Refresh Your Entrepreneurship by Cheng Xiaoyi

REFRESH YOUR ENTREPRENEURSHIP TEAM 6

Alibaba Fresh Hema and Blue Apron

MUO-E3032 Design Strategy and Entrepreneurship By Peter McGrory 18.02.2019

The Team Introduction

Refresh your entrepreneurship report has been done as a part of Design Strategy and entrepreneurship course of Collaborative and Industrial Design at Aalto University

Xiaoyi Chang

Xuewei Zhao

MA-CoID

xiaoyi.chang@aalto.fi

zhaoxuewei95@gmail.com

TEAM 6

Srushti Shah MA-CoID srushti.shah@aalto.fi

Lin Liu MA-CoID lin.liu@aalto.fi

This report shows the study of company Blue Apron- A start-up and established company Alibaba Hema. The aim was to study two different levels of companies, gain insights and create a value by design in the strategies within.

Contents Industry Overview Fresh food

Meal-kit New Retail

Company Introduction Alibaba Hema

Blue Apron

Triple path analysis

Mission and Vision

Effectuation

Founding insight Community Business patterns Design leadership

Challenges Alibaba Hema

Blue Apron

SWOT (Blue Apron)

Innovation Alibaba Hema

Blue Apron

References

An experience 6 weeks | 2 cases | 4 students | 1 team

Industry Overview Fresh Food Before, Supermarkets were the only modern format with credible offerings in fresh fruits, vegetables, meat, fish, dairy, baked goods, and delicatessen. These years, consumers believe that discounters’ fresh products are as good as—and sometimes even superior to—those at supermarkets, and lower priced to boot. Basically, the fresh food market in Europe is still in an offline state. However, there is a huge booming development in fresh food industry. China’s fresh food e-commerce industry grew by 59.7 percent in 2017 to $22.1 billion. After experiencing a cold winter in 2017, two ecommerce magnates came on stage and reshuffled the market by developing a supply chain and better leveraging user data. From 2018 on, Chinese fresh food ecommerce market gets into a mature stage. User increasing speed slows down and leading enterprises will emphasize on new technology application and business pattern innovations in deeper digging user data, standardizing fresh food variety, and upgrading transportation and storage technologies.

New Retail

Meal-kit

will be no pure e-Commerce “anyThere more in the next 10 years but new

The meal kit market is highly “dynamic and prone to fluctuations,

retail, which means the online, offline and logistics must be combined together.

with the top meal kit providers falling in and out of favor since their introduction in the past few years

“

Jack Ma, who is co-founder and executive chairman of the Alibaba Group, puts forward the idea of new retail on Alibaba’s developer forum in 2016 saying that there will be no pure ecommerce any more in the next 10 years but new retail, which means the Online, offline and logistics must be combined together. His vision now can be seen in the millions of mom-and-pop stores throughout China that are taking on new life as order-and-delivery stations for e commerce. And you can glimpse it in China’s ubiquitous mobile payments. Chinese consumers use their phones for 60 times more mobile payments than consumers in the US do. Enabled by leading-edge technology, New Retail has created an imperative for brands.

Meal kit is a subscription service–food-service business model where a company sends customers pre-portioned and sometimes partially-prepared food ingredients and recipes to prepare home cooked meals. This subscription model has been cited as an example of the personalization of the food and beverage industry that is becoming more popular and widespread mainly amongst office going people who want to eat fresh food but have no time for buying groceries. According to the Rockville, Maryland-based research firm Packaged Facts, the U.S. meal kit market tallied sales of $2.6 billion in 2017 and will achieve an estimated $3.1 billion in sales in 2018. The firm estimates that the meal-kit market will grow by double-digits over the next several years only to decline to low single-digit growth by 2023. “The meal kit market is highly dynamic and prone to fluctuations, with the top meal kit providers falling in and out of favor since their introduction in the past few years,” David Sprinkle, research director for Packaged Facts, said in a statement.

Alibaba CEO Daniel Zhang summed up the unfolding challenge that companies must use Big Data analytics to redefine the traditional core elements of retailing—consumers, merchandise and stores—and the relationship among those elements to upgrade current formats and create new retail occasions.

Company Introduction Alibaba Fresh Hema Hema is an O2O fresh food store brand owned by Alibaba. Hema is a supermarket, a restaurant, even a vegetable market, but such a description seems to be inaccurate. Consumers can go to the offline store to buy, or just order at the Hema’s App. One of the biggest features of Hema is the fast delivery (Within 3 km of the offline stores, Hema can be delivered to you within 30 minutes.

Payment methods Hema is always located in residential areas. Shopping at Hema requires downloading the Hema App, and it only supports Alipay payments and cash but does not accept any other payment methods such as credit. In fact, behind the strong push of Alipay payment, it is Hema’s ambition to mine big data from user consumption behaviors in the future. Alibaba provides membership services for Hema’s consumers, who can use Taobao or Alipay account registration to allow consumers to view and purchase goods from the nearest store. Hema can track consumer buying behaviors in the future and make personalized recommendations with big data for consumers.

