The Bankruptcy That's Ruining Dinner

Hey, it's Ryan, our colleague in Monty Moeys is here to guest host today's episode. Here it is. For more than 10 years, Steven McGinty managed to avoid making weekly trips to the grocery store. That's because he's been a long time subscriber of the meal kit service, Blue Apron. He signed up as soon as the service became available in Atlanta, where he lives. At the very beginning, it was very culinary-oriented. It was teaching you proper cooking techniques, how you slice and dice all the vegetables. Over time, it slowly became less about that and more about the convenience factor of quick and easy meals at home. Do you remember what's been some of your favorite meals from the service? Yeah, we've really enjoyed exploring different types of international cuisine, so a lot of like Moroccan food, Asian dishes that, you know, we would have never in a million years attempted to do on our own. Steven says that for years, Blue Apron lived up to its promise of convenience and experimenting with new foods. A few weeks ago, though, there was an issue with his mailbox. First of all, everything was red. It was harissa sauce, it splattered all over everything in the box, and harissa sauce, if you're familiar, is very red. So, when that's exploded onto everything in the box, from the meats to the, you know, the ice bag inside, the sides of the bags, every vegetable, it's all pretty gross mess to have to clean up. But perhaps more importantly, a lot of ingredients were missing. We were missing a total of seven ingredients, two of them being proteins for the meal. So, not getting the meat is a big portion of the meal. There was one we actually did get the meat for, but it had a side of potatoes and we got no potatoes. Dinner was ruined. Eventually, Steven got ahold of Blue Apron's customer service, and he said he was able to get a credit for the messy orders. Are you still using Blue Apron? You're seeing what I'm seeing, I went ahead and canceled every single order, because I have no faith that they're going to figure this out in a week, two weeks, even a month. There are countless frustrated Blue Apron customers like Steven, dealing with missing ingredients and unfulfilled orders. In a statement on social media, Blue Apron apologized, saying, "We've broken your trust and acknowledging that things have not been going smoothly. But behind the scenes, this is a mess that's been years in the making." Welcome to the journal, our show about money, business and power. I'm Emani Moise, it's Monday, August 24th. Coming up on the show, what happened to Blue Apron? Meal kit companies like Blue Apron first came onto the scene in the 2010s. What is the main selling point of these meal kits? What was their appeal during their heyday? I think the main selling point is it would be really nice to have someone else take care of this meal planning thing. That's our colleague Sarah Nassauer. It's this problem that we face literally every day of our lives, like what is for dinner? I think these meal kits, when they first came on the scene, they were just another attempt at solving this problem, making it more convenient. We're going to send you the ingredients in a very portioned way, so there isn't food waste, we're going to ship it to your house, and yes, it'll be probably a little bit more expensive than buying all the ingredients yourself, but it will be fairly reasonably priced. And what was the early experience like for customers? They loved it. Like, I've talked to several people that have been Blue Apron customers for over a decade. They talk about kind of like the glory days of the early years of Blue Apron and how it was, you know, they were getting all these really to them really interesting recipes and like ingredients that they might have not thought of using, and really even have access to purchase like fresh lemon grass or something like that. And they really felt like they were getting a good deal, and it was really doing what they wanted, which was getting them to like cook and cook in more interesting ways. It was one of countless fuzzy startups at the time, and not only was it popular with customers like Stephen and Atlanta, it was also popular on Wall Street. The backdrop of all this is when meal kits first came on the scene, you know, they were being funded by VCs and outside financing, so, you know, in those early years, they were quite generous with how, you know, what kind of food they sent and the pricing. I remember I was covering breaking news for the journal at the time back in 2017, and it seemed like every other week I was riding about some new startup getting funded, and I even covered Blue Apron's IPO in 2017. Yeah, there you go. Those were the eight days. But those days were short-lived. Around the time of the IPO, investors began to worry about how much money the company was spending on promotional offers for new customers. And that after initial discounts, they didn't seem to be sticking around. They were still struggling with what a lot of these meal kits have struggled with fundamentally from the beginning, which is customers like this idea, it makes sense to a certain amount of people. Some customers find it super valuable, making it profitable as a whole nother trick. Meal kits are a tough business. For one thing, there's a lot of logistics. Fresh food is just really hard in general, right? Having a fresh food supply chain is a real like expertise. And when you're talking about adding even more complexity than like a typical grocery store has, like you're chopping things or processing them a little bit, so you're cooking and handling them. You're then like putting them in little containers or little bags to be shipped. And then you also have to make sure that they can be shipped, not like in a refrigerated truck, like arrives at the back of the grocery store, but in like a FedEx box, right? It just becomes incredibly complex because things can go bad. All of those logistics are expensive. And customers don't want to pay too much of a premium for food they have to prepare themselves. Meal kits can be more expensive than going to the grocery store, but they need to be cheaper than eating out. Otherwise, customers can just go back to the store or jump ship to one of Blue Aprons many rivals. Those companies have also spent years experimenting with different ways to make their businesses sustainable. I mean, we've seen this industry go through many iterations of like try new things. They've added more like truly prepared meals that you like basically just heat. You don't cook it. They've tried to add groceries. We've just seen them try many, many different models because it's just fundamentally hard to do in a profitable