Blue Apron Turning Around Struggling Meal Kit Market Leader Delivery - PDF

case 5-177-309
Daniel M. McCarthy August 9, 2018

Eric M. Schwartz
Blue Apron: Turning Around the Struggling Meal Kit

Market Leader
In 2016, Blue Apron was the leading meal kit delivery business in the United States. But a steady diet
of customers with poor lifetime value had left executives hungry for better performance.
By most traditional financial metrics, the initial registration form Blue Apron filed in advance of its
initial public offering (IPO) showed a successful business in a rapidly growing industry.1 Meal kit sales had
grown to $5 billion in 2017 and were expected to grow at a 20% annual rate in the years to come. Blue
Apron held a commanding 53% market share. What’s more, the category was well positioned to extract a
larger portion of the overall grocery market, and Blue Apron stood to benefit.
But other signs pointed to long-term troubles for Blue Apron. Focusing on sales growth, the company
began acquiring more customers at a higher cost. Worse, the newer customers generated less revenue on
average than those acquired earlier in the company’s history.
Blue Apron went public (NYSE: APRN) on June 29, 2017. The IPO received significant media attention
but a mixed market reaction. The price was $10 per share, well below the company’s target IPO range of $15
to $17. Over the next five months of trading, Blue Apron’s stock price dropped 70%. On Nov. 30, 2017, with
the stock price trading at $2.99, CEO Matt Salzberg resigned.
Brad Dickerson, Blue Apron’s former CFO, stepped in as the new CEO. He faced a formidable turnaround
task. Just how valuable were Blue Apron’s current customers? And how should the company manage its
customer relationships to improve profitability and, in turn, Blue Apron’s valuation?
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.
© 2018 Daniel M. McCarthy and Eric M. Schwartz. This case was written by Daniel M. McCarthy, Assistant Professor at Emory University’s
Goizueta Business School, and Eric M. Schwartz, Assistant Professor at the University of Michigan’s Ross School of Business. It is to be
used as a basis for class discussion and is not intended to illustrate either effective or ineffective handling of administrative situations
or investment decisions. The case should not be considered criticism or endorsement and should not be used as a source of primary
data. The authors declare that there is no conflict of interest regarding the publication of this article. The authors would like to thank
Val Rastorguev, S. Sriram, and Mark Zubenko.
Unauthorized reproduction and distribution is an infringement of copyright. Contact us for permissions: Permissions@WDIpublishing.com or 734-615-9553
Blue Apron: Turning Around the Struggling Meal Kit Market Leader 5-177-309
Leading a High-Growth Industry (2014-2017)
The meal kit delivery services industry consisted of companies that market, sell, and deliver packages
of fresh ingredients for one or more meals directly to consumers, with step-by-step instructions to prepare
the meals at home.
Industry experts expected robust growth for years to come. The U.S. fresh food meal kit delivery
services market was $4.65 billion in 2017, up from $1.5 billion one year earlier.2 Meal kit delivery services
had steadily gained share from the $800 billion grocery industry. Online grocery sales stood at just 1.2% of
the overall market in 2016, leaving room for continued digital penetration. Experts forecasted the fresh food
meal kit delivery services industry would grow at a 20% cumulative annualized growth rate through 2022.
Most meal kit delivery services operated on a subscription basis, with customers paying a fee per
week for meals. Meal kit companies offered a variety of subscription plans, so customers could select
how many servings to receive per week. Blue Apron provided customers two plans: one for two people,
in which customers received six servings per week at $9.99 per serving, and another for families, which
offered 16 servings per week at $8.74 per serving. A smaller number of meal kit companies, such as
Chef’d, offered services on a non-subscription basis. The companies shipped directly to customers a la
carte, at a higher cost per meal, and/or sold through distributors like supermarkets to avoid incurring last
mile delivery expenses.
Meal kit companies ordered raw ingredients to their distribution facilities and prepared them so
everything required for the meal was included in one box. A kit might have contained half of one red bell
pepper, for example. Companies used ice packs and insulating materials to ensure ingredients were kept
at temperatures to meet strict food safety standards through customer receipt. An instruction sheet was
included to walk customers step-by-step through the cooking process.
Some meal kit delivery companies offered certain value propositions catering to different customer
preferences: Purple Carrot, Green Blender, and PeachDish delivered vegan meals, smoothies, and U.S. southern
cuisine, respectively. Gobble focused on meals requiring no more than 15 minutes of preparation time, and
Terra’s Kitchen adhered to environmentally conscious business practices. But the top four companies by
market share did not operate in niche segments, and the top two, Blue Apron and HelloFresh, controlled
73% of the market by the end 2016.