Profit In July 2017, Hou Yi, the founder and CEO of Hema, said in an interview that Hema’s stores which have been opened for more than half a year have already achieved profitability basically. Currently, the average daily turnover of Hema’s first store in Shanghai is around 1,000,000 yuan, which has already achieved a single store profit. According to the report of Huatai Securities in December 2016, the annual turnover of Hema Jinqiao Store is about 25,000,000,000 yuan, and the area-effectiveness (note: the turnover per square area can be output) is about 56,000 yuan. This is much higher than the industry average (15,000 yuan).

Delivery The biggest difference with traditional retail is that Hema achieves the optimal match between people, goods and scenes. From supply chain, warehousing to distribution, Hema has its own complete delivery system.

Future Alibaba said that the creation of Hema is not just to open offline stores (after all, China does not lack seafood stores), but hopes to drive online consumer data, offline layout of Hema to cooperate with traditional big shopping brands.

Company Introduction

Blue Apron Blue Apron is an American meal-kit delivery service pioneer. It was founded by Matthew B. Salzberg, Ilia Papas, Matt Wadiak. Brad Dickerson is the CEO of the company and it was established in August 2012 in New York City, the company had quickly gained popularity across the United States due to its unique and novel business model. The company’s idea is to provide an alternative to traditional grocery shopping, dining out and ordering takeout from restaurants. It does so by sending their customers boxes with fresh food that has been precisely measured out and packaged in refrigerated containers along with beautiful and easy-to-follow recipe instruction cards. All meals are crafted exclusively by a selection of high-end chefs.

Package Essentially, all the customer has to do is open the box, unpack the ingredients and get cooking. Blue Apron had delivered a total of 159 million meals to 50 states in the US as of 1Q 20171. There are two subscription plans available at the moment — a family plan that serves 4 people for $9.99 per meal and a two-person plan for $8.74 per meal. Both plans deliver 3 meals per week.

Curent Stage Blue Apron has seen a 15% decline in customer base since the year 2016.4 The main reason for that is the ‘war on price’ due to increased industry competition. According to L.E.K 2016 Millennial Retail and Travel Survey, 57% of Americans discontinue their subscription to meal-kit services due to the service being too expensive5. Blue Apron’s business strategy implies offering lower industry prices ($9.99 per person per meal for a two-person plan and $8.74 per person per meal for a four-person plan)6 and it is still losing customers. Blue Apron gives away a lot of free meals to woo new subscribers, but ends up losing them due to an extremely high customer churn with only 29% of the customers sticking around a year after the initial sign up. The main reasons for customers canceling subscription are meal option variety and customer service

Triple Path Analysis Blue Apron

Alibaba Fresh Hema

Hema noticed a contradictory phenomenon that doesnâ&#x20AC;&#x2122;t align with our previous beliefs or assumptions. Chinese people are obsessive with freshness. For example, they regard alive seafood is better. But they are unwilling to cook themselves at home for many reasons. Also, though online shopping is popular in China, people are losing their patience in waiting for the package delivery. Combined with the technical support from Alibaba, Hema builds a sound supply chain offering 30-minute delivery service and creates an online-to-offline platform selling freshest food and each Hema offline store has an in-store restaurant offering cooking service after buying. Aiming at customersâ&#x20AC;&#x2122; frustration like retailers are untrustable. Hema takes their advantages of data technologies and builds a production source tracking system.

Blue Apron found that people have a passion for cooking exotic and unusual recipes but also found that the process of grocery shopping too tired, time-consuming and expensive for an average American. And there are also some people who do not know how to cook. To solve the problem, Blue Apron provides the well-designed cooking education in the recipes. In addition, they hire a professional chef team to create a variety of recipes and also cooperate with the family-run farms to make sure they can provide fresh food materials to their customers. Whatâ&#x20AC;&#x2122;s more, Blue Apron found that there are lots of people want to have healthy food but do not have enough time to go to the groceries and decide the menu. In order to solve the problem, they deliver the food box gathering everything together in the right measurement.

Vision: Create a fresh and beautiful life. Mission: Empower retailing enterprise in the industry.

Vision: To build a better food system. Mission: To make incredible home cooking accessible for everyone.

Hema is regarded as a bellwether in new retail. Hemaâ&#x20AC;&#x2122;s success cannot leave the support from Alibaba including data, system development capability, cloud computing and delivery algorithm optimization. As the first and biggest ecommerce in China, Alibaba regards themselves as the pioneer in ecommerce and regards empowering traditional enterprise in their transformation as the mission.

They are transforming the way that food is produced, distributed, and consumed. They believe a better food system will benefit not only consumers and stockholders, but also the planet, and they manage the business for the benefit of all three.

Effectuation

Business Patterns

Alibaba Fresh Hema

Founding Insightt No one really enjoys the process of grocery shopping but ordering online isn’t perfect either. Some things you want to pick up yourself and life can’t always accommodate a delivery window.

Ecommerce

Leverage customer data

Alibaba is the world’s largest online business-to-business traditional platform offering business of all sizes and online marketplace and their core product, Alipay, which connects all products in Ali-ecosystem. Though Hema is an online-to-offline fresh food platform and has a lot of offline stores. Ecommerce still contributes more than half of their revenue and the offline store also helps in online drainage.

