Is the meal kit industry a good investment? If you were thinking of purchasing Blue Apron stock last week, its failing numbers might have tipped you in another direction. But Albertson Companies, the nation’s second largest grocery chain, announced on Wednesday that it will acquire meal kit service Plated. The news seemed to give Blue Apron stock a much-needed boost, and offered hope for the rest of the meal kit industry which is worth now an estimated $2.2 billion.
According to a company press release, Plated will operate as a wholly-owned subsidiary of Albertson’s, and the deal is expected to close later this month. Albertson’s also said that it will begin to offer Plated meal kits at many of its stores and across its digital channels in addition to offering meals directly through Plated’s website. TechCruch reports that Albertson will buy Plated for between $175 million and $200 million. This could increase as Albertson has agreed to earnout payments based on how Plated performs.
Plated has marketed itself as a more upscale alternative to other meal kit services including Blue Apron, its recipes created by Le Cordon Bleu-trained chef Elana Karp. Plated’s boxes appeal to customers who want to expand their culinary skills beyond the basics. Plated offers meals that are inspired by different ethnic cuisines, including Malaysian, Swedish, and Moroccan food.
Over the summer, online retail giant Amazon purchased Whole Foods, upsetting the meal kit delivery service, and most specifically Blue Apron. Shortly after the acquisition was announced, Blue Apron was scheduled to go public. The Amazon news had a negative effect on investor interest in the stock, and since, the company has been unable to recover.
Blue Apron announced in September that it would be freezing hiring and reducing spending on marketing, a strategy the company relied on heavily to keep its revenue growing despite sagging stock prices and logistical problems with its delivery fulfillment. The company was hoping to attract new investors and move towards profitability.
News of the Albertson’s acquisition gave Blue Apron’s stock an unexpected boost, and gave new hope to the meal kit industry as a whole. Potential investors might worry about Blue Apron’s longevity and ability to turn a profit, but since big grocery chains are interested in meal kit services, it sends a signal that the long-term promise of the industry is still strong. This includes potential acquisition prospects for Blue Apron.
Despite its troubles, the meal kit industry is growing in popularity, especially among Millennials. While Blue Apron’s revenues continue to grow, logistically it is very expensive to operate a meal-kit delivery service. Amazon’s extensive distribution channels make it an appealing (and cheaper) alternative to current offerings.