way long term. In 2023, Blue Apron made a big change. It sold off its manufacturing and fulfillment business. Like the literal facilities where the company produced and packaged its food. And you have to remember Blue Apron at the time, they needed cash too. It wasn't just like, we think this is a great model. We're going to do that. We needed cash and this was a way to get cash to sell parts of the business. The company that Bob Blue Apron's fulfillment facilities is called Freshroom. It's list known as a white label food manufacturer. Freshroom was a food production company, right? They were doing like prepared meals for companies like Walmart, you know, like some store brand items for Walmart. So like it has the Walmart store brand on it, but it's actually being produced in a Freshroom facility. Under this new setup, Freshroom would fulfill all of Blue Apron's orders for the next decade. So that meant, you know, Freshroom has the physical manufacturing facilities that Blue Apron used to own. They're going to cook the food, process it, portion it and ship it out to homes, you know, in a Blue Apron box. So what was Blue Apron going to do? They're going to do marketing. They're going to do sales. They're going to do customer service. They're going to do recipe planning and so that, you know, shrinks the size of the operation. So it's kind of like drop shipping for groceries, kind of, yeah. But it was a move that would come back to bite them. From a manufacturing perspective, they put all their eggs in one basket. After the break. In 2023, Freshroom was already doing business with some big name grocery players like Walmart. But the deal with Blue Apron presented an opportunity to keep growing. This was part of, like, Freshroom, you know, expanding its business, right? Like, here's the service we can provide to these meal kit companies. which are floundering in some ways, right? Like we have expertise because we're already making prepared foods for other companies in other ways. So at the time they were doing well and this was seen as an expansion into a new line of business. - But last year, fresh realm had a crisis. - Federal officials are warning you to throw away or return certain Walmart pasta meals. That's because they may be contaminated with Listeria bacteria. Chicken fedachini Alfredo meals sold across the US are being recalled due to possible Listeria contamination. Fresh realm had a series of Listeria outbreaks last year. People in more than a dozen states got sick. A few of them died and the company's corporate customers got spooked. - Walmart, which accounted for about 20% of freshworms revenue, said they would no longer buy products there. So when Walmart disappears, suddenly that is, you know, a big blow and hard to navigate through. 20% of their revenue was gone. And at the same time, Blue Apron filed a lawsuit asking to get out of the exclusivity contract with them. - Earlier this year, fresh realm filed for bankruptcy. Blue Apron's main supplier had gone up in smoke, but the company still had hundreds of thousands of customers who expected meals at their doorstep each week. As part of the fresh-room bankruptcy process, it sold his contracts to provide meals for Blue Apron to another food supplier, a company called Misfits Market. They might ring a bell. You may have seen their ads promoting ugly veggies, like mis-shape and peppers and deformed potatoes. The company pitched itself as reducing food waste. - But they've evolved since then. They've now are really more of a complete grocer that you can have food shipped your home from. And they've developed this third party side of the business, where they're using their fresh and frozen supply chain to ship for other companies that need that. So sort of behind the scenes, and as part of the bankruptcy proceedings, Misfits Market takes over the Blue Apron contract. How has that transitioned gone from fresh-room to Misfits? - It has not gone well. - So they sent cheese. There's no cheese in any of the two recipes. Two kinds of cheese. - Last month, customers started to see issues with their orders. And some of them took to social media. - There's also a nice kind of slime on everything. I probably should have gloves on, and I'm definitely gonna have to sanitize everything when I'm done. - I talked to the CEO of Misfits, and he explained that he described the transition process through bankruptcy of taking over this business as incredibly messy and incredibly fast. He said, ideally, they would have had nearly a year to transition into the business, and it's been about 10 weeks of a transition, and that they're scrambling now to fix things as fast as possible, and starting to preemptively cancel orders that they don't think they can fulfill. - A spokesman for Blue Apron said the company is focusing its menu on what it's confident it can deliver, and is adding quality checks before boxes ship. He also said that the company is taking, quote, full responsibility for this lapse in service. The fresh-room bankruptcy has impacted more than just Blue Apron. There's also Marley Spoon, another meal kit company that relied on fresh-room. It also recently apologized to customers for missing ingredients and delivery delays. - What's really fascinating to me about this is, you know, this is a concept, like the whole meal kit concept, that has been kind of precarious. Like some people have really taken to it, but they've never really totally moved into the mainstream of like most families do this, right? And so, to me, it's another example of like, this is much harder than it sounds, right? It sounds like a good idea, but it's really hard, and here we have one thing that kind of went awry, and that has created this massive problem. - By the time the meal kit supply chain is back in order, customers like Stephen McGinty, who you heard from earlier, may have moved on. It's not that hard of a pivot to go away from it, but it's definitely a big time saver that I enjoyed having that I no longer have access to, and I don't trust that the entire meal kit market is not relying on this same vendor that has now collapsed, and I'm finding out different brands are all affiliated with the same company, and why, frankly, I don't trust any of them at this point. Luckily, Blue Apron did teach us, you know, how to cook a basic meal. There are options, like the grocery store, where we can just go in and get everything we need, and get back to the house, and mega meal. - That's all for today, Monday, August 24th. The journal is a co-production of Spotify in the Wall Street Journal. If you like our show, follow us on Spotify, or wherever you get your podcasts. Wear out every weekday afternoon. Thanks for listening, see you tomorrow.