Hema is one of the best players in leveraging data to increase their revenue. Supported by Alibaba who have 1 billion ecommerce users’ shopping data, Hema optimizes their inventory management system by these data. The most commendable example is that there is a batch of milk reaching their expiry date. Hema filtered a group of active users who usually buy milk in both online and offline stores and push discount notification to these target users. All the milk was sold out in 3 hours.

Self-service

Shop-in-shop Selling

Community Hema has three main target user groups. Family users staying at home at night most of the time. Light meal or convenient grocery store target for Office situation. And users who will visit supermarkets and bring kids out on weekends.

Self-service can reduce labor cost. There are many self-service situations in Hema. integrated with Alipay, Hema is a totally cash-free store and customers will pay at the self-paying machine. Hema also has some robots restaurant where customers order food on their phone and the food will be delivered by robots as well.

Experience

Hema combines these two patterns together and creates an in-store restaurant mode. they also make money by selling this eat-after-buy experience that satisfies customers both in freshness and cooking requirements.

Solution Provider

Ingredient Branding

Though Hema doesn’t make money by selling solution directly to customers, they provide new-retail transformation solutions to business partners like traditional food supermarket. By exporting mature solutions, Hema is also achieving their vision to empower the industry.

Hema always brands themselves as the freshest. And they collaborate with different suppliers who are also regarded as fresher in the industry to advertise themselves and collectively add value for customers. For example, the salmon in Hema are the selected ones from the collaboration with the Norwegian Seafood Council.

Integrator Besides the collaboration with farms and abroad food suppliers, Hema also established their own food brand and build self-running farms in the outskirts of the city to supply fresh food with a lower transportation cost and reduce their reliance on external suppliers.

Business Model Canvas Analysis Value proposition

Key partners

Hema tries to create new retail. It is a combination of offline restaurant, warehouse, and retail store. The slogan of Hema is fresh and beautiful life. Therefore, the value propositions of Hema are all about freshness. It provides fresh food and the whole production process of each product can be traced. Customers can eat at Hema’s offline restaurants or order online, and Hema will deliver to customers within 30 minute which is fast to keep food fresh.

On-time delivery of high-quality fresh food is essential to Hema’s business. And the cost should be controlled at the level of parity, so Hema cooperates with local farmers and abroad suppliers directly to reduce the participation of middlemen. They also cooperate with food brands. In their future plan, they want to drive online consumer data, offline layout to sharing with well-known food brands which can help Hema occupied larger fresh market in China.

Customer segments

Key Resources

Hema attempts to target a more precise range of customers. There are 3 kinds of typical users for Hema. First one is family users staying at home at night most of the time. Light meal or convenient grocery store target for Office situation. And users who will visit supermarkets and bring kids out on weekends.

Blue Apron relies heavily on its physical resources such as fulfilment and operationscentres to receive, prepare, package and ship meal-kits. Similarly, human resources — workers and specialists working in these centers — are also crucial to the successful execution of the business model. One of the key resources Blue Apron has are tied with the partnerships the company has established (intellectual resource) with its supply chain — farmers, distributors, logistics partners.

Channel Hema has many distribution channels. All services provided by Hema can be found at Hema App. In offline restaurants, Hema provides fresh food and good eating experiences. Customers can order online and products have a 30-minute guarantee. Hema cloud stores have more varieties of goods and promise to deliver within one day. And Hema also sells themselves through offline ads, and the visuals of most ads are impressive.

Key activities The main activities of Hema are selling fresh food via online and offline, at the same time, engaging in-store restaurants and delivering food to customers.

Cost structure

Customer relationships

Hema spends money on building their supply chain which can provide faster and fresher products than other brands in the same industry. The biggest problem in the fresh industry is to reduce losses so Hema pays more attention on inventory management and prediction. Because of the high cost of one single store, its investment in development (technical, house rental fees, etc.) is also relatively high.

Hema only provides services for the members of Hema and the payment only Alipay. On the one hand, the operator can control the offline consumption data through Alipay completely. On the other hand, Alipay payment allows each shopper to download Hema App and become a member which will increase user stickiness.

Revenue streams Hema generates revenue from all its services. Their 3 main sources of revenue are selling, engaging restaurants and providing take-out services.

Effectuation

Business Patterns

Blue Apron

Now Blue Apron has reimagined the traditional grocery business model and developed an integrated ecosystem that employs technology and expertise across many disciplines. The supply-demand coordination activities—demand planning, recipe creation, recipe merchandising, and marketing—drive their end-to-end value chain. They also manage and influence demand, including through the content, proprietary software tools, and e-commerce experience.

Founding Insight “People have a passion for cooking exotic and unusual recipes but find the process of grocery shopping too tiring, time-consuming and expensive for an average American.”

Community The target user of Blue Apron is who cares about eating healthy and staying fit but also do not have much spare time for cooking. One member of the community said that there are so many positives as a mom--when that box arrives, it’s a box of confidence for me, and everybody enjoys it. Customers give high praise to the recipes that can help them learn more and reduce waste. In the community, Blue Apron advocated different activities for the customers. For example, they held cooking camp for the whole family. Getting kids in on the kitchen action doesn’t just lighten parents’ load, it also teaches them skills they’ll use for life, creates a bonding experience, builds confidence, and encourages them to learn about new foods

E-commerce

Subscription

Blue Apron provides their service and sells products online. The online meal-kits service sales direct to customers via website and the app. They also gather and use the data through the official social media.