While all companies in the space primarily delivered dinner kits, Blue Apron and HelloFresh were
among several expanding into additional offerings. Some companies had premium meal options featuring
upscale ingredients and/or recipes, while others had expanded into breakfast and lunch and complementary
products (e.g., wine). Complementary product sales were small at the time but expected to grow.
In 2016, Blue Apron was the best performing meal kit company according to commonly reported metrics
(see Exhibit 1). The company’s market share stood at 53%, almost three times its next closest competitor,
HelloFresh.3 Despite increased competition, Blue Apron sustained 40% market share the next year.4
2
Exhibit 1
U.S. Meal Kit Companies
Company Specialty Market Share Price Per Serving
Blue Apron General 53% $9.99
HelloFresh General 20% $9.99
Home Chef General 6% $9.99
Plated General 5% $12.00
Green Chef Organic, Gluten Free 3% $11.99
Sun Basket General 3% $12.49
Purple Carrot Vegan 1% $12.00
Gobble Fast Preparation 1% $11.95
Source: Created by the case writers with data from company websites and Second Measure.
Attracting New Customers
Blue Apron’s revenue was growing quickly. The firm generated approximately $800 million in sales in
2016, tenfold growth over 2014.5 The growth was primarily driven by an increase in Blue Apron’s subscriber
base. The company’s total number of active customers more than doubled in 2016, growing to nearly
900,000 by the fourth quarter.
Blue Apron used a combination of offline media, online media, and a referral program to attract new
customers. As the company ramped up its marketing spend, offline campaigns became its primary cost
center (see Exhibit 2).
Exhibit 2
Blue Apron 2014-2016 Marketing Expenditure (in $MM)
2014 2015 2016
Offline Media 2 18 66
Online Media 5 15 43
Customer Referral Program 7 18 35
Total Marketing Expense 14 51 144
Source: Blue Apron S-1 Filing 2017.
Blue Apron’s media campaigns mixed traditional and new media. The cost of its podcast and radio
advertising, which became recognized for humorous copy and allowed hosts to improvise, grew to $2.41
million in 2016, up from $293,900 in 2015.6 HelloFresh spent $446,000 in the radio/podcast media channel
in 2016.
By outspending its closest competitor by nearly five times in the channel, Blue Apron had supported
numerous emerging podcasts and streaming radio networks. Gimlet Media partnered with Blue Apron to co-
create a branded podcast, “Why We Eat What We Eat.”7
3
Blue Apron also produced a mix of video ads and sponsored YouTube personalities and channels.8 The
company experimented with native advertising, such as sponsoring pieces on Buzzfeed, and also launched
wide-reaching online display ad and paid search campaigns. (See Appendix A for advertisement examples.)
Naturally, Blue Apron’s costs grew. Because of the investments it made, the firm’s normalized
profitability was roughly flat in 2016. Blue Apron argued its investments, especially into a new state-of-
the-art distribution facility in Linden, N.J., positioned the company for success as the overall meal kit
delivery industry continued to grow.
Customer Profitability Data Raises Questions
While many traditional, top-down financial measures suggested Blue Apron was a successful company
about to enter its next growth phase, customer data implied the assessment might have been optimistic.
The firm’s customer acquisition cost (CAC), or how much it spent to acquire new customers, was noticeably
high in 2016. While Blue Apron did not explicitly disclose CAC on a quarterly basis, a case writer analysis
suggested it had increased by 59%, rising to $100 per customer in 2016 from $63 in 2015.9
The more the company spent to acquire new customers, the more value the customers had to generate
after acquisition to maintain profitability on a per-customer basis. For Blue Apron, recently acquired
customers appeared to be becoming less valuable after acquisition over time. Total revenue per customer
during the six months after acquisition declined by 14%, to $387 in 2016 from $451 the previous year.10
Customer retention, or how long a subscriber stayed with the firm before churn, was one of the most
important drivers of value for Blue Apron. The longer customers maintained their relationships, the more
revenue the company was able to extract, all else being equal. The company did not disclose retention
metrics in its IPO filings, but business intelligence firm Second Measure used credit card data representing
approximately 3% of all transactions in the United States to estimate that just 28% of Blue Apron’s
customers were still members six months after acquisition. The case writer analysis inferred the same result
using Blue Apron’s public disclosures.11
The retention data suggested Dickerson needed to perform a close inspection of customer-level
profitability to understand Blue Apron’s true underlying financial condition.
Segment Profitability & Measuring Customer Value
Analyzing customer-level profitability for Blue Apron began the same way a firm measures any financial
decision—examining return on investment (ROI).
Thinking of customers as assets, Blue Apron sought to maximize its return on investment by considering
how much it spent to acquire customers versus how much it made from them. The company’s profits were
driven by three factors:
1. how long a customer remained with the firm over time;

