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Will On-Demand Meal Kits Save Blue Apron?

Rich Duprey, The Motley Fool

Meal kit delivery specialist Blue Apron (NYSE: APRN) may have finally hit on an idea that saves its business. Implementing an on-demand meal kit service that doesn't require a subscription could be an innovation that allows it to survive as a stand-alone.

Evidence is quickly mounting that its current business model is not only flawed but destined for failure. Subscription-based, delivery-only companies are quickly fading because it's a high-cost, low-efficiency option that's very expensive to operate.

Although consumers like the idea of having the first steps of meal prep done for them so they can finish the process themselves, relatively few can afford the subscription-based model Blue Apron and others originally operated under. It is hemorrhaging customers at an alarming rate, and even spending more on marketing to acquire new customers isn't working anymore.

A Blue Apron meal kit sold at Costco.

Image source: Blue Apron.

Retail is only half the strategy

The proliferation of meal kits in grocery stores has sunk the subscription business. Why be locked into a costly membership program when you can easily pick up a kit whenever you want when you go to the supermarket?

Blue Apron is attempting to break into that space by having its meal kits appear in Costco (NASDAQ: COST) refrigerators, though that didn't help smaller rival Chef'd, which had its kits in Costco and 26 other supermarkets, as well as partnerships with major food companies like Campbell Soup and Smithfield Foods. It was unable to continue raising money to operate and subsequently shut down its business (though its assets were quickly acquired, and it will become a retail-only operation).

Blue Apron is similarly burning through cash as it tries to find a way to be profitable. Its on-demand idea may just be its best one yet.

Going one step further

Dinner is almost an impulse purchase. Food data analysts at Food Genius say 80% of consumers have no idea what they're eating for dinner that day by as late as 4 p.m. Cooking dinner is fine; buying the ingredients and prepping them is a drag.

That's why sales of meal kits in grocery stores are growing so fast, up 26% last year, and more new competitors keep entering the market. Weight Watchers, for example, introduced its own branded meal kits earlier this year that will be rolling out to supermarkets throughout the year, as did Walmart. That also suggests being in a supermarket's refrigerator case is no longer a key to success for the meal-kit companies as their kits will be just one of many options available.

But a same-day delivery service could be the winning hook. Because meal planning is a last-minute decision, offering consumers a broad selection of meal choices online, with the ability to have a kit delivered in time for dinner, could be a big opportunity. Selections in the grocery store are fine, but they're limited in the number of menu options offered and in shelf space. And it still requires the customer to go to the supermarket to get them.

CEO Brad Dickerson said on the Aug. 2 conference call with analysts that the company would be looking to test on-demand, nonsubscription delivery and that investors should look for more announcements in the coming months.

An experiment worth watching

There is still the matter of cost. Blue Apron's meal kits that are sold in Costco are reportedly 30% cheaper than those available from its subscription service, selling for about $6.25 per serving and other kits are available whose servings cost between $5 and $10 each. If Blue Apron can find an attractive price point for its new service, it could be very enticing to consumers.

Dickerson said on the company's conference call that Blue Apron will be experimenting with the delivery service on each coast and using third-party delivery partners to get the kits to a customer's door. CFO Tim Bensley said he sees the on-demand opportunity -- which encompasses being both in supermarkets and online -- as far exceeding the existing subscription model.

It's hard not to agree with that outlook, and it could be what ultimately saves this meal kit company.

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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.