The service is open for everyone in America. It is easy for the customer to sign in the service. After choosing the desired meals, a few days later, the customer will receive a labelled box that contains all the ingredients for the meals and very detailed step by step recipes pages. The only thing the customer needs to do is following the recipes. Blue Apron gather and infer information about our customers’ tastes, food preferences, and order behaviour to forecast near-term and long-term demand.

Ingredient branding

Solution provider

Blue Apron cooperates with many family-run farms. Therefore, their meal-kit is additionally branded and advertised with the ingredient product, collectively adding value for the customer. This additionally projects the positive brand associations and properties onto the product and can increase the attractiveness of the end product.

Blue Apron provides a variety of recipes and the cooking education for people who cares about eating healthy staying fit but also do not have much spare time for cooking.

Business Model Canvas Analysis Value proposition

Revenue Streams

The value proposition of the company is to offer the convenience of a food delivery service to let customers enjoy sophisticated home-cooked meals at moderate prices while promoting sustainability. It offers a convenient, accessible and moderately priced service to the customer. Neatly designed packages, pre-portioned ingredients and recipe brochures are also coherent with the value proposition. Customer’s desire for unique and luxury cooking experience is met with Blue Apron’s exclusive chef-crafted meal recipes, which adds to the customer satisfaction and provides a sense of self-fulfilment, further fostering an emotional connection to the brand.

The company generates revenue mainly from the sale of their meal kits (subscription cost for 2-Person or Family Plan). The company also generates revenue from Blue Apron Wine, a Blue Apron’s subsidiary that sells selected wines and Blue Apron Market, which offers supplementary items such as kitchen utensils, cutlery, cookware and pantry supplies (like salt, pepper, chocolate, olive oil).

Key Resources Blue Apron relies heavily on its physical resources such as fulfilment and operations centres to receive, prepare, package and ship meal-kits. Similarly, human resources — workers and specialists working in these centers — are also crucial to the successful execution of the business model. One of the key resources Blue Apron has are tied with the partnerships the company has established (intellectual resource) with its supply chain — farmers, distributors, logistics partners.

Customer segments The company attempts to target a wide range of customers, its typical subscriber is a single or newly married professional living in an urban area, aged 25-44. The majority of the clients are located in large cities across the United States (57% living in top 10 states)11 and often do not have the time or will to decide on meals to prepare at home or take grocery shopping trips. Their customers are usually those within medium to high-income brackets, mostly because the service is perceived as premium.

Key Partners On-time delivery of high-quality fresh ingredients is essential to Blue Apron’s business. Blue Apron’s main logistics partners are FedEx and UPS. The company also puts a lot of effort into eliminating food waste by carefully pre-portioning meal-kit ingredients, using only highest quality farm meat and produce and ensuring no food spoilage through eliminated middlemen (store warehouses, grocery stores, etc.). Blue Apron cooperate with some family-run farms to guarantee the freshness of food.

Channel The only distribution channel the company operates through is direct web sales. Blue Apron only uses its website to sell and deliver the meal-kit boxes and its supplementary products and provide customer support. To attract and retain customers, Blue Apron raises brand awareness through advertisements and promotions — online (mostly on social media and partner websites through digital advertisement), on TV and offline (street signs, banners, etc.

Key Activities The main activities of Blue Apron are delivering the meal-kit to customers successfully. Update the recipes and manage the ordering platform. In addition, they also need to manage the supply chain and relationship with the farms to make sure they can provide the highest quality product and service.

Customer Relationships Any customer can easily subscribe to the service without any service assistant to further receive scheduled deliveries of the meal-kits to the door — the whole process is fully automated. Besides, they use social media to contact the customers.

Cost Structure Blue Apron spend money mainly on operating expenses, salaries and wages, marketing expenses and centre servicing. But now because the investors are unwilling to invest, so they lost money to operate the marketing and business is shrinking.

Design Leadership

Alibaba Fresh Hema attaches great importance to design both in organization structure and to customer service.

Blue Apron stays at the step 2 - Design as form-giving according to Danish Design Ladder

Design in Decision-making

We interviewed a strategist in Hema whose title is UX & service strategist in new retail. They have a multi-disciplinary strategy team. Designers play an active role in the decision-making process of Hema. The CEO is generous to the investment on prototyping new ideas and put into practice.

After interviewing one customer value creation strategist from Blue Apron, we know that now they don’t have designers in their strategist team. The strategy-making only happens in the top level, including the founder team. Now, designer is only responsible for form-giving. At this stage, designers work with engineers to produce the concrete product, such as the shape of the box, the layout of the recipes.

Service & Experience

Digital Experience As we have mentioned a lot, O2O is the main feature of Hema. In Hema’s offline store, customers can freely switch between online and offline service by their phone.

Product Experience Freshness, variety and flexibility are the main product experiences Hema offers to customers. Owing to the sound supply chain and data-driven platform, production source information of all products in Hema can be tracked and checked by scanning a barcode on the package. Collaborating with several suppliers and building their own brand, Hema made it to be a one-stop shopping center providing various products. As for flexibility, the quantity of per package in Hema is specially designed to fit one-person eat or one-meal use.

