It seems meal-kit delivery company Blue Apron bit off more than it could chew in planning the share price for its upcoming initial public offering.
In a Securities and Exchange Commission filing earlier this month, Blue Apron estimated it would sell 30 million shares at $15 to $17 each. But a new SEC filing shows the company now plans to sell shares at $10 to $11 each. Blue Apron is still planning to offer 30 million shares but the new price tag brings the company’s market value down by about $1 billion, as Bloomberg notes.
What curbed Blue Apron’s financial appetite? The combination of the world’s most powerful delivery logistics company with a major upscale grocery chain seems a likely guess.
A few weeks after Blue Apron disclosed its intention to go public, Amazon announced plans to acquire Whole Foods Market for $13.7 billion. It’s the largest deal in Amazon’s history and underscores how hungry the e-commerce giant is to break into the $782 billion U.S. grocery market.
As it stands, just 1.2 percent of that market is currently online, according to a new report from Goodwater Capital, a consumer-tech focused venture capital firm. That represents a big opportunity, but it remains to be seen whether smaller companies, like Blue Apron and its competitors, can stand up to an opponent as formidable as Amazon.
Blue Apron delivers quality, pre-measured ingredients with original recipes so customers can cook at home without planning meals and grocery shopping. Each meal comes out to about $10 per serving. Whole Foods and Blue Apron target the same demographic, those with discretionary spending power and values-driven consumer behavior.
Blue Apron has seen significant growth since launching in 2012, with revenues increasing by 133 percent from 2015 to 2016, according to the Goodwater report. Whole Foods, by comparison, saw 2 percent revenue growth over that time. But that was pre-Amazon.
“It is too early to determine the impact that this combination will have on the overall food services sector, but companies that fall within food logistics will be the most negatively impacted in the near-term due to the operational and fulfillment scale of an Amazon and Whole Foods combination,” the Goodwater report says.
Amazon already offers a meal-kit delivery service through a partnership with Martha Stewart and Marley Spoon. Should it choose to expand that service, the Whole Foods acquisition would give Amazon access to more than 450 retail locations in affluent communities on top of hundreds of fulfillment centers around the country.
Blue Apron only has three fulfillment centers but it does own and operate a farm and gets exclusive deals on about 70 percent of food from suppliers. Blue Apron is also unprofitable and will likely remain so for several years, according to Goodwater.
“One of the biggest risks to any business is competitive and with Amazon’s recent acquisition announcement of Whole Foods, Blue Apron will have to compete against one of the most disruptive companies today in addition to the other startup companies in the meal-kit/delivery category,” the report says.
Still, Blue Apron had over a million paying customers ordering nearly $800 million in revenues in 2016. The company also has strong brand recognition and is the current leader in the meal-kit delivery space. The fight isn’t over, but the competitive heat has been turned way up.
“It is too early to determine the impact that this combination will have on the overall food services sector, but companies that fall within food logistics will be the most negatively impacted in the near-term due to the operational and fulfillment scale of an Amazon and Whole Foods combination,” the Goodwater report says.
