Shares of meal-kit provider Blue Apron (NYSE: APRN) have recovered from an all-time low over the past few trading days, driven in part by its new partnership with WW (NASDAQ: WTW), formerly known as Weight Watchers. Blue Apron will offer a rotating selection of six recipe options designed for the WW Freestyle program.
For Blue Apron, the goal here is to reduce the cost of bringing on new subscribers, something that it desperately needs to do. The company lost about 10% of its customer base in the third quarter despite spending more than 15% of its revenue on marketing. The fees that Blue Apron will pay WW for new customers could offer a better return on investment for the company, if only because the current marketing strategy is so ineffective.
While this partnership might help lower costs for Blue Apron, it doesn't solve the fatal flaw in the company's business model. Priced the same as Blue Apron's normal subscription offering, this new WW Freestyle menu is still radically overpriced compared with buying ingredients at the grocery store. Blue Apron has trouble retaining customers because its product is way too expensive. This partnership changes nothing.
Image source: Blue Apron.
Blue Apron's new WW Freestyle menu plan is the same as its standard plan, save for the different recipes. The three-recipe-per-week option costs $59.94, which works out to $9.99 per serving (at two servings per recipe). The recipes display the number of SmartPoints per serving, and range from 0 to 15 SmartPoints. The point system is WW's latest method for tracking food and drink consumption.
If you ignore the price, this doesn't sound like a bad idea. The partnership provides WW customers with some added convenience, with Blue Apron handling the meal planning for a few meals per week. The more constraints on what you can eat, the more mental energy that needs to be expended to plan out meals, so Blue Apron's new plan provides at least some value.
Reducing marketing costs is the company's only chance at becoming profitable. If this partnership can bring in new customers at a lower cost, the bottom line could start moving in the right direction. At least, that's the idea.
Winning a customer and retaining a customer are two different things. Blue Apron has had success winning customers. Its product is the kind of thing that sounds like a good idea, especially given the new-customer discount that's standard among meal kit companies. Blue Apron is offering 50% off the first two boxes from the WW Freestyle menu, which should convince plenty of WW customers to try it out.
But Blue Apron's customers tend to wise up and bail on the service quickly. That's why sky-high marketing costs aren't enough to prevent the customer count from falling. At $9.99 per serving, Blue Apron is priced similarly to a meal at a fast-casual restaurant. And it's easily twice as expensive as making comparable meals from ingredients bought at the grocery store.
For WW customers, it's not difficult to find SmartPoint totals for various restaurant items. There's no shortage of blogs that catalog this information. And the new Blue Apron service doesn't save a trip to the grocery store since it doesn't cover all the meals in a week. It offers some convenience, but not nearly enough to justify the cost.
Even if Blue Apron brings down its customer acquisition costs, the partnership doesn't solve its customer retention problem. Lower prices are the answer, but it's not cheap to ship a heavy box of perishable food to people's doors. Blue Apron would still be losing money if it cut its marketing costs to zero, so this partnership is far from a panacea.
The WW partnership is part of Blue Apron's plan to turn a profit in 2019. But the odds don't look good.
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