2. how profitable customers were while with the firm; and
3. how much it cost to acquire customers.
4
The Retention Curve

Blue Apron’s retention curve summarized how well it was able to hold customers over time. The curve
depicted what percentage of acquired customers remained with the firm as a function of months since the
customers were acquired (see Exhibit 3).
Exhibit 3
Blue Apron Subscriber Retention Curve
Source: Second Measure.
Retention curves are most commonly summarized by a single number because a retention rate is simple
and interpretable. For subscription businesses like Blue Apron, the monthly retention rate represented the
number of customers still active month over month. The monthly retention rate most consistent with the
curve shown in Exhibit 4 was 82%. (See the spreadsheet accompanying the case for details on calculating
the rates.)
The expected curve associated with an 82% monthly retention rate was found using the formula (82%)t,
where t represented the number of months after customer acquisition. For example, if 82% of customers
were expected to be with the firm one month after acquisition, then (82%)2 which is 67%, were expected
to be with the firm after two months, and so on.
Retention Rate Limitations

The expected retention curve implied by the average retention rate yielded a poor approximation of
Blue Apron’s actual retention curve for two main reasons. First, the summary overestimated the firm’s overall
retention in early months because it might have ignored less loyal customers (e.g., customers who tried
the service because of a steep price discount). Low loyalty customers were prevalent in businesses like Blue
Apron, which relied heavily on up front promotions. Low loyalty customers dragged the retention curve
down in early months, as they churned more quickly than average. For Blue Apron, the mistake was evident
5
in Region A of Exhibit 4, where a single monthly retention rate implied 82% of customers remained one
month after acquisition. In reality, only 64% remained.
Second, a single average monthly rate underestimated overall retention in later months, because it
might have ignored more loyal customers (see Exhibit 4, Region B). For Blue Apron, assuming a single
retention rate implied only 9% of customers were still with the firm one year after acquisition and the
proportion would continue decreasing at the same rate. In reality, 18% remained after one year and the rate
of decline slowed. The retention curve for a firm with one segment of low-loyalty customers and another
with higher loyalty would have had a different shape than for a firm with all similarly loyal customers. After
declining in early months, a two-segment retention curve would have flattened as the customer composition
skewed more heavily toward the highly loyal.
Exhibit 4
Predicted Versus Actual Retention Curve
Source: Second Measure (actual), case writer (expected).
One Retention Rate to Two

