Meal kits hide Blue Apron's complexity

Deliverer of ingredients to homes stays on top with sophisticated software

Each month, Blue Apron delivers about 8 million meal kits to Americans who like to cook but would rather not waste time shopping or searching for recipes.

Blue Apron boxes include cooking instructions for meals and suggested wine parings -- shiitake mushroom burgers with a Santa Barbara Highlands Vineyard Grenache, for example. The raw ingredients, which include such exotica as romanesco cauliflower and fairy tale eggplants, are sourced from family farms and artisans. Then they're sorted, chopped and packaged in giant fulfillment centers and delivered to homes around the country.

It's an enormously complicated operation, and Blue Apron has built sophisticated software to manage the supply chain and wring out costs typically borne by the food industry.

The company has been signing up subscribers at an impressive clip and last year generated between $750 million and $1 billion in revenue, according to a person familiar with its finances. That far exceeds the $300 million to $400 million goal for 2016 that was pitched to investors a few years back, says this person, who requested anonymity to discuss a private matter.

Backed by the Bessemer Venture Partners, Fidelity Investments and other venture firms, Blue Apron is the largest company of its kind, with more subscribers than rivals like HelloFresh and Plated. Meanwhile, dozens of other food-related startups have disappeared or are struggling.

Attracting and keeping customers is Blue Apron's foremost challenge. It's not easy persuading people to pay $240 to $560 a month for a service that saves time shopping when there are still faster, cheaper ways to get fed. Plus, to keep existing customers happy, Blue Apron must continually improve its offerings with new recipes and more customization.

The bigger Blue Apron gets, the harder it becomes to maintain quality, and the more things can go wrong. Subscribers are always one or two bad experiences -- a late arrival, the wrong food, wilted parsley -- from canceling.

"If we're even a day late, that's a really terrible experience for the customer to not be able to cook dinner that night," says chief technology officer Ilia Papas. "If you're buying a toothbrush, and it shows up a day late, you're not going to stop your relationship with that business. But with us, trust is a big part of it."

Blue Apron was decidedly low-tech when it got started in New York City in a warehouse district in Queens in August of 2012. The three founders, Matt Salzberg, Matt Wadiak and Papas crowded into a 150-square-foot cooler in a rented commercial kitchen and packed the first 30 boxes themselves from bins of fresh meat and vegetables. They made sure to double-check every box; getting it right was key if the new, unproven startup was to build trust with subscribers. Blue Apron quickly generated positive feedback, and orders started flowing in. At the time, customers received identical boxes with two portions per recipe.

For the first two years, Blue Apron kept track of progress with whiteboards; managers took photos of the boards at the end of a shift and emailed them around. If someone rubbed up against a board by accident, the information was lost and they'd have no clue how many ingredients had been packed and whether they were on schedule. Everything was done manually and with pen and paper. For a while, a leftover shipping label was one of the few indications that something had gone wrong.

Today Blue Apron is a high-tech operation with more than 4,500 employees in three fulfillment centers around the U.S. Located in a warehouse district in Jersey City, N.J., southwest of Manhattan, the biggest facility is mostly refrigerated to a chilly 37 or so degrees and about the size of a Wal-Mart supercenter.

Work goes on around the clock in three shifts; up to 500 or so men and women work any given period, garbed in blue latex gloves, smocks and heavy coats. When they arrive for their eight-hour shifts they wade through a trough filled with powdered disinfectant, then take up positions around the facility, which is loud enough to make conversation difficult. A large screen flashes green and red to show which lines are on schedule and which have fallen behind. There is an air of controlled chaos.

Blue Apron long ago replaced the whiteboard with software that guides workers every step of the way. Workers use computers throughout the facility to find out where bulk and prepped ingredients are located. Apple iPads tell employees working on lines how much of a given ingredient goes into each portion and how many portions they must complete per minute to stay on schedule. Those running low on ingredients can in a few taps notify a runner to bring over a new pallet without having to interrupt the process.

Not so long ago, switching a line to pack a different kind of box could take hours, leaving workers standing around. "There's no way we could have reached the scale that we're at without the custom software," technology officer Papas says. "We've been going through everything that's a manual process and seeing if we can turn it into software."

Leslie Burns, a 52-year-old community volunteer from Boulder, Colo., tried Blue Apron after a friend recommended the service as a way to try new recipes. She lasted three months. The meals often didn't resemble the photos, and she found the portions too small. What pushed her over the edge? All the boxes and bags required to keep the food fresh and unblemished. Hers is a sentiment shared by many current and former customers.

"I just felt so horrible at the end of the week, taking my stuff down to the curb," Burns says. "It felt so decadent, a physical reminder of what I was doing. It just seemed not necessary."

Almost five years after Blue Apron started in that Queens kitchen, it still has to work hard persuading people that make-it-yourself meal kits are worth paying for. Hence all the marketing entreaties and one-month-free offers showing up in mailboxes around the country. And the commercials that air regularly on the Cooking Channel, Food Network and TBS with the tagline: "Food is better when you start from scratch."

Still, Blue Apron continues to grow. It's about to open a fourth fulfillment center in New Jersey -- more than double the size of the first facility -- and has plans for another one in California next year. The company recently started a beta program giving customers more recipe choices and more control over frequency.

Even with dozens of meal-kit companies vying for attention and new ones popping up all the time, Blue Apron is the unquestioned leader. The company has shown investors it has a path to sustainable profit. And if Blue Apron pulls off an initial public offering this year, it will become the most high-profile New York startup to test the public market since Etsy's debut three years ago.

SundayMonday Business on 04/16/2017

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