Thanks Daniella! Here are my thoughts:
1. Price points: Agree that Blue Apron is not that economical. Its not something that can substitute every day meal or could be as frequented as take-outs/eat-outs. However, its definitely something users can order once (subscription of 3) every 1 or 2 months. Online data indicates that their customer retention is quite good. I would foresee value addition along 3 dimensions (when compared with eat-out/take-out) – 1) convenience of cooking (especially for people who like cooking) 2) Exoticness 3) Fair price for exoticness/convenience. Blue Apron would be most suited for customers that have needs along these 3 value addition dimensions. Even if there is a 2-3% population that sees this need, its a massive portion of $700Bn meals market for Blue Apron to capture!
2. Competition: Agree there is significant competition spicing up. However, Blue Apron enjoys a first mover advantage. However, what would differentiate these companies are 1) Meal quality/originality 2) price point. Further, there is definitely room for 2-3 players to exist in the market. It’s like any other meal play (fast food – You have Chipotle, Qdoba both existing side by side in the Mexican fast food space)
Thanks Tomo! Here are my thoughts:
1. So just to clarify, Blue Apron has ‘so far’ created 800+ meals. That doesn’t mean they have all 800+ meals on offer every week. The meals creations from previous weeks are available to browse (in the repository) but a consumer can only order the new creations for the current week. Blue Apron creates ~6 meals every week and consumer purchase 2-4 of them depending on dietary restrictions, order size etc. With less 10 meals every week, there shouldn’t be much problem with economies of scale at level of meals they are serving every month right now.
2. But I agree to your concern about packaging tons of ingredients at scale through costly labor. One potential way out for Blue Apron in future would be to automate parts of the packaging process. Upon scale, Blue Apron can look to standardize parts of the packaging process through tech machinery (like packaging standardized amounts of spices, garnishing, etc.). A very radical outcome in future could be when Blue Apron develops these vegetable chopping/packaging technology where Blue Apron inputs raw materials, order size, and # of packages and the machine spews them out 🙂
Thanks Keyur! Here are my thoughts:
1. Ful-filment/Logistics costs: Unfortunately not much data is available in the open source. But here’s my opinion based on back-of-envelope.
– Packaging/fulfilment costs – Assuming a meal takes 4-5 means to package completely (all ingredients) and assuming average labour costs of 12-15$, this gets us to $1 incurred on every packaged meal (~10% of meal price)
– Logistics costs: Once the meal is packaged, it is distributed. Applying analogy to Amazon’s cost structure (8-12% cost of logistics), we can assume Blue Apron’s logistical cost to be ~10% of meal price.
This brings the fulfillment + logistics cost to ~20% of meal price. This cost structure can be improved further at scale. Yes, Blue Apron has invested heavily in fulfillment center (they have 3 huge ones geographically spread across USA) and this definitely is a big barrier to entry for new entrants. But, more than the capital investment, its the brand and network effect that Blue Apron has created which will be very difficult to break into.
Thanks Danielle! Here are my thoughts:
1) Reordering favorites: The company does seek feedback from consumers. However, instead of repeating past “most favorited” dish in the menu, it uses the data to create similar dishes. That is what the recipe generation and testing team does in the kitchen based on user data. However, I agree, there is a possibility to repeat dishes after certain lumps of time (every 3 months/6 months). Its just like going to your favorite restaurant once in a while. Having said this, I don’t think it’ll have majestic impact on freeing up resources as their recipe generation team is not that big
2) Meal variety: Yes there is variety every week. Blue Apron creates ~6 meals every week and consumer purchase 2-4 of them depending on dietary restrictions, order size etc. However, as an outlier consumer its not the best scenario of having a lot of options for very niche dietary restrictions. For Blue Apron, its about balancing between depth of offering and scale.