Pre-Sales Simply choose your plan and then select your meals from weekly menu. Some of these meals can include meals that are child-friendly, vegetarian, ‘quick & easy’ and more. A few days later, you will receive a labeled box that contains all the ingredients for your meals and very detailed step-by-step recipes pages.

After Sales • Start with inspiration and clear objectives. The finished example is perfectly plated and well lit to ensure anyone who sees it will think, “I want to make that!” • Warn students about the time and resources they’ll need to commit. Every good recipe starts with an ingredient list and estimated cook time.

Scene Experience Hema has a routine-oriented layout and a scene-based product classification in their offline store. For example, They broke the conventional rules in market layout and put beers together with alive seafood.

• Break down complex tasks into smaller, simpler tasks. Well-designed recipes look for logical breakpoints and ensure tasks are grouped and ordered in the most efficient way possible.

Emotion Experience Relaxed, comfortable, interesting, and trustable are the value Hema wants to convey to their customers. This could be seen from their brand visual identity

Challenges Alibaba Fresh Hema

With the development of Hema, new problems arise. In the outside, there are more and more “copiers” step into the market and offer similar services at a lower price. The blue ocean market is becoming red now. It is not perfect internally as well in the aspects of technology, internal competition, and inventory management.

Currently, most of the digital services in Hema are relying on the customer’s mobile phone. After a deep discussion with Sherry, Hema’s service strategist, we learned that considering the technology penetration, the smartphone is the most accessible digital device. Relying on all digital services on customers phone is possible to become a bottleneck to improve service or experience in the future. In the meanwhile, for Hema, everything is blank. Every innovation they proposed requires a big investment in infrastructures. Mobile phones are obvious a good interface. Another problem Hema is facing comes from their 30-minute delivery service. Currently, they are all delivered in a human + scooter mode, which means the coverage of delivery is limited in 3 kilometers. However, to compete with other competitors and enlarge coverage, Hema has to keep opening new offline stores intensively. At the beginning, the locations of offline stores are not in downtown areas but subordinate center areas close to residential areas. The cost to open a new store is very high in housing, hiring, maintaining, etc. It’s urgent to find a smarter way to enlarge delivery coverage and guarantee the 30-minute delivery in the meanwhile. The third problem is an eternal challenge in the fresh food industry which is inventory and quality management. Besides fresh food, Hema also includes a lot of long-tail products to build their one-stop shopping platform. Different from fresh food, the sale of long-tail products are harder to predict. This requires better leveraging technologies and optimization of the management system.

Challenges

SWOT Blue Apron

Blue Apron

Strengths

External

1. Well-established brand and high customer awareness This is a strength for Blue Apron because it is the most widely recognized meal-kit service company in the US and is currently the market leader in the industry. The company has been establishing powerful connections with the customer by gifting them a unique cooking experience. This is why the word of mouth for Blue Apron has been strong and brand recognition and customer awareness are the company’s strengths.

Blue Apron has lots of competitors, such as home chef, hello fresh and plated. They have the similar services. Home Chef is most suitable for singles, couples and families who are pressed for time but would still love to enjoy super delicious meals that are home cooked and take no longer than 30 minutes to prepare! Hello Fresh is perfect for people who enjoy classic and familiar dishes that are not too intimidating.Part of the company’s appeal is also the short preparation time of their dishes. Most of their meals take only about 30 minutes to cook. Hello Fresh is incredibly convenient and offers families a reasonably priced dinner solution. They have a specific plan to cover family needs and they also offer the option of a vegetarian plan for the veggie lovers. Plated is ideal for people who love food and enjoy the cooking process as well. With Plated you know that you will learn new flavors in addition to trying new cooking skills. The whole service is designed so that you can create perfect evening meals without the stress or fuss. Plated is ideal for singles, couples and families, and they also offer dishes for vegetarians and those on a low calorie diet. Although they have similar services, Blue Apron is much more expensive than others. Now Blue Apron cannot keep their customer loyalty. We found that through this “elements of value pyramid”, we found that Blue Apron just achieve the functional value. For example, they save the time of going to grocery, they simplify the cooking process, provide good quality fresh food and a variety of recipes. But this isn’t consistent with their high pricing. So we thought that this is one reason that they cannot keep their customer loyalty now.

Internal Blue Apron have a limited operating history and a novel business model, which make it difficult to evaluate their future prospects and the risks and challenges they may encounter. And they have a history of losses, and they may be unable to achieve or sustain profitability. Blue Apron depends on a strong and trusted brand, and any failure to maintain, protect, or enhance the brand could materially adversely affect the business. Changes in consumer tastes and preferences or in consumer spending and other economic or financial market conditions could materially adversely affect the business. Changes in food and supply costs and availability could materially adversely affect the business. If they fail to successfully develop new product offerings and enhance existing product offerings, they are unable to attract new customers and retain existing customers. Now their investors are unwilling to invest. Their business is shrinking.

