Blue Apron Cuts Marketing Budget and Customer Count Drops

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Credit: Blue Apron

In its first earnings report as a public company, Blue Apron Holdings delivered what investors wanted: a significant decrease in spending on marketing. That move came at a price, however. While revenue beat estimates, the meal-kit delivery company lost customers, sending shares tumbling.

Blue Apron, which sells boxes packed with fresh ingredients and recipe cards to make dinner at home, needs to spend heavily on marketing to educate consumers on the concept and distinguish itself from the dozens of other offerings like Hello Fresh.

Amazon, which is buying Whole Foods Market, also delivers fresh food and is potentially entering the meal-kit market as well. Analysts had voiced concern about how much Blue Apron was spending to cover the airwaves and New York subways with advertising and whether its business model was sustainable.

Blue Apron's second quarter marketing spending fell 43% from the first quarter in what the company called a planned reduction resulting from its current marketing strategy. That resulted in a net decrease in the total number of customers and orders. Blue Apron had 943,000 customers at the end of June, about a 9% decline from March.

The decline shows customers are dropping the service and Blue Apron isn't able to replace them and grow without spending heavily. Marketing costs will remain a concern as Blue Apron faces off against better-capitalized companies like Amazon.

Second quarter marketing expense was $34.5 million, or 14.5% of revenue, versus $32 million, or 15.9% of revenue, a year earlier, and down significantly from the first quarter of 2017, when the company spent $60.6 million, or 24.8% of revenue.

Tough debut
Blue Apron has faced a rocky start since going public. The stock has tumbled almost 50% since then, largely due to the shadow cast by Amazon in the market for food delivery. The shares were trading at $5.16 Thursday morning, down 17% from Wednesday's closing price and well off the late June initial public offering price of $10.

Blue Apron has been working to offer a wider variety of options in an effort to keep current customers interested and entice new ones. It's also been expanding to other meal and cooking-related products including a wine pairing subscription and branded cookware. To run the core business, Blue Apron incurs high costs at its fulfillment centers where the boxes are assembled.

Second quarter revenue was almost $238.1 million, exceeding the average analyst estimate of $235.8 million, according to data compiled by Bloomberg. The company posted a loss of $31.6 million after a profit of $5.5 million in the same quarter a year earlier.

Last week, Blue Apron announced that it would close its Jersey City, N.J. facility as it ramps up a new fulfillment center in the state, in Linden. That one is double the size and will feature more automation technology, an important step for Blue Apron to be able to offer more box options. As part of the move, employees at the Jersey City who decide not to shift over will be laid off in October.

Less than a month after the IPO, Matt Wadiak, one of the company's co-founders, stepped down from the chief operating officer role. The management shakeup accompanied changes to the reporting structure for two other executives.

-- Bloomberg News with additional reporting by Ad Age

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