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Commentary

Why Blue Apron Shouldn’t Fret About Amazon’s New Meal Kits

Jul 19, 2017

Amazon (amzn) is at it again in its quest to rule the world. The company recently started selling Meal Kits, taking on Blue Apron in delivering to your door, well, meal kits.

Amazon’s proposed acquisition of Whole Foods is its latest move that has set the media, and those who fret about monopoly, abuzz about the possibility that the company will, in fact, own the world, or at least the profitable parts of it. But unless this time is different than all of the past instances in which people worried about some company ruling the market, there is much to applaud and little to worry about.

A century ago, there was a retailing monster that threatened all of the local mom-and-pop stores that served clients at high prices with minimal selection. That was Sears. It sent catalogs to people everywhere, so Farmer Bob in Kansas could order just about anything to be delivered by mail. He could even order a house! (Take note, Amazon.)

The rise of those days’ innovators like Sears, and A&P in food retailing, caused an anti-chain store movement that politicians were happy to latch onto, helping to produce the Robinson-Patman Act of 1936, which prohibited suppliers from giving price breaks to large-scale buyers. But the antitrust attack mattered little; Sears and A&P gradually withered over time as more innovative firms arose to give consumers what they wanted.

Some years later, another “threat” to the retail market emerged: Walmart (wmt). From the hinterlands of Arkansas came, as book titles touted only a decade ago, “the bully of Bentonville” and “the Wal-Mart effect.” Amazon now has a higher market value and no one worries any longer about Walmart ruling the world. How quickly things change.

Just because something is offered by Amazon doesn’t mean people will rush to it. Remember Amazon Destinations? That was going to take over hotel bookings. Remember Amazon WebPay or Amazon PayPhrase or Amazon Fire Phone? Those and more Amazon efforts failed. Their competitors are still with us.

Why might Amazon Meal Kits do better than some of its other failures? The acquisition of Whole Foods likely increases the chance of success. Previously, there was no reason to think Amazon had credibility to deliver quality dinner ingredients. To most people, Amazon is a logistics company that is good at putting what we want in a box and getting it to our door—just like the Sears catalog of old. But now we know they have good food sources. Some people, like me, hate going to the store, or thinking about what to cook, so let Amazon or Blue Apron help solve the problem. Amazon, like Blue Apron, is responding to evolution in demand for food services at a more sophisticated level than before.

Is there a guarantee this will work? No. During the dot-com boom back in 2000, companies would deliver every conceivable product, including groceries, to your door. That didn’t work out well for many companies, but we learn from failure. Amazon was a dot-com company. It went public at $1.50 a share in 1997, rose to $106 in late 1999, and was down to about $7 in 2001. It is flying high today, but it took almost a decade to recover to its 1999 high. The company struggled and learned.

Will Amazon justify its $1,000-plus a share price? Many firms did not live up to their high market caps of the dot-com era, and disappeared or contracted. IBM (ibm) was once the invincible king of the computer industry. It is now a mere princeling. US Steel once was the dominant steel firm in the world. It is not even number one in the United States now. Xerox (xrx), king of the copier hill, hit $185 a share in 1999. It is now a small fraction of that.

As a loyal Amazon Prime member (and Blue Apron subscriber), I cheer for Amazon’s success. But like most people, I would give up my loyalty to something better. Amazon, beware. Someone is always anxious to take what you have.

Roger Meiners is the Goolsby-Rosenthal Chair in Economics at the University of Texas - Arlington.

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