Blue Apron Tests One-Hour Meal-Kit Delivery

You at least have to give Blue Apron (NYSE: APRN) credit for trying. Realizing its subscription-based business model isn't working, the meal-kit company is trying different avenues to get its food on the kitchen counters of customers as quickly as possible. First, it tried same-day delivery service for its kits, and now Blue Apron is partnering with Grubhub and Seamless to deliver a kit within an hour.

Surveys have shown most people don't know what they're having for dinner that night until as late as 4:00 p.m. It's one reason supermarket meal kits are proliferating, up 26% last year, and more competitors are entering the market all the time.

It's also a reason why Blue Apron's same-day delivery service was a smart option. You could look over their meal-kit menus on your lunch break and have all the ingredients necessary delivered to your door for when you get home from work. The delivery-within-an-hour option goes one better.

Dinner on demand

Through a new pilot program in New York City, customers will get a rotating selection of two- and four-serving a la carte meals to choose from that can be prepared in 30 minutes or less. Add-on products like cheeses, coffee, and broth can also be selected from a number of Blue Apron partners.

Using the online and mobile platforms from Grubhub and Seamless, consumers can choose meals like spicy beef and gnocchi with zucchini, Moroccan-style couscous bowls with chickpeas, tomatoes, and feta cheese, and pork chorizo burgers with fig mayo and roasted peppers. The meals will change weekly, but delivery is available only between 4 p.m. and 8:45 p.m.

Some analysts are concerned that Blue Apron choosing to partner with delivery services like Grubhub and Seamless is a mistake because they are primarily known for delivering prepared fast-food items, and with Blue Apron, you still need to cook the food. But Uber started as a ridesharing service yet Uber Eats is a viable food delivery alternative and people don't expect to be taken somewhere when their food arrives. People will similarly realize that when ordering a meal kit, some preparation still needs to be done.

Other concerns include trying the program in New York because consumers have a multitude of pickup options they can choose from on the way home from work, but there's also a critical mass of people in New York to test out the service and the population density makes the delivery option optimal.

A new, cheaper meal

While the on-demand option is good, Blue Apron might be better off having its meal kits widely distributed in supermarkets to reach the broadest possible audience. While it does have an agreement with Costco to have its meal kits appear in its refrigerators, that's only a few hundred stores. Partnerships with Walmart or Kroger, which have thousands of stores each, are better.

The real problem for Blue Apron has been the commoditization of meal kits. What was once a premium service has now become regular fare available at almost any outlet. Where servings used to cost anywhere from $15 to $30 or more per serving, they can now be had for just a few dollars each. Even this new one-hour delivery option from Blue Apron is less than $10 per serving.

However, that's going to cause further problems with margins as the meal-kit company is still producing operating losses and lower prices will pinch them further. Its stock has lost nearly three-quarters of its value over the past year and is down 65% in 2018 alone.

In the end, a buyout may be the best alternative Blue Apron has to save its business. It should have figured out its original model wasn't sustainable long before it had to scramble to come up with some new idea to get dinner on the table.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.