3) Non-Uniformity at fulfillment center: That’s an interesting question. Again it’s a trade-off between the flexibility they offer (pre-portioning) and thereby saving wastage costs vs. incurring higher on labour cost. Maybe upon scale, Blue Apron can look to standardize parts of the packaging process through tech machinery (like packaging standardized amounts of spices, garnishing, etc.). A very radical outcome in future could be when Blue Apron develops these vegetable chopping/packaging technology where Blue Apron inputs raw materials, order size, and # of packages and the machine spews them out 🙂
Thanks Anish. Here are my thoughts:
1. Unit economics: Not much data is available online, but drawing an analogy to the restaurant cost structure and adding a premium for the exotic ingredients, I would peg their gross margins at ~50% of meal price. Adding ~15% for supply chain (packaging, distribution – comparing with amazon but adding a slight premium given their in-house packaging handling), & ~10% for fixed overheads the margins should be somewhere around ~15-20%. This is before marketing expense. Currently, they might be losing money on meals because of marketing costs, but once the business stabilizes I expect them to see ~15-20% net profits, especially at scale. Their proposition is to reduce costs by pre-portioning and vertical integration.
2. I don’t think Blue Apron can compete with take-out meals on price because take-out meals are typically priced at 10 or lower $. Blue Apron is more for a customer preferring ‘convenient cooking’ rather pure convenience. The exotic offering helps separate it further.
3. So just to clarify, Blue Apron has ‘so far’ created 800+ meals. That doesn’t mean they have all 800+ meals on offer every week. The meals creations from previous weeks are available to browse (in the repository) but a consumer can only order the new creations for the current week. Blue Apron creates ~6 meals every week and consumer purchase 2-4 of them depending on dietary restrictions, order size etc. With less 10 meals every week, there shouldn’t be much problem with economies of scale at level of meals they are serving every month right now.
Great post Danielle! Jet.com reminds me of low-cost carriers that strip most frills and passes on the benefits to the customers. As you indicated in the conclusion, Jet.com seems to be reading the customers differently (valuing price over time). Given this, do you think Jet.com and Amazon could be targeting different types of customers? Or is there a product dominance play – i.e. people will order certain types of products on Jet.com vs. certain others on Amazon? Just curious to understand how the competition with Amazon will play out over next several years? Is there going to be bloodbath like Uber vs. Lyft or will there will be space for both?
Great post Justin! Tinder is truly an innovative startup, and their model is disrupting multiple industries (Tinder for X, Y, Z). I’ve 2 questions on their model:
a) Monetization – Is it possible to monetize the Tinder user base effectively? Is advertisement or subscription the right model? Also, is the Tinder user-base sticky enough? (we know that both advertisement and subscription work best when the user is sticky so we have more data points on him/her).
b) Should Tinder extend its product to offer more advanced dating products – like setting up coffee chats? or organizing monthly Tinder events locally in every city where the tinder community networks? Would this make Tinder more effective at delivering user value?
Great article Damian! True respect for FCB for what they have accomplished. As previously hinted by other commenters, is FCB shooting in their foot with too much dominance? From what it appears, FCB drafts all the good players their potential Bundesliga rivals produce. Partly, one can argue that such transfers have smaller barriers of cost, player transition to an altogether new country and league style of playing. However, such an operating model affects FCB’s revenue stream in the following way:
a) Poor broadcast revenues: I’d read an article that says Queens Park Rangers, last season’s worst Premier League club, made almost twice as much in TV revenue as German champions Bayern Munich (90.8 million Euros to 50.6 million Euros, respectively). Partly one can blame it to Match Day timings, lack of german-speakers vs. english speakers globally. But, I believe a good part of it is probably because of the league’s lack of competitiveness. In India (developing market where EPL is cashing heavily on), we have fans for close to 6-7 top EPL clubs where I doubt if people know of any club from Bundesliga other than FCB (which affects broadcasting revenues)
b) Poor country fan-following: Because transfers to FCB mostly happen inside Germany (from one german club to FCB), FCB lacks a cross-country following. For instance, any top league EPL club will have loads of players from outside England, which draws country-specific following in several countries. This in turn raises the club following globally and results in higher revenue streams.
Agree, none of the above should be pursued at the cost club football performance, maybe testing it out while FCB is dominating the Bundesliga can help the club figure if it can extract more monetary value.