Customer acquisition costs threaten to plunge Blue Apron Holdings Inc. (NYSE:APRN) into a financial meltdown at a time when it needs to trim operating costs. It has emerged that the company could be spending as much as $400 to acquire new customers, up from $94 before it filed for its public offering in June.
Most of the new expenditure is reportedly going towards marketing in the form of ads for popularizing the company’s menu. The fact that the company ends up making $236 a quarter from each customer on spending $400 is not going well with investors, given that the model is not sustainable.
Blue Apron in its defense maintains it does not spend all its marketing expenditure in acquiring new customers.
“The calculation also assumes that our marketing spend is solely devoted to the acquisition of new customers, when in reality our marketing spends is not solely focused on customer acquisition, but also retaining and engaging our customers once acquired,” Blue Apron in a statement.
Scrutiny over the company’s expenditure threatens to push the stock lower after a disappointing public offering. The filing of a trademark application by Amazon.com, Inc. (NASDAQ:AMZN) last month for ‘prepared food kits’ is another headwind that continues to deal the company’s prospects a big blow in the industry.
In a bid to shore up the bottom line, Blue Apron has already embarked on a restructuring push that seeks to reduce costs of operation. The company has announced plans to shut down its facility in New Jersey that ships out, ready-to-cook meal kits. The shutdown will result in the layoff of about 470 workers if they don’t choose to transfer to another facility.
The New Jersey plant operations will be consolidated in a new plant in Linden, 15 miles away from Jersey City. Reports indicate that the restructuring could result in the elimination of up to 1,000 jobs. The company had 5,200 employees as of the end of March.
Blue Apron stock was up by 0.34% in Monday’s trading session to end the day at $5.85 a share.