Monday, October 21, 2019

Twilight of the Unicorns -- Blue Apron and the importance of unasked questions

When business historians try to make sense of the rise and fall of companies like Wework and Uber, the biggest challenge will be trying to reconstruct the thought processes of seemingly rational investors  and analysts. While there will probably be an inclination to dismiss the whole thing as a madness of crowds, if you followed the events closely in real time, the decisions are a bit more explicable if not defensible.

Perhaps the first thing these future historians will have to understand is the extent to which influential people were both invested in and protective of the age of innovation narrative and the hype economy. If you'll pardon the expression, the "thought leaders" circa 2010 to 2020 firmly believed that they were in the center of a period of wondrous developments where all of the old rules had gone away and the next big thing was just around the corner. This narrative didn't just give them an excuse to dismiss what should have been glaringly obvious flaws in these overhyped business plans; it made them openly hostile to the very mindset which raised doubts and ask disturbing questions.

Even after one of these multibillion-dollar borderline Ponzi schemes collapsed, there was a real reluctance to acknowledge the herd of elephants that had been stomping about the room from the beginning. With Blue Apron, the lead elephant in the metaphor was competition. Meal kits (the culinary equivalent of a canned hunt) are very probably limited to a niche market, but more importantly, it is a market with no barriers to entry and a truly daunting queue of well positioned potential competitors with deep pockets, economies of scale, and well-established brands. There's Amazon/Whole Foods, of course. Add to that Walmart, the Kroger and Safeway groups and other major grocery store chains all of which have been edging into the home delivery space for a while, and fast casual places like Macaroni Grill which would be a natural fit. Then there are celebrity chefs and Food Network personalities who might partner with companies such as Uber Eats and that's far from an exhaustive list.

Blue Apron spent hundreds of millions of dollars trying to popularized the idea of home delivery meal kits, but even if they had succeeded, they never could have cashed in on anything more than a limited scale. The market would have immediately become so intensely competitive that the profit margins necessary to justify Blue Apron's valuation would have been impossible.

These issues have been obvious from the beginning, but even now analysts are reluctant to bring them up. When you start pulling one that thread, who knows what will unravel.

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