from 4.4 to 4.5. Those two measures are “key indicators of the strengthening customer base as we pursue this new focus,” Bensley said. The company will hope its Bay Area experiment can push those metrics higher.
Blue Apron is trading at around $US1.04, down 50% from a year ago.
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