Blue Apron: Lifelong Learning For All
In the culinary world, the Blue Apron is a symbol of lifelong learning in the kitchen. Will Blue Apron be able to draw inspiration from its namesake and continue to innovate for its customers?
Delivering over 5 million meals a month, Blue Apron has become the leader in the revolutionized meal-planning and grocery delivery service industry. Valued around $2B, this liaison between local farmers and hungry families has thrived since it first sprouted in 2012.1 Blue Apron aims to satisfy its customers in four main ways: add more convenience, offer healthier options, create entertainment, and develop sustainable solutions. Each week, customers choose a few meals out of a handful of options for Blue Apron to plan, prepare, shop and deliver straight to the customer’s door. Pre-meal planning, ingredient list creating, and grocery list shopping is no longer necessary. By combining fresh, seasonal, and locally grown produce, well-balanced, 500-700 calorie meals are made for the family.2 New cuisines, ingredients and cooking techniques are mixed into the meal plan, which helps to keep cooking fun and to teach chefs new things. Lastly, by using Blue Apron, households can save 12-25% of purchased food and 50% of leafy greens from being thrown out each week.3
Blue Apron’s operations are set up to support the value it serves to its customers via three main channels: controlled forecasting, vendor management, and warehouse management.
- Controlled Forecasting: By designating the handful of meals customers can choose from, Blue Apron controls the number of SKUs it serves each week. Not only are there fewer choices to select from, but the recipes can use specific ingredients, optimizing cost and raw materials usage. Furthermore, by having customers pre-select meals and delivery dates ahead of time, Blue Apron has a reliable forecast to use to manage its deliveries. Blue Apron’s cancellation policies and accumulated data on typical percentage of cancellations also help manage the accuracy of forecasts.
- Vendor Management: Key to the success of Blue Apron is its relationships with local farmers. By sourcing locally and not through large corporations, Blue Apron is able to build sustainable and valuable relationships for both parties. Due to the controlled forecasting, Blue Apron can give farmers more control over their crop rotation by working as partners to plan for future crop harvests. The farmers can have a say in what produce should be planted to create healthier soil for sustainable farming. Blue Apron will know which ingredients will be harvested when, to help with meal planning. Produce selection is also influenced by Blue Apron as they can now request hard-to-find ingredients that the farmer can plant.2 Additionally, Blue Apron can command lower bulk prices by purchasing ingredients ahead of time and farmers are willing to sell at these prices as it’s a guaranteed source of revenue.
- Warehouse management: In order to fulfill its 5 million meals a month, Blue Apron has three distributions centers located in the Jersey City, San Francisco and Dallas.1 By only needing these three centers to serve all of its continental US customers, Blue Apron consolidated its necessary locations and saved overhead and infrastructure costs. Within each distribution center, there are refrigerated warehouses, which allows food to be kept fresher for longer.4 In addition, shipping costs can be considerably reduced because each warehouse is supplied with locally sourced produce. Flexible packaging operations allows warehouses to package ingredients in a variety of quantities and packing methods, making it easier to optimize for cost savings. In addition, each warehouse has customizable assembly lines for different meals, which is incredibly useful as meals changeover weekly.5
Concerns Going Forward
Although Blue Apron has built its operations around controlled forecasting, two key concerns remain about how Blue Apron will be able to integrate its business model with its current operating model. First, as competition becomes fiercer and the novelty of the pre-planned meal wears off, it seems likely that customers will want more customizable food options. With more variation in meals and possibly made-to-order meals becoming a requirement, how will Blue Apron’s current warehouse management flex in order to meet these new demands? Second, as Blue Apron is heavily investing in marketing to attract new customers, are they retaining customers quickly and in enough volume to be sustainable as a company? A customer only becomes profitable after multiple weeks of ordering. However, if many of them leave within the first month, will Blue Apron end up spending more money on gaining new users than it can generate through its recurring customers?
In the culinary world, the Blue Apron is a symbol of lifelong learning in the kitchen.2 Will Blue Apron be able to draw inspiration from its namesake and continue to innovate for its customers?
Student comments on Blue Apron: Lifelong Learning For All
Jamie, Great job! I enjoyed reading this post, and was especially interested in the vendor management aspect of the business–I wasn’t aware of the way they managed their relationships with local farmers. I think you raised a lot of valid concerns for the viability of the business going forward, namely the high costs and potential issues around customer churn rate. Another area of concern that I have with Blue Apron is their packaging. As a former customer, I was always a bit disturbed by how much packaging is used in the product. I can foresee this becoming a problem for them as I would assume many of their consumers, who value locally sourced food, may also value eco-friendly packaging. I am curious to see whether they are able to improve this part of the experience going forward. It is possible that by investing in establishing more distribution centers they will have less of a need to insulate certain elements of the meal. However, I think the nature of the product requires a lot of packaging to keep the food fresh and protected.
Thanks Jamie for the great post. Your analysis on the logistics/cost center side of the business was very insightful and and illustrated key areas of competitive advantage. Another aspect I would love to better understand is processes on the product side, such as the recipe generation, that differentiate Blue Apron from competitors. It seems very much a price game currently and I believe there is tremendous customer value in just having the food taste good. You also highlighted some important concerns. I do believe there is still demand for pre-planned meals despite the number of different meal options because the comfort of having a “home cooked” meal will never disappear. It could mean shifting the target customer or making changes to its operating model. At any rate, it will be an interesting and dynamic situation to follow.
Thanks for a great post. Very nice and informative.
Do you know how BA acquired those first customers and entered in the market? It’s really interesting.