The paper needs to be about this section of the case study:
Structure and Control Systems: Identify Blue Apron’s structure and control system, and specify how they match or don’t match the company’s strategy.
Case Study:
Blue Apron: Has the Supply Chain Disrupter Been Disrupted?
This public-sourced case was prepared by Stephen E. Maiden (MBA ’01), Case Researcher, Vidya Mani, Associate Professor of Business Administration, and Doug Thomas, Professor of Business Administration. The protagonist and her thoughts were created for pedagogical reasons. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 2022 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
Lydia Thomas, a third-year consultant in McKinsey and Co.’s (McKinsey’s) Agriculture practice in Chicago, was working from home on Friday, March 4, 2022, when the phone rang. Her boss, Marco Ramos, the head of McKinsey’s global Agriculture practice, was on the other line.
“Lydia, have you heard of Blue Apron?” Ramos asked. “The meal-kit service? They just called and want our help evaluating their business model and disruption threats.”
“Of course I know Blue Apron. I’m actually a customer of theirs.”
Thomas had been a customer of Blue Apron for the past three months, after receiving a $130 gift card for the service as a birthday present. She had decided to keep using Blue Apron when she found bi-weekly meal kits to be high quality, affordable, and convenient. The company’s tagline was “A meal kit built for your busy lifestyle.”1
Thomas and her boyfriend, another McKinsey consultant from the Metals and Mining group, liked having Blue Apron meals handy in their condo. Neither had time to shop, but they liked to cook. Blue Apron meals had supplied special ingredients in just the right amounts to create yummy creations like Crispy Skin Salmon with Salsa Verde and Farro Salad or Cheesy Pork Chorizo Enchiladas with Bell Pepper and Rice. Thomas had always wanted to learn to cook better, but hadn’t found the time. Blue Apron and a bottle of white wine had become her recipe for a cozy date night.
“Well, that’s good. Actually, my family used Blue Apron for a year too—but then we dropped it,” Ramos said. “I guess too many other customers have been dropping them as well, lately.”
“They’ve got competition from meal-kit providers like HelloFresh, Plated, and Home Chef, right?” Thomas recalled analysis she had done for a previous pitch—it had showed that some of McKinsey’s Agriculture clients were selling an increasing amount of product to Blue Apron’s competitors.
“That’s true,” Ramos conceded, “but that’s only part of the problem. Walmart and Amazon are threats—you never want them as competitors. But Blue Apron is also concerned with the more recent rise of Instacart and delivery platforms like Uber Eats. That’s why they called.”
“Shouldn’t this mandate be handled by our Retail group?” Thomas asked.
“It’s going to be a joint proposal, actually,” Ramos said. “Blue Apron is a farm-to-table play, so they called us in. And while Instacart and Uber Eats aren’t Agriculture clients, I said we’d give a first crack at a global strategy recommendation. So I thought you’d be the best to take a crack at breaking down the supply chain. Evaluate the threats.”
“Okay. What’s the deadline?”
“I’ve asked for one week. But I’d like your initial thoughts by Wednesday morning.”
The Beginnings of Blue Apron
Thomas decided the place to start on her inquiry was with Blue Apron itself. She quickly pulled up the stock chart for APRN and saw the company had about a $160 million market cap.2
“Not bad,” she thought. But then she noticed that the company had been valued at $2 billion on the private market in 2015 before going public. Investors in that round were down 91%. Clearly the earth had been shifting underneath the company. What happened? Thomas figured she needed to understand the past before she could help advise on where things might be heading.
Blue Apron was founded in 2012, when 28-year-old Matt Salzberg, a Harvard MBA and an associate at Bessemer Venture Partners, partnered with Ilia Papas to create a business. They raised a friends-and-family round of money and tried a few start-up ideas before coming up with the Blue Apron concept: giving people an easy way to make dinner using trusted, chef-recommended recipes, including all the ingredients they’d need, precisely measured out.3
Blue Apron hadn’t pioneered the idea. Linas Matkasse, a Swedish subscription meal service launched in 2008, had grown to nearly $50 million in sales. Blue Apron’s thought was to offer recipes to subscribers each week and build relationships with local farmers, creating menus based on seasonal ingredients.
