Blue Apron in a race against time

Blue Apron Holdings is in a race against time.

The online meal-kit provider on Thursday reported quarterly earnings that represented improvement in some noteworthy ways. In particular, its operating loss of $30 million wasn’t as steep as in the same period a year earlier, showing that Brad Dickerson, who just stepped into the CEO role in November, is making good on his promise to make the supply chain run more efficiently.

Investors liked what they saw and drove the shares up 9 percent in early trading. Yet on closer look, I’m not convinced these results should be whetting their appetites.

Blue Apron shed quite a few customers in the first quarter. It served 786,000 in the quarter, down 24 percent from the same period last year. That decline is easily explained: The meal-kit company spent sharply less money on marketing in this quarter compared compared with a year earlier. Blue Apron had made a deliberate pullback in advertising spending at the end of last year while it worked through operational difficulties.

But while Blue Apron’s marketing expenditures were much lower in the first quarter than a year earlier, when looked at on a quarter-by-quarter basis, they were higher as the company started to increase spending again from that quieter period. In fact, the company spent 56 percent more in the first quarter than it did in the fourth quarter. The result was a roughly 5 percent increase in customers on a quarter-by-quarter basis. That’s not terrible, but it suggests to me that if Blue Apron wants to see, say, a 10 percent increase in customers, it might need to roughly double that spending.

In fact, I could argue it might need to spend even more than that. The fourth quarter has some built-in challenges for Blue Apron — namely, that it includes Thanksgiving and Christmas, which have many shoppers ditching their usual cooking routines because they’re traveling, hosting or hopping around the holiday party circuit. First quarter should be an easier time to attract and retain customers, simply thanks to the calendar.

Plus, a key competitor, HelloFresh SE, is coming on strong. We don’t yet have first-quarter results for HelloFresh, but look at how the two stacked up against each other in the fourth quarter on customer counts. When Blue Apron went quiet on marketing, its rival clearly benefited. If HelloFresh serves those customers well, it’s going to be very hard for Blue Apron to steal them away. Plus, HelloFresh’s empire has only grown since the fourth quarter. It announced in March that is has acquired Green Chef, a meal-kit service that offers plans for specialized diets such as gluten-free or Paleo.

It’s not just HelloFresh that could steal Blue Apron’s lunch: Kroger Co. is making its Prep+Pared Meal Kit available in even more stores. Walmart has joined the meal-kit fray, too. And Albertsons Cos. acquired Plated last year, putting muscle behind yet another competitor.

All this would seem to leave Blue Apron in an exceedingly difficult position. It badly needs to prove to investors that it can improve profitability, and keeping a lid on marketing expenses helps with that. Yet it appears Blue Apron won’t be able to grow its customer base without plowing more money into marketing.

If Blue Apron is to survive, it needs to move fast on some of its key initiatives. It has said it will sell meal kits in grocery stores this year, an important move that could dramatically expand its addressable market. It has hinted that it might offer more variety or optionality in its subscription plans, and if that is indeed in the works, it must hustle those changes out as quickly as possible.

Its current situation looks unsustainable.