Blue Apron CEO says the company is ready for a permanent rise in meal kit consumption but diners might not bite

Blue Apron Inc. meal kits have increasingly become a dinner-time option as consumers are locked down at home and cooking more of their own meals due to COVID-19, and Linda Kozlowski, chief executive of Blue Apron, says the company was prepared.

Blue Apron
APRN,
+16.66%

says it started to see increased demand at the end of March, up 27% for the first three weeks in April, the company said in its most recent earnings. The spike came so quickly, Blue Apron said at first, it had difficulty keeping keep up.

In response, the company has hired more staff and lowered the amount of variety in menu options. While there have been reports of disruptions in the food supply chain, particularly in meat, Blue Apron says it has not experienced any.

Coronavirus-related changes to maintain food safety and meet demand, coupled with the strategies that were already in place to grow the business have helped the Blue Apron to catch up to the unexpected spike, the company said.

Before the pandemic, Blue Apron was taking steps to improve its struggling business, which faced efficiency challenges and had problems hanging on to subscribers.

Read:Groupon and Blue Apron’s real problem: Neither business model works, experts say

But Kozlowski says the company saw its problems plainly a long time ago, and set about correcting them over the past couple of years.

For example, increased automation was added to the flagship Linden, N.J. fulfillment center starting in 2017, with other improvements drove cost controls and margins.

“We’ve been very public that there were challenges in the past being a pioneer in this space,” she told MarketWatch, noting that there were things that should’ve been done in the early stages of the business that hadn’t been accomplished.

“A big part of what we’re doing now is taking brand recognition and the love of meal kits, which is in early stages, and steadily trying to build against that; rebuild marketing channels, systematically build not just for immediate growth but long-term growth,” she said. The company believes that there’s great opportunity in the meal kit space.

However some statistics suggest there might be a ceiling.

The week of March 22 through 29, 4.32% of those polled by consumer intelligence firm Resonate had a meal kit subscription. The week of April 20 through 26, the number had only moved up to 4.42%, despite reported leaps in use of online grocery.

See:Costco says stay-at-home orders, lower gas prices hurt monthly results

By the week of March 22, 37% of U.S. adults said they were shopping for groceries online more, according to CivicScience data quoted in eMarketer. Overall for the month, 23% were doing more of their grocery shopping digitally for the month.

During the week of April 20 and 26, Resonate found that about 17% of respondents said the likelihood that they would start a subscription like a meal kit service had decreased to a large extent. Only about 1% said their intent had increased to a large extent.

Other data provided by eMarketer found that only 6% of those buying food or beverages digitally were doing so via meal kits. Nearly two-thirds (62%) were using Amazon.com Inc.
AMZN,
+1.23%

and 42% were buying from Walmart Inc.
WMT,
+0.59%

“Walmart and Target are also used by many US digital buyers—likely for their curbside pickup features, which gained popularity prior to the pandemic,” eMarketer wrote in a report published May 5. “Overall, consumers are turning to some iteration of online grocery to meet their needs, whether it’s through a company’s website or by subscribing to meal kits.”

Kozlowski says that customers want to both load up their pantry and buy fresh items. A meal kit provides just the right amount of fresh items without the food waste.

Moreover, with the restaurant experience temporarily gone for many people, meal kits are an appealing alternative.

Don’t miss:Olive Garden parent reopened nearly all of its restaurants in Georgia. Here are the new COVID-19 rules

“When you’re home and cooking three meals a day, you want variety, fresh produce and proteins,” Kozlowski told MarketWatch. “It’s a substitute for a night out or special occasion.”

Canaccord Genuity notes the 25,000 additional subscribers Blue Apron added, sequentially, in the first quarter.

“We are encouraged by this progress in Q1/Q2, and given the undemanding valuation we would view continued momentum beyond the COVID-19 impact as a reason to become even more constructive,” wrote analysts led by Maria Ripps.

Blue Apron stock has rallied more than 107% over the past three months, even as the S&P 500 index
SPX,
+0.01%

as fallen 12.4%.

Kozlowski says the company expects the cooking-at-home trend, and the family time it promotes, to continue even as things return to some sense of normal. Analysts note the tailwinds from the shelter-in-place orders as well as the momentum from Blue Apron’s growth strategy.

Watch:Can companies keep up with the new demand of online grocery?

Canaccord rates Blue Apron stock hold with a $13 price target.

As restaurant dining rooms slowly come back to operation, how to maintain social distancing and make customers feel comfortable about eating out again are still being worked out. Kozlowski notes that some customers still may refrain from heading out for a meal.

“As a meal kit we’re being invited into one of the most intimate parts of your life,” she said. “Even what we’re seeing beyond that slow opening back up, some habits might be permanently changed.”

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