With no food experience, Salzberg (who would become the CEO) and Papas (who was chief technical officer), turned to chef Matt Wadiak, who had been trained at the Culinary Institute of America. Wadiak was a wholesaler of truffles and avocados and catered dinners for Salzberg’s mother-in-law. Soon, Wadiak joined Blue Apron’s board, then became its COO. The food needed to be portioned correctly, then packaged and delivered quickly, within 24 hours, to assure that it was fresh. The pricing was set at $9.99 per person, later $8.74 per person for a two-to-four-person family.4
The company’s name came from the tradition of beginner cooks wearing a 16762_case05_ptg01.indd 66 19/05/23 5:34 PM
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blue apron in cooking school. The product made cooking super easy, with all the ingredients supplied in the correct pre-measured quantities, complete with step-by-step instructions that usually included photos and sometimes even videos. Salzberg, Papas, and Wadiak packed and shipped the first 30 orders themselves from a commercial kitchen in Long Island City.
Early testers could order meals based on one main protein: fish, poultry, or a choice of beef or pork. Wadiak helped build the initial relationships with farms and food providers and a courier mailed the first orders across Manhattan. Beta testers loved the products and shared photos on social media of what they made. Demand took off instantly. “Pretty much from day one we’ve had steady exponential customer growth. I think the moment we did our first week of deliveries we sort of knew that we had a business that we thought would be really successful.”5
If the trio ran low on ingredients, they’d run to a local grocery store. The early demand helped the founders raise a $3 million Series A financing round at a $9 million valuation in February 2013. Six months later, they raised an additional $5 million Series B at a $30 million valuation.
In time, the business proposition to customers centered on the notion of making food that was healthier than takeout, easier to produce than cooking from scratch, and cheaper than hiring a private chef or relying on meal delivery. Busy professionals and rural foodies would thus be able to order the ingredients for interesting dishes like crispy catfish with kale-farro salad and warm grape relish or shokichi squash ragù and Mafalda pasta with mushrooms with just a few clicks of their mouse or taps in a mobile app.6
What seemed to excite investors most, however, was the chance to disintermediate the supply chain.
A Shortcut in the Food Supply Chain
While seasonally rotating unique recipes in meal kits delivered in sustainable packaging helped drive demand, Blue Apron believed a key value proposition was its ability to buy direct from the farm or food manufacturer and sell direct to end customers. Wadiak said, “I think that there is a great opportunity today to create, through technology, a leaner food system that cuts out the various steps between the consumer and supplier.” (Exhibit 1.) Theoretically, this avoided intermediaries and allowed the company to pass savings on to the customer. The model echoed that of Warby Parker (founded in 2010), which had built a big business by successfully cutting out go-betweens in the eyewear supply chain to deliver designer frames to consumers at a value price. Wadiak worked to build hundreds of relationships with local farmers, ranchers, and pasta makers to provide fresh products. By November 2014, Blue Apron was shipping one million meals per month. In April 2014, the company raised $50 million and was valued at $500 million.
By 2015, the company was selling a reported three million meals per month at about $10 per meal and claiming Source: Created by authors.
Exhibit 1 Food Supply Chain
Farms
Food Processor Food Processor
Fields
Restaurant
Channel
Grocery
Channel
Distributor
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it would someday “reach 99% of potential home cooks.”7
That same summer, Blue Apron was ordering three million pounds of produce from 11 family-run farms. One farmer with 800 acres in Oakley, California, met Wadiak at a sustainable agriculture conference a year after Blue Apron’s founding, and two years later, he was selling entire acres of sweet corn and beans to the company. He was in talks to sell more obscure ingredients too, such as zucchini blossoms and purslane, an edible weed that grew next to his beans.8
The more of the farmer’s land that could be converted to organic crops, the more Blue Apron offered to purchase. Blue Apron’s growth meant it had to execute precision logistics at enormous volume. Ingredients had to be measured, cut, prepped, bagged, packed, palletized, and shipped.9
Healthy, appealing recipes had to be created with affordable ingredients procured from purveyors of produce, meat, cheese, bread, and spices, and hundreds of family-run farms. It was a massive undertaking.
