Can Blue Apron Compete Against Digital Giant Amazon?
If Blue Apron can innovate their supply chain and go fully digital, they might have a fighting shot against Amazon's meal kit delivery service.
Why Digitalized Supply Chains Matter for Meal Kit Deliveries
To stay competitive in the meal kit delivery industry, Blue Apron needs to invest in its digital supply chain to ensure consistent, on-time delivery of high quality ingredients. Within the realm of digitalization in supply chain, on-demand food delivery businesses are competing for customer trust; even being a day late hurts the brand since the customer relies on Blue Apron to feed their family.[i] With so many players in this space including Plated, HelloFresh, Sakara Life, Amazon and more, it’s imperative that Blue Apron “continually improve its offerings with new recipes and more customization” to retain customers when there are “still faster, cheaper ways to get fed.” [ii]
In March 2017, Nielsen reported that in the U.S., “one in four adults had purchased a meal kit …and 70% continue to buy them after making their first purchase.” [iii] Although Blue Apron has the largest market share in the industry at 40.3%, they are losing customers to their competitors. [iv]
Blue Apron Leads the Market Today – But for how long?
Currently, Blue Apron is building a seamless, digital supply chain to stay competitive. Initially, Blue Apron depended entirely on human labor to source ingredients, determine which ingredients go into each recipe and package the meal kit.[v] The process was prone to errors and inefficiencies; for instance, in order to switch “a line to pack a different kind of box could take hours, leaving workers standing around.”[vi] To reduce idle time, the company created a software that digitizes supply chain, giving full access and visibility to everyone involved. The software “helps turn recipes into manufacturing specifications, record where each ingredient is at all times and assure it is kept at an optimal temperature.”[vii] Now, workers “use computers throughout the facility to find out where build and prepped ingredients are located,” making it easy to quickly find information.[viii] Blue Apron has also equipped workers with iPads to notify a runner to bring over more ingredients, instead of making the request in person.[ix] In the medium term, Blue Apron is opening new fulfillment centers that include state of the art technology to help workers gain better visibility into the supply chain process.[x] These digital initiatives give workers more visibility into the supply chain, empowering them to be more efficient and intentional with their time.
The Future of Blue Apron
In the short term, I suggest Blue Apron minimize the human elements in the existing process. One area of inefficiency is that “sometimes workers neglect to use portable scanners to check ingredients in and out, meaning the database doesn’t accurately reflect how much food is left in inventory.”[xi] Blue Apron can add visual cues and make it a requirement to check out ingredients before transporting the ingredients to the packing station. Blue Apron can save time otherwise spent checking inventory, and improve visibility among workers to reduce confusion and idle time.
In the medium and long term, Blue Apron should invest in automation to make the logistics process of preparing meal kits seamless. Amazon’s talents lie in its ability to deliver goods to customers in a short period of time –to match these capabilities, Blue Apron should identify ways to automate quality control of ingredients, enable customers to see the status of their orders, connect consistently with farmers and create the shipment.[xii] This automation will make operations more efficient and less prone to human error, empowering Blue Apron to deliver quality food, on time.
Food for Thought
In closing, I have questions about the future success of Blue Apron: Should Blue Apron create a more comparable business model to Amazon for competitive reasons (Blue Apron is a subscription business whereas Amazon meal kit deliveries can be ordered individually)? If so, how will Blue Apron need to adjust its supply chain and demand planning efforts? Will they be able to do this in an effective manner – how much overhaul will be required?
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[i] Jing Cao, “Inside Blue Apron’s Meal Kit Machine,” Bloomberg, April 10, 2017, https://www.bloomberg.com/news/articles/2017-04-10/inside-blue-apron-s-meal-kit-machine, accessed November 13, 2017.
[ii] Ibid
[iii] “Understanding the Meal Kit Landscape and Consumer Preferences,” Nielsen, March 30, 2017, http://www.nielsen.com/us/en/insights/news/2017/understanding-the-meal-kit-landscape-and-consumer-preferences.html, accessed November 12, 2017
[iv] Rani Molla, “Blue Apron still dominates the market for meal delivery kits but its market share is plummeting,” Recode, November 1, 2017, https://www.recode.net/2017/11/1/16581142/blue-apron-market-share-decline-meal-kit-delivery-hello-fresh, accessed November 13, 2017
[v] “Blue Apron’s Secret Ingredient is a 100-person Tech Team,” Uncubed, June 15, 2017, https://uncubed.com/daily/blue-aprons-secret-ingredient-is-a-100-person-tech-team/, accessed November 12, 2017
[vi] Jing Cao, “Inside Blue Apron’s Meal Kit Machine,” Bloomberg, April 10, 2017, https://www.bloomberg.com/news/articles/2017-04-10/inside-blue-apron-s-meal-kit-machine, accessed November 13, 2017.
