Blue Apron (APRN) made a lukewarm debut on the NYSE at $10 per share on Thursday morning, after slashing its IPO pricing by one-third the day prior.
The meal-kit delivery company, valued at $2 billion in the private market, is going public at a time when the food-delivery space has gotten increasingly crowded. This competitive environment may force companies like Blue Apron to diversify their products if they want to survive.
The two types of food-delivery companies
The space has two distinct categories: grocery delivery, which is disrupting the $782 billion market; and the meal and restaurant delivery space that’s shaking up the $540 billion market. Both of these categories operate in primarily urban areas and surrounding suburbs.
Blue Apron falls into the grocery delivery space, as it ships uncooked ingredients. Grocery delivery startups have been attracting increasing investor dollars year-over-year since 2013, amounting to $1.4 billion in funding last year, according to CB Insightsx. Instacart is a stand-out player that raised $400 million in March, boosting its valuation to $3.4 billion.
However, we haven’t seen a massive success story for a prepared-meal delivery company. In fact, we’ve seen a litany of failures — David Chang’s Maple, Spoonrocket, Sprig, Kitchit, Kitchensurfing and Dinner Lab all shut down this year.
The need to diversify
While the meal delivery space has been sexy, the target demographic — wealthy and millennial — is still far too narrow.
“If you think about Maple or Munchery, they are more cult brands and appealed to a niche customer, offering some name brand value, which is not as scalable,” said Eric Kim, partner at Goodwater Capital, a venture firm that invests in consumer tech.
Kim points out that these food delivery companies need to broaden their scope, not only in terms of affordability but also in offerings.
“Diversification will be the name of the game, whether it means going into commodity kits, smaller kits or deeper into the grocery stack,” he said. “Amazon has now become the one stop shop for everything and doesn’t want any leakage at all.”
Going mainstream
Earlier this month, healthy meal-delivery startup Freshly raked in a $77 million investment from Nestle (NSRGY), bringing its total funding to $107 million.
In order to incentivize customers to stick around and appease investors, Freshly CEO Michael Wystrach said the company was pressured to lower prices. In fact, before raising the Series C funding from Nestle, Freshly aggressively lowered prices by 16%.
Wystrach said that he wants to reach as many people as possible. The company currently operates across 28 states, including Texas, Arizona, California, Illinois, Colorado, Oregon and Idaho. The company is based in NYC but does not yet operate in the state.