In June 2015, the company raised $135 million at a $2 billion valuation. The money was earmarked to continue growing Blue Apron’s 1,800 employee staff, adding to positions in fulfillment, marketing, technology, operations, and purchasing. The company was busy developing in-house software tools to manage purchasing, fulfillment operations, e-commerce, ordering, shipping, and customer service. Three fulfillment centers had been built in Jersey City, New Jersey; Arlington, Texas; and Richmond, California; and more were planned. In 2015, Salzberg said, “We source from farms locally to different regional fulfillment centers. So if you’re in California you are generally getting produce from a California farm. We have a whole team of people whose job it is to go out, meet farmers, build those relationships. Today we are literally at the point in the company’s life where we are planting items in the ground with farms just for us…
What it allows us to do is work with the farmers to plan their production in a way that allows them to be more seasonal, more efficient and utilize their resources better which results in higher quality crops for us and for our customers at lower prices for them.”10
Customers also seemed to like that ingredients were sustainably sourced and that the company supported local and family-owned businesses. Blue Apron even used some of the new funds to start a wine-subscription business in 2015, going directly to vineyards to create custom Blue Apron wines to uniquely pair with meals. Growth seemed limitless.
Vulnerabilities in the Value Proposition?
Blue Apron’s founders believed that its core product was the experience it offered its customers. The company strived to build a “consumer lifestyle brand that symbolizes the emotional human connections that are formed through the cooking experiences we create.”11 Blue Apron’s processes aimed to increase efficiencies, ultimately leading to increased profitability. By 2016, the company had 4,000 employees, selling eight million meal kits per month. For a fast-growing company, some amount of growing pains were assumed. Thomas came across reports that a former team lead at Blue Apron had said, “There were plenty of times where the kitchen would say we had 2,000 celery, but we actually had zero…I would get sent to Whole Foods and buy things if we really needed an ingredient and we didn’t have it in the building.”12
Thomas could see the appeal of the service as a way to restore a family to the tradition of sitting at the dinner table together. Home-cooked meals were an important factor contributing to a family’s health and general well-being. But did healthy eating require cooking? Thomas wasn’t sure. Cooking required time, the lack of which was a primary reason people gave for not preparing food at home. Blue Apron tried to simplify this process and customers seemed to like the product, at least for a while. Forty-two percent of Blue Apron’s customers in 2017 were acquired through their customer referral program. Thomas wondered, though, about customer retention. Blue Apron seemed like a smart, easy way to learn to cook, but once people had learned their way around the kitchen, wouldn’t they want to shop from the grocery store themselves? It surely would be cheaper. Salzberg said, “People are interested in cooking things that they hadn’t cooked before. They are interested in trying new ingredients. Part of the reason we can work with ingredients that a grocery store doesn’t have is because we taught you how to work with them…We’re generating demand for these kind of products in a way that grocery stores can’t generate demand.”13 In June 2017, Blue Apron made its IPO at $10 per share, a price that valued Blue Apron at just under $2 billion—but the deal was priced 34% below the original range set by Wall Street bankers.