[vii] “Blue Apron’s Secret Ingredient is a 100-person Tech Team,” Uncubed, June 15, 2017, https://uncubed.com/daily/blue-aprons-secret-ingredient-is-a-100-person-tech-team/, accessed November 12, 2017
[viii] Ibid
[ix] Ibid
[x] Jing Cao, “Inside Blue Apron’s Meal Kit Machine,” Bloomberg, April 10, 2017, https://www.bloomberg.com/news/articles/2017-04-10/inside-blue-apron-s-meal-kit-machine, accessed November 13, 2017.
[xi] Ibid
[xii] Adam Levy, “Blue Apron’s Failed Execution Just Opened the Door for the Competition,” The Motley Fool, August 15, 2017, https://www.fool.com/investing/2017/08/15/blue-aprons-failed-execution-just-opened-the-door.aspx, accessed November 12, 2017
It’s daunting for me to think about Blue Apron taking on Amazon. I definitely agree that digitizing its supply chain to improve reliability is a good step for them to take. I wonder, however, how far they should take this.
Automation is usually most beneficial when a company has high volume and high standardization [1]. Amazon definitely has both these qualities, and therefore should benefit from maximum automation. Blue Apron, however, is a smaller player. And, to differentiate themselves against Amazon, I believe they may need to offer more customization and seasonal offers. With a smaller, more dynamic set of goods in their supply chain, I worry that their ability to digitize profitably is limited.
[1] David Allais, “Automation in the Warehouse: Asset or Obstacle?” Industry Week, July 13, 2017, [URL], accessed November 2017.
It doesn’t really matter if Blue Apron adjust it’s business model from subscription base to individual orders. As you mentioned, there are many competitors in the field, with Amazon being the biggest competitor, who has a lot of money to burn to push out other players. This business model can also be easily copied by any food delivery company who is willing to invest in the ingredients procurement system or the delivery system. Blue Apron is already losing money every year. I’m not sure how long this business can last without burning cash.
You raise an interesting question about whether Blue Apron should change its business model from a subscription business to individual order meal kit deliveries. Certainly, a benefit of the subscription model is Blue Apron’s increased visibility into upcoming demand – i.e., with a subscription model, meal kits are delivered on a predetermined schedule, making it easier for Blue Apron to project demand and source materials to minimize wasted perishable inventory.
While individual order meal kit deliveries can provide customers with more ordering flexibility, I worry that a transition from a subscription model to individual order meal kit deliveries could disrupt Blue Apron’s planning methods and therefore its ability to fulfill complete orders. Given that Blue Apron’s customer promise is to deliver “chef-curated recipes using farm-fresh ingredients, sent straight to your door” in “exactly the right proportions” [1], missing ingredients could present a problem for the company’s packaging and distribution system and, therefore, its ability to meet customer expectations.
[1] Blue Apron, https://www.blueapron.com, accessed November 2017.
Great write-up! I think you’re right that the digitization of Blue Apron’s supply chain is crucial – and not just to compete with Amazon, but for it to simply survive. It’s 16% daily stock dip on news a few weeks back over increased costs associated with supply-chain issues in its NJ fulfillment center highlighted the huge risks in having human labor compete against Amazon’s extremely automated chain. This reminds me of some of the differences between the Santa Clara and Yokahama plants in tonight’s United case: in a world where Blue Apron is competing on quality and price, it’s requisite that they be able to compete with Amazon on cost, which they clearly can’t do in a profitable fashion with the current supply chain (both in the fulfillment center and beyond). Figuring this out in the very near future – and convincing investors that there’s an actionable plan in the offing – seems imperative to Blue Apron’s survival.
Really interesting article! I agree it is very important for Blue Apron to digitalize its supply chain in order to stay competitive with Amazon. I had not appreciated that they previously depended entirely on human labor! That said, I also agree with @abcde and greatly worry about the sustainability of their business model, regardless of digitalization of the supply chain. With the immense competition in the space, Blue Apron’s customer acquisition cost have surged from $94 to over $400 (1). Furthermore, to stay relevant and top of mind for consumers, Blue Apron will have to continue to spend aggressively on sales and marketing. Given these increasingly rising costs, I worry about Blue Apron’s ability to ever be profitable.
(1) https://www.fool.com/investing/2017/08/20/will-blue-apron-ever-turn-a-profit.aspx