What Amazon-Whole Foods Means for the IPOs of Blue Apron and Delivery Hero

Amazon Whole Foods
With Amazon-Whole Foods, Amazon will go faster into everything food-related. As we said in “Analysis: Whole Foods in an Amazon Go/Flex/Fresh World“:

What Amazon is doing with Amazon Go and the Amazon Fresh Pickups is a rethinking of what local locations in a grocery value chain have to look like and what jobs they have to fulfill. […]
In fact, ‘Amazon Whole Foods’ itself is a pretty fantastic brand. It is open enough to put anything eating related in: groceries, Blue Apron style meal-kits, restaurant meals, etc. […]
Once you build a service infrastructure around food in general, why not go into every direction?

Here’s an amusing thought: What if, a few years from now, restaurants are getting their ingredients from Amazon Whole Foods for Business and deliver meals to their customers through Amazon Restaurants (or Amazon Whole Foods Restaurants)?

Hence, two companies have to at least adress Amazon in talks with investors for their upcoming IPOs: Mealkit company Blue Apron and restaurant meal delivery company Delivery Hero.

For Blue Apron, this is a more pressing matter:

  1. Blue Apron is only operating in the US right now.
  2. Meal kits are a natural extension/add-on to delivering groceries traditionally.
  3. In fact, the combination of Amazon Prime and Whole Foods and a new meal-kit delivery service by Amazon may become a big threat to Blue Apron in due time. (meal-kits are a also a perfect fit for Amazon itself: They lend themselves to a subscription model, cross-subsidies within food services and business model experimentation in general.)

For Delivery Hero, the situation is slightly different:

  1. Delivery Hero is active in 40+ countries, not just the US.
  2. But the strongest markets are Western countries; as in, markets where Amazon operates as well.
  3. Still, Whole Foods is purely a US story. Amazon will have enough on its hands transforming this US store chain alone. The international approach for Amazon is still the biggest question here. Will Amazon management go on a shopping spree for European grocery chains this year or the next one? Maybe, but it sounds unlikely. If anything, everybody outside the US got a warning shot and time to prepare.
  4. But Amazon is already steadily rolling out Amazon Restaurants. For Amazon, restaurant delivery could be just a Prime perk that needs to cover its unit costs and doesn’t need to create a profit on its own. (Getting restaurants into the Amazon ecosystem first to, later on, make money on the B2B side would make sense as well.) Given a dense enough Amazon Flex network, this looks like a big risk to Delivery Hero. Especially given the fact that Amazon could offer restaurants a better deals thanks to the different business model. (within Prime)
  5. ‘A dense enough Flex network’ is a big if, though. This takes time to build up as well. More crucially, it is a local network issue. Just because the network may be dense enough in one area, it doesn’t give the service an adavantage in another area. There are few trans-regional network effects. (But the number is not zero, there a few: branding on the consumer side, back-end services & solutions, etc.)

TechCrunch on this topic:

[…]this story hasn’t exactly played out just yet, it’s not a stretch to think what Amazon could do with hundreds of nodes with fresh ingredients in areas that are Blue Apron’s sweet spot.

Bloomberg on how Blue Apron is handling this:

In the wake of the Amazon-Whole Foods deal, Blue Apron executives have already been tweaking the message, according to a person familiar with the matter.

Blue Apron’s management plans to stress that its business model is different from the basic grocery delivery currently offered by Amazon’s Prime service and Whole Foods’ partnership with Instacart Inc., said the person, who asked not to be identified because the details are private. Executives want to convince possible investors that its tailored recipes and prepared ingredients add value, said the person.

​Blue Apron appears to have the same customers as Whole Foods:

The Amazon deal is especially pertinent to Blue Apron because the New York-based startup appeals to a similar customer base as Whole Foods: The top-10 percent of households by income, according to Kurt Jetta, chief executive officer of retail and consumer analytics provider Tabs Analytics.

​One aspect I hadn’t mentioned in my bullet points: Amazon going into meal-kits in a big fashion with its future Whole Foods division could actually help Blue Apron in making meal-kits themselves more widely known and more accepted as way of buying food. The market they operate in is still comparatively small:

Management also plans to point out that the so-called total addressable market in the U.S. still provides opportunities for growth, the person familiar with the matter said. Only about 1 percent of grocery shopping in the U.S. is done online., while Blue Apron said in its IPO filing that its market penetration in the U.S. was just 0.7 percent in the fourth quarter of last year.

This is very important because meal-kits is a model that only works great at scale.

Venturebeat on the IPO pricing following the Amazon news:

Blue Apron updated its prospectus to price its IPO between $15 and $17 a share, which would translate to proceeds as high as $510 million. Berlin-based Delivery Hero, meanwhile, plans to raise as much as €996 million ($1.1 billion) in an offering priced between €22 and €22.5 a share.

In its updated filing, Blue Apron added a line in its risk-factor section that says: “business combinations and consolidation in and across the industries in which we compete could further increase the competition we face and result in competitors with significantly greater resources and customer bases than us.”

Of the two companies, Delivery Hero has less to worry about for now because Whole Foods stores are primarily located in North America, with just nine in the United Kingdom. But Amazon tends to export its new business models abroad and could easily buy a grocery chain or restaurant-delivery company in Europe.

According to Reuters, Delivery Hero is pricing its IPO in the upper half of its price range. Delivery Hero being not that spooked by Amazon, again, makes sense. But the company still needs an answer to Amazon Prime. In 2015 I wrote “How The Prime Cross-Subsidy Model Could Eventually Lead To A Fight between Amazon And DeliveryHero“. I have yet to see how Delivery Hero and similar delivery companies would fight that.

If anything, Amazon-Whole Foods makes that into an even more pressing matter.

Update: Business Insider:

 Blue Apron said on Wednesday it expects its initial public offering to be priced between $10 and $11 per share, down from its previous expectation of $15 to $17 per share.

The new pricing range implies a valuation of up to $2.08 billion, compared with $3.2 billion earlier.

Makes sense. /Update

More on this topic:


  1. […] What Amazon-Whole Foods Means for the IPOs of Blue Apron and Delivery Hero […]


  2. […] In fact, as we argued before, Amazon’s entry in the market will help make the concept of meal-kits get faster into the mains…: […]


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