When Thomas pulled up Blue Apron’s financials, she expected to see some evidence of the company’s efficiencies of scale. (Exhibit 2.) While it had grown its revenues, so too had it grown its losses. Thomas understood the Silicon Valley ethos of spending excess marketing dollars to grow sales, but what about profits? Thomas wondered about the sustainability of the business model. Still, the market was enormous—the US grocery market was near $780 billion with just a 1.2% online penetration, and the US restaurant market was near $540 billion with a 2.2% online penetration. The global restaurant market was almost five times larger.14
In 2017, the company’s two-person plan represented 79% of meal orders. 21% were for the four-person family plan.15 Blue Apron remained “committed to sourcing fresh, high-quality ingredients from farmers, ranchers, fishermen, and artisans year round.”16 The company stressed that its beef, poultry, and pork came from animals given exclusively vegetarian feed with no added hormones or antibiotics. It sourced only non-GMO ingredients and bought mostly from organic producers. “A lot of our farmers are medium- and small-sized farms instead of these larger commercial farms,” explained Salzberg.17
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In late 2017, however, customers began to leave the service. (Exhibit 3.) This occurred even though marketing expenses had risen to $154.5 million in 2017, up from $144.1 million in 2016. Soon, though, quality issues put a temporary halt to marketing. As a result, profitability sank, as expected. Analysts also pointed to extremely labor-intensive assembly processes where most costs of operations (including shipping and packaging) were not reflected in the company’s pricing structure. Some thought the company should raise prices to achieve profitability, but that would just drive more customers away. The company began to retrench, focusing on margin improvements through improved productivity and expense control. Headcount was reduced and decision-making responsibilities were streamlined to ensure greater accountability. Construction of a Fairfield, California, fulfillment center was halted, given the reduced sales outlook. The Jersey City fulfillment center transitioned all its production volume to the company’s new Linden, New Jersey, facility, which boasted state-of-the-art technology though its efficiencies and profitability lagged behind the other two facilities in Arlington and Richmond.
In November 2017, Salzberg stepped down as CEO but remained chairman, and Brad Dickerson took the CEO title. Between 2017 and 2019, Blue Apron cut marketing outlays further, resulting in more customers fleeing. In April 2019, Linda Findley Kozlowski replaced Dickerson as CEO. In the second quarter of 2020, Blue Apron closed its Arlington fulfillment facility.
Thomas checked Google trends to understand the search picture and general interest in the term “Blue Apron,” and noticed that it seemed to have peaked in early 2017 (Exhibit 4). Customer retention had always been an issue in the industry—Blue Apron’s churn was close to 25% for the first two years of a customer using the service. This translated into a $95 customer acquisition cost. An average customer spent about $1,000 per year in 2017 and produced 30% gross margins, but these numbers had increased in 2021 to about $1,250 per year, with a 33% gross margin.18 There were many potential reasons for Blue Apron’s faltering growth, but Thomas thought the biggest problem Blue Apron faced might be related to the rise of competitors and new disrupters in the industry.
Competition
According to the Blue Apron annual reports that Thomas scrolled through, the company faced competition from six areas: other food and meal delivery companies, the supermarket industry, food retailers, casual dining and quick-service restaurants, wine retailers, and food manufacturers. The meal-kit industry was highly fragmented: companies competed heavily on price, the quality of the offering, and convenience. In the United States, the industry was estimated to be worth almost $7 billion in 2021 and was projected to grow to $10 billion by 2024.19 Twenty-five percent of people living in cities had tried meal-kit services, compared to just Exhibit 2 Blue Apron Historical Financials
Year Ended December 31,
2015 2016 2017 2018 2019 2020 2021
(in thousands of US dollars)
Net revenue $ 340,803 $ 795,416 $ 881,191 $ 667,600 $ 454,868 $ 460,608 $ 470,377
Operating expenses:
Cost of goods sold (COGS) 263,271 532,682 627,964 433,496 279,135 282,924 301,763
Marketing 51,362 144,141 154,529 117,455 48,133 49,934 72,086
Product, technology, general, and administrative
70,151 165,179 247,907 194,340 144,925 137,244 145,442
Depreciation and amortization 2,917 8,217 26,838 34,517 31,200 24,503 22,203
Other operating expense – – 12,713 2,170 3,571 4,567 0
Total operating expenses 387,701 850,219 1,069,951 781,978 506,964 499,172 541,494
Income (loss) from operations (46,898) (54,803) (188,760) (114,378) (52,096) (38,564) (71,117)
Net income (loss) $ (46,965) $ (54,886) $(210,143) $(122,149) $ (61,081) $ (46,154) $ (88,381)
EBITDA (43,981) (46,586) (161,922) (79,861) (20,896) (14,061) (48,914)
Data source: “Blue Apron:Citron Research Joining the Party,” Seeking Alpha, January 21, 2022, https://seekingalpha.com/article/4480745-blue-apron-stock-citron-research-peloton
-acquisition (accessed Mar. 2, 2022).