2. Highly efficient end-to-end value chain This is a strength because Blue Apron’s smooth business operations depend heavily on supply and distribution network efficiency. The company had designed its value chain in such a way that the customer is sure to get fresh ingredients on time and at lower prices. 3. Exceptional food quality at reasonable prices This is a strength because Blue Apron is dedicated to providing its customers with only the best quality food, seasonal and local produce and sustainable meat and poultry. All of the food sourced by Blue Apron is produced by organic farmers and purveyors around the world. The company implements a special quality control system within its production centres whereby each incoming food item is carefully inspected by quality control supervisors to ensure that the product quality matches their standards.

Opportunities 1. Enlarge customer base through product segmentation Blue Apron may choose to expand its service offer within the meal-kit industry by product segmentation. Right now, Blue Apron’s product offer is not segmented and aims to appeal to a broad customer range. Choosing to narrow down and strategically segment the product offer may lead to customers perceiving the service as unique which may result in customer base expansion.

2. Grow revenue by diversifying the product portfolio Blue Apron offers a very limited selection of weekly recipes and limited capacity to customize its meal kits. The company should put effort into diversifying its product line by offering a larger recipe selection base and a variety of add-on products. Customers should also be able to customize their meals according to their taste. This will appeal to existing customers and strengthen the connection the brand and will attract new customers because of a wider product selection, thus shipping more boxes and generating more revenue.

Weaknesses 1. Financial loss due to poor corporate management This is a weakness because Blue Apron sees financial loss due to poor corporate management decisions and is reporting income losses as well as showing weak gross profit followed by negative profit margins. Gross profit margin fell 4% since last year to 28.7%54. The company spent millions on servicing the launch of its new fulfilment centres in New Jersey having to cut back on operating costs and struggles to break even on its expenses. Blue Apron is unable to make a profit and operates on income loss. The management is making the decision to invest heavily in marketing, however, it is not producing positive results.

2. Unclear customer target market This is a weakness because Blue Apron tries to appeal to all customer segments and to all income brackets thus not tailoring its value proposition. Marketing research shows that a lot of customers find the service too expensive. Additionally, Blue Apron only offers a limited selection of weekly recipes which some customers may not find suitable (like vegans or people who suffer from food allergies).

Threats 1. Increasingly growing competition This is a threat because competition has gotten extremely high in the last year with major players like Amazon and Walmart stepping into the meal-kit industry while smaller and more segmented companies occupy every possible niche within the market sector. Considering Blue Apron’s weak financial state and thinning customer numbers, an intense rivalry is the most serious threat that may put the company’s very existence in jeopardy. Blue Apron my lose its leading market position and give in its market share to competitors with better corporate strategies.

2. The shift in consumer taste or preference This is a threat because food industry trends are subject to constant changes which are out of the companies’ control span. Consumer shift in food purchasing is a threat to Blue Apron, because the company may lose a significant amount of customers due to taste changes.

3. Strategic partnership or alliance with a food retailer Strategic alliance with another company operating in the food segment might be a viable opportunity for Blue Apron to both expand its operations beyond the online subscription service and increase its customer base. Blue Apron might want to consider partnering with brick and mortar grocery retailers so that it can sell its meal kits through an offline distribution channel. Additionally, it can partner with a variety of restaurants targeting different customer segments or fast food chains to increase brand awareness and expand the product range.

Innovation In our innovation, we focus on emphasizing business patterns in experience selling and better leveraging customer data. Following Alibaba’s strategy to de-commercialize the whole company and fully embrace new retail, we spend more efforts on the offline part.

Innovation on Less Phone Use According to an open speech given by Xiaosong Gao, Chairman of Alibaba Entertainment Strategic Committee, he pointed that the reason why the screen of phones are growing bigger and bigger is that the development and iteration speed of other smart devices can now catch up with the improvement of digital services. Therefore all services are integrated with mobile phone and this is a positive correlation pushing mobile phone to improve more. We come up with the idea to add more screen function devices in offline stores to reduce using scenes and using time. To “add screens” to replace phone’s function, we proposed 2 innovations, one is using transparent display technology on freezers door, the other is a projector ordering system replacing ordering on Hema app.

Innovation on Supply Chain The service of Hema’s 30-minute delivery limits its coverage within 3 km, but keep opening new stores intensively is not a wise solution.Eleme is another company engaging new retail and online take-out in China. In May 2018, Eleme had been allowed to build drone instant distribution routes. Which means, the delivery drone was officially put into commercial operation. Hema just acquired it and currently it has 17 delivery routes. Drone delivery is very fast, Hema can send food to customers where living more than 3 km away in 30 minutes in the future. Compared to regular delivery, Hema drone delivery service builds two points which are distribution point and delivery point and the drone takes up 70% of the delivery process. Firstly, goods will be packaged and sent to the distribution points. And then drones will send them to delivery points. Finally, delivery men will deliver the goods to customers. Delivery by drones will shorten the delivery time, which means, within 30 minutes, Hema can enlarge their delivery coverage. And drone delivery can lower the cost to open new stores and enlarge the coverage which can also save the cost of labor.

Transparent Display We focus on digital information get from mobile phones in offline stores. we found that the obvious information we can get in Hema from the food in freezers is the appearance, price, and discount sometimes. With Hema, all food production source information can be tracked by scanning the barcode on the package. We replace all glass door on the freezers to OLED screen and move the interface to the freezer (figure X). The system behind the freezer will track the quality of food and adjust the storage or discount dynamically. And based on customer’s shopping habit, the system will recommend smarter in the future.