To avoid oversimplifying customer retention, Blue Apron could have considered different rates for
customer segments, one with low retention and another with higher retention. The expected overall retention
curve of the two-segment model would be a weighted average. In Exhibit 5, the estimated segment-specific
retention curves, as well as the resulting overall expected and actual retention curves, were plotted for a
two-segment model. (See the spreadsheet accompanying the case for details on estimating the model.)
One segment showed a high monthly retention rate of 92.3%, implying customers would stay with Blue
Apron for an average of 13 months. The customer group was labeled the high loyalty segment in Exhibit 5.
6
Exhibit 5
Two-Segment Model Predicted Retention Curve Versus Actual Curve
Source: Second Measure (actual) and case writers (expected, overall and segment-specific).
The other segment had a low monthly retention rate of 43.4%, implying customers would remain with
the firm for an average of only two months before churning. The segment may have represented customers
signing up for the service due to a promotional discount. After the discount expired, most customers from
the group would end their relationship with Blue Apron. The group was labeled the low loyalty segment in
Exhibit 5.
From only the actual retention curve, Blue Apron could infer the proportion of customers in each
segment and estimate 54% fell into the low loyalty segment. The resulting two-segment model retention
curve fit the actual retention curve better than the one-segment model in Exhibit 4. (See Exhibit 6 for key
retention metrics for the one- and two-segment models.)
Exhibit 6
Retention Curve Probabilities*
Months After Acquisition 1 2 3 6 12 24
Actual 64.3 50.2 41.5 28.2 17.9 —
Overall (1 segment model) 82.1 67.4 55.4 30.7 9.4 0.9
Overall (2 segment model) 65.9 49.3 40.6 28.7 17.5 6.7
High Loyalty Segment (46%) 92.3 85.1 78.5 61.6 38.0 14.4
Low Loyalty Segment (54%) 43.4 18.8 8.2 0.7 0.0 0.0
* Retention probabilities are the percentage of acquired customers expected to remain active.
Source: Second Measure (actual) and case writers (expected, overall and segment-specific).
7
The two-segment model provided a superior fit to the actual retention curve, evident in Exhibit 6 and
the close correspondence between the purple and black lines in Exhibit 5. The expected lifetime of a newly
acquired customer was 23% longer under the two-segment model. It could be shown mathematically that
assuming all customers share the same retention rate would result in the most pessimistic possible estimate
of average longevity and customer value for a given average retention rate.
Incorporating the Profitability of Subscriber Activity

By knowing how much customers would be worth after acquisition, Blue Apron management could
determine what to spend to acquire them and determine the marginal ROI in the customer-base. Furthermore,
knowing a customer’s total realized value at any point in time would indicate how long it would take Blue
Apron to break even on customer acquisition spending. While the retention analysis provided the company
insight into customer longevity, Blue Apron had to understand how frequently customers would place
orders, how much they would spend, and the company’s variable costs to serve them.
Blue Apron subscribers placed 1.8 orders per month and spent $57.30 per order on average in the first
quarter of 2017.12 Both figures were relatively stable over the preceding three quarters.i
Blue Apron incurred variable costs, including raw ingredients, packing materials, labor hours, shipping
expenses, and payment processing fees, from several sources each time a customer placed an order. While
most were included in Blue Apron’s reported cost of goods sold, some costs were included in selling,
general, and administrative expenses. The company’s gross margin was 31% in the first quarter of 2017,13
but detailed analyses of its true variable profit margin, or contribution margin, put the figure at 26%.14
Each marginal dollar of revenue Blue Apron generated from a new customer therefore translated into an
additional 26 cents of pre-tax profits.
Assuming the average order rate, revenue per order, and contribution margin were relatively stable
over time, the net present value of variable profits associated with new customers could be computed.
Blue Apron’s first six months’ of variable customer profits, assuming there was only one retention rate,
were as they are shown in Exhibit 7, assuming an annual weighted average cost of capital (WACC) of 20%
(equivalent to a monthly WACC of 1.53%).ii
The contribution of each additional month to a customer’s overall valuation declined as time passed
because customers were more likely to have churned and the time value of money diminished the present
value of cash flows generated in later months. This was most evident from the data provided in row H of
Exhibit 7, net present value of expected margin by month. The present value in the first month of a new
customers’ life was $21.70, nearly three times the present value from the sixth month.
Because of the declining contribution of future months to overall customer valuation, the cumulative
sum of expected margin present value over increasing time horizons (row I) flattened. In Exhibit 8a, the
horizon of row I was extended from six to 60 months.
However, one retention rate did not adequately summarize Blue Apron’s actual retention curve. Moving
to the two-segment model and repeating the above calculations for each of the two segments, the estimates
shown in Exhibit 8b provided the total net present value of customers over five years for each segment
individually, as well as their weighted average.
i The company publicly disclosed total orders and active customers at the end of each quarter. Active customers were defined as those
placing at least one order in the preceding three months, which may understate churn. The case writers accounted for this in their
calculation of average monthly orders per active customer.
ii An annual WACC of 15% to 25% is common for young companies in new markets.
8
Exhibit 7
One-Segment Model Predictions of Customer Net Present Value
Month 1 2 3 4 5 6
Overall (1 segment model)
A Average order rate 1.8 1.8 1.8 1.8 1.8 1.8
B x Revenue per order 57.3 57.3 57.3 57.3 57.3 57.3
C x Contribution margin 26% 26% 26% 26% 26% 26%
D = Margin while alive 26.8 26.8 26.8 26.8 26.8 26.8
E x Retention probability 82.1% 67.4% 55.4% 45.5% 37.3% 30.7%
F = Expected margin 22.0 18.1 14.8 12.2 10.0 8.2
G x Discount factor 0.98 0.97 0.96 0.94 0.93 0.91
H = Net present value of expected margin 21.7 17.5 14.2 11.5 9.3 7.5
= Cumulative net present value of
I 21.7 39.2 53.4 64.9 74.2 81.7
expected margin
Source: Blue Apron, Second Measure, and case writers. See the spreadsheet accompanying the case for more information.
Exhibit 8
One- and Two-Segment Model Predictions of Customer Net Present Value
Exhibit 8a. Net Present Value for One-Segment Model
Month 1 2 3 6 12 24 36 48 60
Overall (1-segment) 21.7 39.2 53.4 81.7 104.5 112.7 113.4 113.4 113.4
Exhibit 8b. Net Present Value for Two-Segment Model