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Exhibit 3 Blue Apron Operating Metrics
2015 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 841 1,247 1,763 1,970
Customers (in thousands) 213 303 414 429
Average order value $ 57.77 $ 58.74 $ 58.01 $ 59.21
Orders per customer 3.9 4.1 4.3 4.6
Average revenue per customer $ 228 $ 242 $ 247 $ 272
2016 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 2,903 3,399 3,597 3,674
Customers (in thousands) 649 766 907 879
Average order value $ 59.28 $ 59.40 $ 57.12 $ 58.78
Orders per customer 4.5 4.4 4.0 4.2
Average revenue per customer $ 265 $ 264 $ 227 $ 246
2017 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 4,273 4,033 3,605 3,196
Customers (in thousands) 1,038 943 856 746
Average order value $ 57.23 $ 58.81 $ 58.16 $ 57.99
Orders per customer 4.1 4.3 4.2 4.3
Average revenue per customer $ 236 $ 251 $ 245 $ 248
2018 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 3,474 3,122 2,647 2,418
Customers (in thousands) 786 717 646 557
Average order value $ 56.58 $ 57.34 $ 56.79 $ 58.12
Orders per customer 4.4 4.4 4.1 4.3
Average revenue per customer $ 250 $ 250 $ 233 $ 252
2019 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 2,482 2,048 1,726 1,622
Customers (in thousands) 550 449 386 351
Average order value $ 57.15 $ 58.16 $ 57.60 $ 58.14
Orders per customer 4.5 4.6 4.5 4.6
Average revenue per customer $ 258 $ 265 $ 258 $ 269
2020 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 1,763 2,152 1,917 1,879
Customers (in thousands) 376 396 357 353
Average order value $ 57.68 $ 60.88 $ 58.56 $ 61.43
Orders per customer 4.7 5.4 5.4 5.3
Average revenue per customer $ 271 $ 331 $ 314 $ 327
2021 31-Mar 30-Jun 30-Sep 31-Dec
Orders (in thousands) 2,104 1,977 1,760 1,678
Customers (in thousands) 391 375 350 336
Average order value $ 61.63 $ 62.72 $ 62.30 $ 63.78
Orders per customer 5.0 5.3 5.0 5.0
Average revenue per customer $ 331 $ 330 $ 313 $ 319
Data sources: Blue Apron SEC Form 10-K, 2017, https://otp.tools.investis.com/clients/us/blue_apron/SEC/sec-show.aspx?FilingId=12572692&Cik=0001701114&Type=PDF&hasPdf=1 (accessed Mar. 2, 2022).
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14% of people in rural areas.20 While Blue Apron had pioneered the meal-kit industry, low barriers to entry and access to a mountain of venture capital money meant that by 2022, many competitors existed. In addition to Blue Apron, three publicly traded peers existed: HelloFresh, Marley Spoon, and Goodfood (which was only in Canada). There were also more than 100 other private competitors. Better-known global examples included Home Chef, EveryPlate, Sunbasket, Dinnerly, Plated, Purple Carrot (which was entirely plant based), Maria, Ooooby, Gousto, Nutrisystem, Diet-To-Go, Gobble, and My Food Bag.
Since 2016, the Germany-based HelloFresh had risen as Blue Apron’s prime challenger in terms of active subscribers, based on its growth in the United States and internationally (Exhibit 5). It had taken the lead in the United States in 2018.21 HelloFresh launched in 2012, and 40% of its sales came from outside the United States. HelloFresh had operations in Germany, Austria, Netherlands, Belgium, the United Kingdom, the United States, Australia, Switzerland, Canada, and Luxemburg. HelloFresh utilized a data-driven approach, which helped it to more efficiently spend its marketing dollars to optimize customer acquisition while executing on the logistics end. The minimum spend for HelloFresh was $54.95 per week, which paid for two two-serving meals at $11.49 per serving plus $8.99 shipping. By comparison, Blue Apron’s minimum spend per week was $47.95. On the high end (eight four-serving meals) HelloFresh cost $245.67, including $5.99 shipping, while Blue Apron charged $239.68 for the same number, and offered free shipping.22 HelloFresh and other competitors offered new customers as much as $30 off on orders and offered lapsed customers $25 off.
