Blue Apron Holdings, which plans to launch its initial public stock sale this week, cut its offering price by about a third on Wednesday amid investor concerns about the impact of Amazon's planned acquisition of grocery chain Whole Foods.
The meal kit maker reduced the pricing range for its initial public offering to $10 to $11 per share from $15 to $17. This suggests a $1 billion drop in Blue Apron's valuation, now estimated to be just over $2 billion.
Amazon (AMZN), which is buying Whole Foods Market (WFM) for $13.7 billion, is getting into the food delivery business with its Amazon Fresh line -- and Whole Food's 400 stores would provide it with a good base that threatens to swamp Blue Apron and others like it.
Blue Apron, whose name stems from the smock that apprentice chefs wear in France, loads gourmet foods into packages and ships them to customers. It touts the freshness of its ingredients and avoidance of environmentally conscious no-nos like eggs from caged chickens and antibiotic-infused foods.
Customers can assemble their own meals like roast turkey, seared chicken and pasta salad or fresh basil fettuccine. The service is meant to appeal to young consumers who don't want to spend a lot of money in restaurants. Blue Apron meals cost around $10.
Trouble is, there's some Wall Street skepticism about Blue Apron's business model. Similar ventures such as Sprig and SpoonRocket have gone out of business this year.
Delivering meal ingredients is an expensive undertaking for Blue Apron, which has had trouble retaining existing customers. Daniel McCarthy, an Emory University marketing professor, told the Wall Street Journal that he estimates 60 percent of Blue Apron's customers stop using it after six months. Replacing them is increasingly costly.
Marketing costs as a share of revenue have surged to 25 percent from a little over 15 percent two years ago. While revenue is climbing -- this year's first quarter showed $245 million, triple the sales from 2015's first period -- losses are mounting, too. The first quarter had the company's deepest amount of red ink yet, $52 million.