Benefit from this transparent display freezer, energy waste caused by frequently open freezer to check further information will reduce. It also saves labor cost to update discount manually. What’s more, with the digital interface, Hema becomes more accessible. For example, foreigner visitors can change system language when they use.

Projector and Camera

Unadopted Brainstorming

In Hema’s in-store restaurant, customers need to order food on Hema App. There has already been a lot of compliments on this from customers. For example, “I have already sat in the restaurant, why do I still have to order on such a small screen like I’m ordering take-out food at home?” Therefore, we propose this projector ordering system (Figure X). Following the track above the robots’, the projectors can move to the next table after this order. This creates emotional level value like entertainment to customers. Also, this can attract more family users who usually stay longer and spend more money. Considering the cost to build this system, technology of gesture capture and projector in mature and integrating with robots track is economic as well.

We brainstormed a lot and generated many wild ideas for Hema ranging from delivering by auto-drive cars to enlarging service variety.

5G + Auto-drive cars attached on bus Figure X can well present our idea. However, consider to the return on investment, this kind of delivery system is more like a public infrastructure built by the government and all other retailers come to use it. Therefore, though it’s epochal and contributing to sharing economy, we rejected it.

Healthy fresh salad pop-up store for office people Office people are one group of Hema’s target user. Hema targets on high-level office lunch whose users emphasize health and freshness. So we come up with the idea of pop-up salad shops. But it’s a pity if only provide cold food. We fall flat in how to show freshness when it’s cooked.

Street food car or meal kit after work Street food is a large class of food whose main problem is health and cleanness. We had an idea to let Hema invent the street food car and rent them to the retailers to enlarge Hema’s variety. Also, make up for the food service at night after 8 pm. Because of the complexity of street food, it’s hard to design a standard food car for them and the local policy for street food differs everywhere.

Family offline cooking day We want to offer some offline activities, such as offering family cooking activities by using the projector and camera. We think that this innovation should be based on when the projectors and cameras will be maturity in Hema’s offline restaurants.

Service in midnight / Night super vending machine The main reason we abandon this idea is because it’s unrealistic or too future. Current technology cannot make the vending machine supermarket very practical. It will also makes the freshness more difficult to control.

AR In order to reduce using time of mobile phone, we consider using AR in the offline restaurants to display detail information by cameras on the phone. However, AR information requires more effort on content making, like 2D to 3D. Also in this idea, AR seems only play a role in improving user experience but show little potential in increasing revenue. So we abandoned it.

Innovation

Design

In our innovation for Blue Apron, our main focus was to innovate ideas which would help Blue Apron to keep their current customers and also help them to create new target customers. Our innovations focused on making the customer experience engaging which would make them to stick to Blue Apron.

Join the community, no matter how much cooking skills you have, you can make better use of your inspiration and creativity to create your own cooking style and taste. Record how you make the magic during the cooking process. Edit your own recipe, earn ”likes” in the community, and you will have the chance to get the award and cooperate with Blue Apron. In the company, through backstage statistics, with more praise, you will have the opportunity to cooperate with us in a long-term. No matter who you are, join the community and use your creativity to win the chef title.

Community

Build Community

Innovation process To keep the customer loyalty, we are thinking to build the Blue Apron community and let the customer connect with others to create their value on the platform. Customer Engagement innovations are all about understanding the deep-seated aspirations of customers and users, and using those insights to develop meaningful connections between them and your company. Great Customer Engagement innovations provide broad avenues for exploration, and help people find ways to make parts of their lives more memorable, fulfilling, delightful — even magical. (10 types of innovation) Through the hierarchy needs, we think that Blue Apron can provide more value for the customer. We focused on the self-actualization in life changing level to keep the customers’ loyalty and increase company revenue.

Benefits For the company, the community feature helps to maintain their customer loyalty. For the customer, they can feel motivated to explore new recipes as they will be recognized for their cooking. Additionally, the community can help the customer get inspired from other people’s preparation and help them to decide what to try next.

Narrative Guide

Collaboration

Innovation Process

Narrative Guide is a chatbot that guides you the steps to cook by narrating the recipe and more like a conversation where you can ask back when something is unclear. It is a feature in the app of Blue Apron. It is basically a replacement of the paper recipe. We realized that while cooking it is difficult to refer to the paper recipe at the same time as hands are always occupied. So we decided to come up with a solution that is more interactive and is a hands-free solution. Primarily based on machine learning, AI is already making our lives easier & exciting – whether it is through Tesla’s self-driving smart cars, Apple’s Siri, or through home assistants by Amazon, Google, & now Apple. Besides these, AI is being extensively used for fraud detection, for personalizing shopping experience & customer support in the e-commerce sector, and so on.