Pricing was competitive—the average meal price ranged from about $5.00 to $11.50 (Exhibit 6). Competition had already forced prominent closures from Chef ’d in 2018 (after three years of service), Munchery in 2019 (after nine years of service) and PeachDish in 2019 (after five years in service). Sixty-three percent of potential customers in the United States cited price as the reason for not using meal kits.23 There had also been some consolidation in the market (Exhibit 7.) Many supermarket chains like Kroger had started to sell their own meal kits and created hot bars and ready-to-go meal options to cater to customers seeking convenience and high-quality products at a reasonable price. Albertsons had even directly joined the meal-kit competition by acquiring Plated for $300 million in 2017. Eight months later, Kroger acquired Home Chef. Optimism for global growth in the industry continued to be strong despite setbacks. The size of the global meal-kit industry was expected to grow to $24 billion by 2027 (Exhibit 8). In early 2022, Gousto raised $100 million from SoftBank’s Vision Fund, showing venture funds’ continued interest in the space. Amazon was also making its own push into the business. In 2017, Amazon launched AmazonFresh, a grocery-delivery service that allowed users to shop online, reserve times to pick up groceries, and have them loaded into their car. Soon, the company started selling meal kits ranging in price from $16 to $20. In 2019, Amazon began to offer one-to-two-hour delivery of meat, seafood, eggs, and produce in a test market, and in 2020, AmazonFresh started building a new chain of physical grocery stores while continuing to offer home delivery on the same or the next day for grocery items, including meal kits. Amazon also acquired Whole Foods for over $13 billion in 2017, operating it independently from Exhibit 4 Google Trends results for “Blue Apron”
Source: https://trends.google.com/trends/explore?date=2012-01-07%20
2022-02-07&geo=US&q=blue%20apron (accessed Mar. 2, 2022). Google and the Google logo are registered trademarks of Google Inc., used with permission.
100
110
75
50
25
0
Feb 1, 2012
Interest over time
Feb 1, 2015 Feb 1, 2018 Feb 1, 2021
Exhibit 5 Number of Active Subscribers
Data source: Koen van Gelder, “Global Number of Active Subscribers of HelloFresh and Blue Apron 2016–2021,” Statista, March 4, 2022, https://www.statista.com/statistics/947620
/meal-kit-companies-number-subscribers-worldwide/ (accessed Mar. 2, 2022). 2021 HelloFresh subscriber count is from Q3.
0
1,000
2,000
2016 2017 2018 2019 2020 2021
3,000
4,000
5,000
6,000
7,000
8,000
860 879
1,450
746
2,040
557
2,970
351
5,290
353
6,940
336
HelloFresh Blue Apron
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Exhibit 6 Average Meal Price in Meal-Kit Industry
Company Avg. Meal Price Shipping Best For
Blue Apron $9.74 $0.00 Wine lovers
HelloFresh $8.99 $6.99 Dietary restrictions
EveryPlate $4.99 $8.99 Easy recipes
Sunbasket $8.99 $6.99 Organic
Nutrisystem $8.57 $0.00 Weight loss
Diet-To-Go $9.52 $19.98 Clean eating
Freshly $8.00–$11.49 $12.00 Quick meals
Dinnerly $4.80 $8.99 Families
Marley Spoon $7.99 $8.99 Foodies
Purple Carrot $9.99 $0.00 Vegans
Data source: John Schmoll, “Blue Apron Competitors: 9 Top Alternatives,” Frugal Rules, April 21, 2021, https://www.frugalrules.com/blue-apron-competitors/ (accessed Mar. 2, 2022).
