Blue Apron Fends Off Obscurity in Another 15 Minutes of Fame

(Bloomberg) -- The recent popularity of Blue Apron Holdings Inc.’s mail-order meal kits is giving the struggling company a much-needed boost, but some industry watchers say that will pass once the coronavirus outbreak abates.

Blue Apron is attracting new users in part because fresh ingredients can be hard to find in supermarkets right now, said Dan McCarthy, an assistant professor of marketing at Emory University’s Goizueta Business School. However, he notes the company was “bleeding customers very consistently” up until recently and that’s likely to be the case again once people return to their normal lives.

“The amount of repeat business they were getting was not enough to sustain their business,” McCarthy said in a phone interview. “It’s likely delaying the inevitable.”

Blue Apron declined to comment. McCarthy has been following the meal-kit company since a few months before its June 2017 initial public offering and references it in lectures as a case study.

The company gained traction as an early pioneer in the meal-kit market, but the stock suffered an ill-timed IPO and has languished in the years since amid steep competition and customer retention challenges. In February, Blue Apron said that it was evaluating options to rekindle the business, including raising additional capital or selling assets. Then the coronavirus took hold, leading to a spike in demand from Americans trapped at home.

Shares of Blue Apron have nearly quadrupled so far in March, even as the demand has sparked some worries about whether the company is equipped to handle the volume. Some customers were notified last weekend that their orders would be delayed and certain recipes have been discontinued.

Supply Chain

Blue Apron has said it’s simplifying operations and hiring temporary and permanent workers in its fulfillment centers to meet the increase in orders. As of last week, the company said it hadn’t seen any significant disruption from suppliers as a result of the outbreak.

German competitor HelloFresh SE says it’s anticipating potential changes in delivery times due to stresses in the food-supply chain, though it’s not seeing ingredient shortages so far.

Brittain Ladd, a global supply chain and strategy consultant that has advised investors on Blue Apron, said he’s doubtful the company will be able to handle the newfound business. Just a month ago, it said it was moving forward with plans to close a facility in Arlington, Texas.

That announcement came as the company said it would cut costs to comply with its debt covenants, barring the success of its growth strategy. The company had $54.7 million in outstanding borrowings under its revolving credit facility and $300,000 in issued letters of credit under the facility as of Jan. 31, according to company filings.

Ladd said he had previously advised two investors to buy the company when the stock traded near all-time lows of $2.10 more than a month ago. The stock is now trading close to $11.

McCarthy and Ladd say they don’t have stock or positions in Blue Apron.

“Certainly, no one is going to touch Blue Apron now,” Ladd said in a phone interview. “Blue Apron is a company that is significantly overvalued only because of what is going on because of the coronavirus. But when the virus disappears, that same Blue Apron remains.”

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