Blue Apron shares are down nearly 63% for the last 12 months as it struggles to turn a profit.
Meal kits were expected to overhaul dinner time in the U.S., helping busy workers indulge their love of cooking without the burden of shopping for individual ingredients.
Now, it seems the many players that have emerged in recent years—there are more than 150 meal-kit companies operating in the U.S. today, according to The Motley Fool— are backing a business model that is unsustainable, suggesting a shake-out is all but inevitable.
“The meal kit sector seems a lot like the dot com boom and bust of the late 90s,” said Darren Seifer, food and beverage industry analyst at NPD Group. “Lots of competitors jockeying for market share and not focusing on the bottom line.”
The main problem facing meal kit providers is the high cost of customer acquisition, and the difficulty of retaining those customers, who can quickly move on to embrace the next food fad. Then there’s the cost of paying staff to put the ingredients together and the packaging and logistics required to deliver a highly perishable product.
“Between having staff to get boxes together, shipping costs, [and other costs], it sounds like it could be an expensive business model,” said Seifer.
For now, Blue Apron Holdings Inc. APRN, -1.38% and HelloFresh SE HFG, +0.92% , the two biggest publicly-traded, pure-play meal-kit providers, have failed to turn a profit. Blue Apron was founded in 2012, while the Berlin-headquartered HelloFresh was founded in 2011. Blue Apron shares have fallen 60% in the last 12 months, while the S&P 500SPX, -0.93% has gained 5%.
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People like meal kits but their business model is unsustainable