Date Target Acquirer Acquisition Price Revenue Acquisition Revenue Multiple
Nov-20 Factor 75 HelloFresh $277 $100 2.8 Oct-20 Freshly Nestle $1,500 $430 3.5 May-18 Home Chef Kroger $700 $250 2.8 Sep-17 Plated Albertsons $300 $100 3.0 Data source: “Blue Apron: Citron Research Joining the Party,” Seeking Alpha, January 21, 2022, https://seekingalpha.com/article/4480745-blue-apron-stock-citron-research-peloton
-acquisition (accessed Mar. 2, 2022).
Exhibit 7 Acquisition Multiples in Subscription Food Business
Exhibit 8 Size of the Fresh and Packaged Food Meal-Kit Service Market Worldwide from 2020 to 2027 (Market Size in Billions of US Dollars)
Data source: Koen van Gelder, “Global Meal Kit Service Market Revenue 2020–2027,” Statista, February 4, 2022, https://www.statista.com/statistics/655037/global-direct-to
-door-meal-kit-service-market-revenue/ (accessed Mar. 2, 2022).
2020 2021 2022 2023 2024 2025 2026 2027
$10.3
$13.1
$11.6
$14.8
$16.7
$18.7
$21.1
$24.1
0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
AmazonFresh. Whole Foods products could also be delivered in as little as two hours.24
In 2018, Walmart entered the fray with its own line of meal kits rolling out to more than 2,000 stores. The pre-packaged meals were made in-store daily and each two-person kit sold for $8 to $15. Walmart also partnered with Home Chef, Sunbasket, and Takeout Kit to offer delivered meal kits for two or four people, starting at $29.99.25 Walmart’s subscription-only store Sam’s Club also teamed up to offer home delivery of groceries by partnering with a newer player on the scene: Instacart.
Instacart Spies an Opportunity
Instacart was founded in 2012 by a former Amazon supply chain engineer named Apoorva Mehta, who had helped develop fulfillment systems to move packages from the warehouse to a customer’s home. Mehta coded the initial Instacart app himself. It allowed customers to order groceries from partner stores to be delivered by an Instacart “shopper,” who grabbed customer items from the shelves and delivered them to the customer’s home quickly, sometimes in under an hour. Shoppers downloaded an app that provided work opportunities (like Uber) and paid them $20 or more per hour plus tip. Efficient shoppers could earn about $45 per hour.26 Instacart charged a delivery fee between $3.99 to $9.99, depending on demand and external conditions (such as weather). The store and Instacart split the fee. There was also a subscription service that allowed unlimited deliveries, cheaper service fees, and no surge pricing for an annual $99 fee or a monthly $9.99 fee.27
The company partnered with national and regional retailers such as Albertsons, Aldi, Costco, Loblaw, Publix, Sam’s Club, Sprouts, and Wegmans.28 The company also offered 16762_case05_ptg01.indd 72 19/05/23 5:34 PM
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alcohol delivery in more than 20 states, partnering with Albertsons, Aldi, BJ’s Wholesale Club, the Fresh Market, and Total Wine & More. Later, Instacart expanded to a prescription delivery service, allowing medications to be delivered from partners such as CVS and Walgreens. By the end of 2021, Instacart had partnered with more than 600 retailers from almost 55,000 stores in over 5,500 cities in the United States (accessible by over 85% of US households) and Canada (accessible by 80% of Canadian households).29
One of the issues Thomas noted with Blue Apron’s model was that some people liked to shop for ingredients themselves and buy in scale. Wasn’t that how one saved money by cooking at home? Instacart had a place on its site that listed trending recipes. While Thomas didn’t think Instacart’s recipes were as creative as Blue Apron recipes, there were dishes like charred shrimp and pesto Buddha bowls, orange chicken stir-fry with rice noodles, egg salad avocado toast, and hasselback caprese chicken.30 The customer could search for a recipe that looked good and, with one click, order all the ingredients, which would often make enough for a family to eat. There was also a part of the site dedicated to ready-to-eat meals for those who wanted to do minimal cooking.31