Month 1 2 3 6 12 24 36 48 60
High Loyalty Segment 24.4 46.5 66.6 116.6 182.2 239.9 258.2 264.0 265.8
Low Loyalty Segment 11.5 16.4 18.4 19.9 20.0 20.0 20.0 20.0 20.0
Overall (2-segment) 17.4 30.2 40.6 64.4 94.7 121.3 129.7 132.4 133.2
Source: Case writers.
Customers from Blue Apron’s high and low loyalty segments had different post-acquisition valuations,
but the overall long-term customer valuation under the two-segment model was materially higher than the
one-segment model.
Initial Customer Acquisition Costs and Lifetime Value

After examining the profitability of customers after acquisition, CAC must be incorporated into the
estimate of customer lifetime value (CLV). Blue Apron’s CAC rose in the period preceding its IPO, from $63
in 2015 to $100 in 2016.iii
iii CAC was defined as total marketing expense in a given period divided by total number of customers acquired during the period.
9
CLV, defined as the net present value of all future variable customer profits after deducting CAC, could
be computed by extending the 60-month estimate of Blue Apron’s customer net present value to a virtually
infinite time horizon. Denoting the margin per period customers are with the firm as and monthly
retention rate as , CLV could be expressed as an infinite sum:
where the margin per period while customers were with the firm was equal to the product of the average
order rate (AOR), revenue per order (RPO), and contribution margin (CM):
The infinite sum formula for CLV could be simplified to:
Assuming the CAC of a newly acquired customer was equal to its average value in 2016, the CLV of a newly
acquired customer under the one-segment model was $13.40:
This infinite sum simplification and the 60-month finite sum were equivalent for the one-segment
model because customer net present value over a finite horizon effectively stopped growing after 36 months
(see Exhibit 8a).
Applying the CLV equation to the two-segment model, customers from Blue Apron’s low and high
loyalty segments were valued at -$80.00 and $166.60 on average (see Exhibit 9). Weighing the low and
high loyalty segments by their corresponding proportions within the cohort yielded an overall average CLV
of $33.59 for a newly acquired customer under the two-segment model, 2.5 times larger than the $13.41
average implied by the one-segment model.
Exhibit 9
One- and Two-Segment Model Customer Profitability Metrics
NPV Expected Future Profits ($) CLV ($) CLV-to-CAC
Overall (1-segment) 113.4 13.4 0.13
High Loyalty Segment (46%) 266.7 166.6 1.67
Low Loyalty Segment (54%) 20.0 -80.0 -0.80
Overall (2-segment) 133.6 33.6 0.34
Source: Created by case writers.
Rate of Return on Customer Investments

