Tempest In A Meal Box?

And just like that, meal kits were on the tip of everyone’s collective tongue.

In a way.

News that the Trump administration would look to overhaul the existing United States food stamp program, and replace it with a box of canned goods, brought forth the inevitable comparisons to Blue Apron, arguably the marquee name in meal kits.

In fact, to be specific, Mick Mulvaney, who as CFPB director heads the Office of Management and Budget (OMB), said that “part” of those food stamp benefits would be given over in a “Blue Apron-type program where you actually receive the items instead of receiv[ing] the cash.”

The proposal is called “America’s Harvest Box.” It would contain “homegrown” items ranging from milk to canned meat to vegetables. The administration has said that the Harvest box would contain the same level of “food value” that recipients on food stamps currently receive.

All sorts of questions swirl around the proposal. Among them: Do recipients get any choice in what is boxed and given to them? What happens to companies like Walmart, which do get a chunk of business from food stamp recipients under the Supplemental Nutrition Assistance Program (commonly known as SNAP)? And, what about Blue Apron’s break-even targets on an EBITDA basis?

Okay, that last one has, really, nothing to do with the Harvest in a Box concept. We’ll get to that in a bit, with a nod to Wall Street and earnings, the meal kit industry in general.

But first: No, it may not be the case that choice is in effect, which means that the plan being floated to the public by the Trump administration is really not a meal kit.

The whole concept behind that crowded space is one where the recipient/subscriber chooses the motif, if you will, from vegetarian to regional specialties, and the ingredients find their way (okay, they’re delivered) to the proverbial front door, and then combined and consumed by said meal kit subscribers.

There may be something in the thought that a government program that packages up foodstuff and delivers it to food stamp recipients is eliminating choice – not just in the items consumed, but in the ways they are consumed – which may have a ripple effect on companies like Walmart and dollar stores.

In the case of the retailing giant, in oft-repeated figures, as of 2013 Americans spent 18 percent of their food stamp dollars at Walmart (and, by the way, groceries account for more than half of Walmart sales). So, yes, if SNAP benefits were in part shifted away from consumer control and a retail environment, and delivered in a pre-packaged way, there would be an impact. Also, Dollar Tree and Dollar General get about 5 percent of sales from households on food stamps. And, of course, all manner of traditional grocers, large and mom-and-pop in scale, would be impacted.

It remains to be seen when and how the proposal will shake out, or even if it bears fruit. There’s an old saying that “the president proposes, Congress disposes.” That may be the case here (or not – we cover payments; we don’t necessarily traffic in wagers tied to Capitol Hill).

But one thing is for sure.

People started talking about meal kits.

So, from SNAP to snap – in this case, has Blue Apron snapped its “busted IPO” curse?

Hardly.

Shares of the company were up 6 percent Tuesday, after rocketing up 25 percent intraday, up slightly Wednesday and then skidded a bit, down 4-1/2 percent on Thursday. So, consider the frenzy more of a “dead cat” bounce, where euphoria faded in the wake of numbers that showed a smaller-than-expected fourth quarter loss. The recent price of $3.31 is a far cry from the $10 IPO price from just last June.

Investors may have been cheered by the fact that long-standing troubles at a New Jersey facility had been brought under control with a nod toward automation, and that the net loss was 20 cents a share, or $39 million, where analysts had expected a net loss of 27 cents.

And yet, look to the top line for trends that are nothing if not sobering, perhaps even inviting a bit of indigestion. The top line – which shows customer enthusiasm, in a way, because it shows they’re spending money for the meal kits – was off 13 percent year over year to $187.7 million.

This year sees new offerings, such as last month’s debut of the Whole30 meal/diet plan, which looks to eliminate items such as sugar and dairy. The company is targeting break-even EBITDA by the end of the year.

Perhaps a lofty ambition. That aforementioned top-line decline came amid a decrease in customers and also their purchases, amid a purposeful throttling of marketing spend. To be fair, that has been corporate strategy telegraphed since last quarter (marketing as a percentage of sales has decreased to a bit more than 13 percent from 17 percent last year). The number of customers slipped 15 percent year over year and was off 13 percent sequentially to around 746,000. Not surprisingly, the company has pointed to increased competition in the space (not just from HelloFresh and a slew of others, but Amazon/Whole Foods, too).

Turns out there’s such a thing – in a hyper-competitive space, where brand loyalty is hardly in evidence – as biting off more than you can chew.