Has Blue Apron (NYSE: APRN) finally tied its apron strings to the right partner by making meal kits available to dieters at WW (NASDAQ: WTW), the leading weight loss specialist formerly known as Weight Watchers?
Blue Apron CEO Brad Dickerson thinks that supplying WW's 2.8 million members in North America with meal kits based on the weight loss service's popular Freestyle program could actually make Blue Apron profitable this year. Freestyle encourages more meals made from fruits and vegetables rather than emphasizing counting points or calories, which fits well with Blue Apron's focus.
The market certainly is hopeful, as Blue Apron stock has jumped more than 50% since the partnership was revealed. But WW has been down this meal kit road before, and I see nothing to suggest this time will be any more successful.
Image source: Blue Apron.
Exposure to millions of potential customers
Since going public, Blue Apron has struggled in convincing the market it can be a viable business, let alone one worth investing in. Although many blame Amazon.com for wrecking the meal kit maker's potential after announcing it was buying Whole Foods Market just before Blue Apron's IPO, the e-commerce giant has thus far had little practical impact on the business.
The real problem has been that the meal kit delivery model upon which Blue Apron was founded has fundamental shortcomings. With direct-delivered meal kits more expensive, less flexible, and not in tune with the impulsive way many people approach the dinner menu, Blue Apron saw increasing numbers of customers opt for competing meal kits that could be purchased in supermarket freezer cases.
That's why Blue Apron hopes a partnership with WW holds potential. Its customers are looking for specific meal components and having them available without needing to worry about whether the food will ruin their diet. It seemingly makes the two businesses a good fit, and Blue Apron can use a little bit of the Oprah magic that the WW spokesperson and investor brings to the table.
Although the financial details weren't disclosed, Dickerson told The Wall Street Journal that Blue Apron will pay WW a small fee for every subscription it receives from a member. The meal cost is reportedly the same as Blue Apron's existing two-person plan in which subscribers receive three recipes delivered weekly for $60. That works out to about $10 per serving, which isn't too expensive -- but after WW's cut, is there enough left over for profit?
Hoping for a second helping
Perhaps the company is hoping that customers will stay around and renew their subscriptions. But Blue Apron and industry leader Hello Fresh have extraordinarily high turnover rates, which is why Blue Apron has had to invest so heavily in marketing to keep attracting new customers.
Dickerson told The Washington Post, "Historically, we've been going out and acquiring one customer at a time. This is a great way for us to get our brand in front of multiple customers at a time." The key will be whether they stay around and renew.
WW, however, previously had a partnership with meal kit outlet Chef'd, which ended up shutting down its operations last July, around the same time its deal with WW ended. Chef'd couldn't find financing to continue operating and ended up being bought out, even though Campbell Soup and Smithfield Foods had both invested in it.
The troubles at Chef'd suggest WW x Blue Apron, as the partnership is called, won't be a panacea -- that the same structural problems that lead consumers to buy meal kits in supermarkets over paying for a subscription will still be present.
The meal plans targeted to the Freestyle program could help, but that also risks WW's reputation. Competing weight-loss specialist NutriSystem (NASDAQ: NTRI) offers menu items that you have to buy as part of the program, and WW has used that fact to distinguish itself in the past. This may become a partnership that WW decides does more harm than good.
What to watch for from Blue Apron
Hope springs eternal at Blue Apron, which has thrown many ideas at the wall to see what sticks. Although its stock briefly traded above the $1 threshold, it's sunk once again, and investors should resist pulling up a chair to the table until the meal kit specialist can show fat profits from customers looking to slim down.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.