The CLV-to-CAC ratio in Exhibit 9 reflected Blue Apron’s ROI on a dollar in customer acquisition
activities. The metric, sometimes called the LTV-to-CAC ratio, reflected Blue Apron’s unit economics, which
interested investors evaluating the firm’s profitability. According to the one-segment model, the expected
CLV-to-CAC ratio was 0.13, reflecting a 13% return on CAC and comparing unfavorably to the 0.34 ratio
under the two-segment model, which implied a 34% return.
10
The difference would substantially affect Dickerson’s decision-making. The two-segment CLV-to-CAC
ratio exceeded Blue Apron’s estimated WACC of 20%, implying the company was earning a return slightly in
excess of that being demanded by capital markets. The CLV-to-CAC ratio under the one-segment model fell
below WACC, suggesting Blue Apron should cut back on customer acquisition spending.
While Blue Apron’s customer-level profitability metrics were healthy assuming CAC was equal to the
2016 annual average of $100, a detailed analysis suggested CAC had increased significantly during the year
and into the first quarter of 2017,15 weakening customer-level profitability in the run-up to Blue Apron’s
IPO (see Exhibit 10).
Exhibit 10
Customer Acquisition Cost (CAC) by Quarter
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
CAC 78.2 89.9 115.0 113.1 147.7
Source: Created by the case writers.
Under the two-segment model, the post-acquisition value of a new customer was expected to be
$133.59. As quarterly CAC increased, this implied the ROI on acquisition spending fell from 71% in Q1 2016
to 18% in Q4 2016. In Q1 2017, Blue Apron lost money on an average newly-acquired customer, with an
ROI of -10%.
While the analysis assumed revenue per retained customer remained constant after acquisition and
newer cohorts generated just as much revenue as older ones, Blue Apron had some indications revenue per
customer went down the longer a customer remained and newer acquisition cohorts were generating less
revenue.16 Cumulative six-month revenue per customer declined from $451 in 2015 to $387 in 2016.
Blue Apron’s unit economics were troubling. Average customer-level profitability deteriorated
substantially in the five quarters leading up to the company’s IPO. While nearly half of its customers were
profitable in the first quarter of 2017, Blue Apron struggled with large losses incurred via the other half.
Blue Apron’s Post-IPO Performance