In October 2021, Sunbasket (founded in 2014) joined Instacart’s marketplace, becoming the first meal-kit company on the same-day-delivery company’s platform in select markets.32 The partnership allowed customers to get the benefit of a meal kit without a subscription to a service. The price started at $11.99 per serving and customers could choose breakfast, lunch, dinner, or snacks on the following week’s menu. Sunbasket catered to a wide variety of tastes and dietary needs with offerings called Chef ’s Choice, Paleo, Lean & Clean, Gluten-Free, Vegetarian, Pescatarian, Mediterranean, Diabetes-Friendly, Fresh & Ready, Pre-Prepped, and Carb-Conscious.33
The COVID-19 pandemic resulted in a surge for Instacart’s business as customers quarantining at home rushed to have their food delivered. In the space of month (March to April) 2020, the company hired 300,000 workers. In March 2021, Instacart raised $265 million at a valuation of $39 billion from investors such as Andreessen Horowitz and Sequoia, along with Fidelity and T. Rowe Price.34
Uber Eats and the Delivery Platforms
Launched in 2014, Uber Eats was an online food-order platform that allowed users to purchase takeout foods from in-network partner restaurants. The food was delivered by people who logged on to the UberEats app and were paid $15 or more per hour. Uber Eats also allowed Uber drivers to increase their utilization and earnings by accessing demand during nonpeak transport times. Restaurant merchants benefited with incremental demand, a new mobile presence, and efficient delivery capabilities. Uber Eats charged a delivery fee of $2 to $8, based on the distance the driver had to go. For some orders, that fee could be between 13% and 40% of the total. Some complained that this fee was exorbitant, given the fact that the average restaurant profit per order was between 3% and 9% of revenue.
Uber Eats competitors included DoorDash, Grubhub (which was acquired by Takeaway for $7.3 billion in June 2021), Deliveroo, and Caviar. Uber acquired competitor Postmates for $2.65 billion in December 2020. Other rapid-delivery/quick-commerce platforms that had raised significant funding included Getir ($550 million in June 2021) and JOKR ($170 million in July 2021).35
Delivery platforms like Uber Eats made their money through restaurant commission fees (usually, restaurants paid between 15% and 30% of the price of the meal), customer delivery fees (between $2 and $8 collected from the customer), customer service fees, in-app advertising, and tips. Before the pandemic, the restaurant industry was growing about 3% to 4% per year. The trend toward convenience by Gen Z consumers who preferred prepared meals contributed to delivery sales that were growing at double the rate of the restaurant industry.
Then the pandemic hit, lockdowns were established, and delivery platforms like Uber Eats saw a 30% rise in new customers. Food delivery was estimated to be a $150 billion global market in 2021—it had tripled since 2017.36 Thomas noted that in recent years, there had also been a proliferation of “dark kitchens” or “ghost kitchens”: delivery-first or delivery-only restaurant models that lowered business overhead and thus could afford to pay delivery platforms higher commissions to be more prominently featured on the apps.
Decisions
It was Tuesday evening, the night before Thomas’s recommendations were due to her boss. Thomas believed her research had given her a sense of the competitive landscape, but wasn’t sure what to recommend. She wondered if a more granular approach would be helpful.
She thought of the Blue Apron Crispy Skin Salmon with Salsa Verde and Farro Salad she had made recently. “What if I tried to buy something like this from other competitors?” she wondered. Thomas knew she couldn’t get the exact dish from an Instacart or Uber Eats, but thought it might be interesting to ask how much a similar dish (or the ingredients for it) would cost. Thomas went to the Blue Apron site, found the dish, and wrote out the ingredients:
2 skin-on salmon fillets
1/2 cup semi-pearled farro
1 zucchini
1 red onion
2 cloves garlic
1 lemon
1/3 cup salsa verde
1 and 1/2 tbsp golden raisins
1 oz. Castelvetrano olives
1/4 tsp crushed red pepper flake