Blue Apron’s financial performance continued to deteriorate after its IPO. The company pulled back on
marketing expenditures to focus on opening its new distribution facility in Linden. As noted in an earnings
call for the third quarter of 2017, the company “planned a reduction in marketing as we worked through
our transition to Linden.”17 Because customer retention was low, Blue Apron lost more customers than
it was able to offset through acquisitions. As a result, the company’s active customer count fell by 17%
from its peak of approximately one million in Q1 2017 to 856,000 in Q3 2017. Net revenue fell by 14%
over the same period.
Investor concerns about competition were also growing. As Blue Apron went on its IPO roadshow,
Amazon announced it would acquire Whole Foods. Shortly thereafter, on July 6, 2017, Amazon registered
a U.S. trademark for a meal kit service. WalMart, Albertson’s,18 Martha Stewart, Williams Sonoma
(see Exhibit 11),19 and other companies also announced investments in the meal kit delivery industry.
11
Exhibit 11
Williams Sonoma’s Partnership with Meal Kit Industry Competitor
Source: Screenshot taken by case writers of Williams Sonoma website. www.williams-sonoma.com/shop/food/. Accessed 1 June 2018.
Blue Apron’s shaky IPO emboldened its competitors. HelloFresh spent the summer gaining ground on
Blue Apron’s sales and market share and went public (ETR: HFG) on Nov. 1, 2017, at €10 per share. According
to Second Measure data, HelloFresh saw a 12-month retention rate of about 12% (see Exhibit 12), and its
customers showed an average 12-month cumulative revenue of €290 as of 2016. The company’s expected
monthly revenue per active customer was €85, with a contribution margin of 22%. HelloFresh acquired
customers at a CAC of €80.33 based on its Q2 2017 numbers. Unlike Blue Apron, HelloFresh’s CAC had been
relatively stable over time.
Despite a lower retention rate compared to Blue Apron, HelloFresh was gaining fast.
With revenues and active customers falling and competitive concerns rising, Blue Apron lost the
premium valuation multiple it achieved when it first went public. The company’s stock price fell 18%
and 19% in the first two quarters after its IPO, as market participants revised their assessment of
the firm’s value.
On Nov. 30, 2017, just five months after the company had gone public, Blue Apron’s stock price had
fallen to $2.99, a decline of more than 70% from its initial IPO price. That day, Blue Apron announced
Salzberg, company CEO and co-founder, was resigning, to be replaced by former CFO Dickerson.
12
Exhibit 12
HelloFresh Subscriber Retention Curve
Source: Second Measure.
Dickerson’s Dilemma
Blue Apron’s CEO had to make big changes to improve customer profitability. But what would Dickerson
do? He certainly needed to measure the profitability of his customers to understand how his business would
evolve if the status quo were to persist.
But Dickerson also had to move from CLV measurement to CLV management. He and the rest of the Blue
Apron management team needed to determine what changes would best enhance the net present value of
existing customers, as well as the quality and quantity of future customers.
How would Blue Apron’s next $100 million in marketing budget be spent? Dickerson sat back in
his chair, contemplating his opportunities while reflecting on Blue Apron’s recent performance. The
market was changing rapidly, and time was running short—Dickerson’s next earnings call was just a
couple months away.
13
Appendices
APPENDIX A
Blue Apron’s In-Feed Native, Standard Display, and Paid Search Ads
Source: Derek Pankaew’s “An In-Depth Look At Blue Apron’s $1000 Million Marketing Strategy” on MarketingStrategy.com.
14
Appendices (contd.)
APPENDIX A (contd.)
Blue Apron’s In-Feed Native, Standard Display, and Paid Search Ads
Source: Screenshot taken by case writers of paid search advertisements appearing on Google search results for “Blue Apron.” Accessed 24 July 2018.
15
End Notes
1 Blue Apron. “Blue Apron Holdings Inc., Form S-1.” SEC. 2017. www.sec.gov/Archives/edgar/
data/1701114/000104746917003765/a2232259zs-1.htm. Accessed 20 June 2018.
2 Waxman, Howard. “Meal Kit Delivery Services in the U.S., 2nd Edition.” Packaged Facts. 2017. www.packagedfacts.com/Meal-Kits-
Delivery-Services-Edition-10975993/. Accessed 20 June 2018.
3 Second Measure. “Blue Apron: Inside the Box.” Second Measure Blog. 27 June 2016. blog.secondmeasure.com/2016/06/27/
blue-apron/. Accessed 20 June 2018.; Blue Apron. “Blue Apron Holdings Inc., Form S-1.” SEC. 2017. www.sec.gov/Archives/
edgar/data/1701114/000104746917003765/a2232259zs-1.htm. Accessed 20 June 2018.; and Waxman, Howard. “Meal Kit
Delivery Services in the U.S., 2nd Edition.” Packaged Facts. 2017. www.packagedfacts.com/Meal-Kits-Delivery-Services-
Edition-10975993/. Accessed 20 June 2018.
4 Second Measure. “Blue Apron? HelloFresh? Home Chef? We looked at 9 meal kits to see who steps up to the plate.” Second
Measure Blog. 26 Oct. 2017. blog.secondmeasure.com/2017/10/26/we-looked-at-9-meal-kits-to-see-who-steps-up-to-the-plate/.
Accessed 20 June 2018.; and Molla, Rami. “Blue Apron still dominates the market for meal delivery kits but its market share
is plummeting.” Recode.net. 1 Nov. 2017. www.recode.net/2017/11/1/16581142/blue-apron-market-share-decline-meal-kit-
delivery-hello-fresh. Accessed 20 June 2018.
data/1701114/000104746917003765/a2232259zs-1.htm. Accessed 20 June 2018.; and Merced, Michael J. de la. “Blue Apron, a
Meal Delivery Service, Files for Public Offering.” New York Times. 1 June 2017. nyti.ms/2rw8QuL. Accessed 20 June 2018.
6 InsideRadio. “Meal Kit Companies Are Latest Recipe for Radio Ad Success.” InsideRadio.com. 11 May 2017. www.insideradio.com/
free/meal-kit-companies-are-latest-recipe-for-radio-ad-success/article_bd3d2eae-361d-11e7-9750-7382a9e29275.html.
Accessed 20 June 2018.
7 Beer, Jeff. “Blue Apron Launches New Branded Podcast ‘Why We Eat What We Eat.’” Fast Company. 4 Oct. 2017. www.fastcompany.
com/40476600/blue-apron-launches-new-branded-podcast-why-we-eat-what-we-eat. Accessed 20 June 2018.
8 Pankaew, Derek. “An In-Depth Look At Blue Apron’s $1000 Million Marketing Strategy.” MarketingStrategy.com. 12 Dec. 2017.
www.marketingstrategy.com/blue-apron-marketing-strategy/. Accessed 20 June 2018.
9 McCarthy, Daniel. “A Detailed Look at Blue Apron’s Challenging Unit Economics.” LinkedIn. 27 June 2017. www.linkedin.com/
pulse/detailed-look-blue-aprons-challenging-unit-economics-daniel-mccarthy/. Accessed 20 June 2018.
data/1701114/000104746917003765/a2232259zs-1.htm. Accessed 20 June 2018.; and McCarthy, Daniel. “A Detailed Look
at Blue Apron’s Challenging Unit Economics.” LinkedIn. 27 June 2017. www.linkedin.com/pulse/detailed-look-blue-aprons-
challenging-unit-economics-daniel-mccarthy/. Accessed 20 June 2018.
17 Blue Apron. “Third Quarter 2017 Earnings Call Transcript.” BlueApron.com. 2017. investors.blueapron.com/~/media/Files/B/
BlueApron-IR/reports-and-presentations/third-quarter-2017-earnings-call-transcript.pdf. Accessed 20 June 2018.
18 Stern, Neil. “Albertsons Acquires Plated as the Meal Market Recalibrates.” Forbes. 20 Sept. 2017. www.forbes.com/sites/
neilstern/2017/09/20/albertsons-acquires-plated-as-the-meal-market-recalibrates/. Accessed 20 June 2018.
19 Peterson, Hayley. “An unlikely company is building a Blue Apron killer in the $5 billion battle for your dinner.” Business Insider.
1 Nov. 2016. www.businessinsider.com/williams-sonoma-is-going-after-blue-apron-2016-10. Accessed 1 June 2018.
16
Notes
17
Established at the University of Michigan in 1992, the William Davidson Institute
(WDI) is an independent, non-profit research and educational organization focused on
providing private-sector solutions in emerging markets. Through a unique structure
that integrates research, field-based collaborations, education/training, publishing,
and University of Michigan student opportunities, WDI creates long-term value for
academic institutions, partner organizations, and donor agencies active in emerging
markets. WDI also provides a forum for academics, policy makers, business leaders, and
development experts to enhance their understanding of these economies. WDI is one
of the few institutions of higher learning in the United States that is fully dedicated to
understanding, testing, and implementing actionable, private-sector business models
addressing the challenges and opportunities in emerging markets.

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case 5-177-309

Daniel M. McCarthy August 9, 2018

Blue Apron: Turning Around the Struggling Meal Kit

Leading a High-Growth Industry (2014-2017)

Attracting New Customers

Source: Blue Apron S-1 Filing 2017.

Customer Profitability Data Raises Questions

Segment Profitability & Measuring Customer Value

1. how long a customer remained with the firm over time;

The Retention Curve

Source: Second Measure.

Retention Rate Limitations

Source: Second Measure (actual), case writer (expected).

One Retention Rate to Two

Incorporating the Profitability of Subscriber Activity

Exhibit 8b. Net Present Value for Two-Segment Model

Source: Case writers.

Initial Customer Acquisition Costs and Lifetime Value

The infinite sum formula for CLV could be simplified to:

Source: Created by case writers.

Rate of Return on Customer Investments

Source: Created by the case writers.

Blue Apron’s Post-IPO Performance

Source: Second Measure.

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