In the collaboration feature, our idea was to target the new customers through establishing a collaboration with Air BnB which would introduce the concept of Blue Apron to the new set of customers. In today’s hyper-connected world, no company can or should do everything alone. Network innovations provide a way for firms to take advantage of other company’s process, technologies, offerings, channels, and brands —pretty much any and every component of a business. These innovations mean a firm can capitalize on its own strengths while harnessing the capabilities and assets of others. Network innovations also help executives to share risk in developing new offers and ventures. These collaborations can be brief or enduring, and they can be formed between close allies or even staunch competitors. (10 types of innovation)

Design Chatbot, a recipe narrator in the Blue apron app narrates the recipe for you with measurements and directions. After you have done that step you can instruct the chatbot to proceed to the next step. While it says something complex like measurements and you are unclear you can instruct it to repeat the step for you and it would repeat. This innovation brings value in terms of customer experience by making the process of guided cooking easier and hassle-free.

Benefits The Chatbot benefits customers to conveniently follow the recipe without referring to paper. Also, it could help companies to be sustainable by reducing the paper use and in future completely switch to the chatbot recipe.

Design Air BnB currently has a section called “Explore Experiences”. Our innovation is under the section of exploring experiences called “Experience Cooking”. This is the guided cooking mainly designed for travelers who would want to experience the local food during their travel who don’t have enough time to explore the new local market and buy groceries.Air BnB provides you with a box of ingredients of the dish you selected along with a recipe. Logging in to Blue Apron app also provides you chatbot feature in case you don’t want to use the paper recipe. The innovative feature that chatbot performs here is that it narrates for you the story of that local place and some cultural facts which also gives informed about the cultural know-how of the place you are in and entertainment while cooking. It gives you a cooking companion.

Benefits The Collaboration benefits the company by helping them to reach a new set of target customers and benefits customers by helping them to experience cooking one-day meal kit during their travel, experience local food and make their travel experience.

Change the Organization Structure

Unadopted Brainstorming

Innovation process After experiencing the shrinking situation, we thought that Blue Apron need some change in their organization structure. Because currently in Blue Apron, they don’t include designers in the strategy team. Therefore, we are thinking to hire the service/UX strategist for Blue Apron to change their organization structure. According to the 10 types of Innovation, structure innovations are focused on organizing company assets — hard, human, or intangible — in unique ways that create value. They can include everything from superior talent management systems to ingenious configurations of heavy capital equipment.

We brainstormed a lot and generated many wild ideas for Blue Apron ranging from involving cooking schools to ameteur cooking youtubers

Cooking school At the very beginning, we thought Blue Apron can cooperate with some cooking school, and provide meal kit for the informal cooking school, with the higher order, the price can be lower. Blue Apron can take advantage of the cooking school’s channels and brands. It is also a good way to advertise Blue Apron. Long-term cooperation can guarantee a long-term source of income. However, we realized that in general, cooking school cooperate with other cheaper supplier. For Blue Apron, with the different product position, lower the price is not a good idea for making more money.

Design To solve this problem, we add a new open position for Blue Apron on their official website, called “Service/UX strategist”. The strategist can provide a strategic lens within projects that includes consideration of the overarching customer experience, product portfolio, roadmap, business case, etc.

Benefits Such innovations suggests them to include designers also in the decision making while coming up with new strategies. Also it help the company get fresh ideas from designers and attract talent to the organization by creating supremely product and services, or fostering a level of performance that competitors can’t match.

Youtube We came up with the idea of cooperating with some famous Youtuber. Blue Apron can provide the youtuber meal-kit, and let the youtuber make the video of cooking with Blue Apron. And Blue Apron can provide a discount link of the first box. Because of the celebrity, more and more people can know Blue Apron, and will give it a try. However, after the interview, we knew that Blue Apron doesn’t have much money for marketing now. And there are already lots of companies doing this thing. In our opinion, it cannot make difference with the competitors.

Packaging The customers complained too much packaging. Everything comes in a plastic or glass container, inside a paper bag, inside a box with insulation and ice packs. It isn’t environmental-friendly. At the very beginning , we wanted to redesigned their package box to make it more environmental-friendly. But after the interview with the strategist from Blue Apron, we realized that their main problem is the shrinking business, so their most important thing is to survive in the mealkit market. Therefore, we abanded this idea.

Offline meeting Meanwhile, we also came out the idea about offine meeting. For example, hold some dating activities offline or or gather some customers together monthly to cook together with the chef. So the customers can feel a sense of belonging and make friends in Blue Apron community. However, the strategist also considered that individual is unpredictable. And they need to spend more money on publicity and maintenance. But for the same reason, they don’t have enough money to invest in the advertising market.

References https://www.mckinsey.com/industries/retail/our-insights/the-quest-for-quality-in-fresh-food-retailing https://www.jiemian.com/article/1264073.html https://www.bain.com/insights/embracing-chinas-new-retail/ https://www.forbes.com/sites/brittainladd/2018/12/03/amazon-icon-meals-and-mercatus-howthese-companies-are-driving-change-in-the-grocery-industry/#556ff87c7d5b (https://baike.baidu.com/item/%E7%9B%92%E9%A9%AC%E9%B2%9C%E7%94%9F/22035088?fr=aladdin) https://finance.yahoo.com/quote/APRN?p=APRN https://seekingalpha.com/filing/3899796 http://www.blueapron.com http://time.com/4863064/amazon-meal-kits-blue-apron-cooking/ https://youtu.be/336YkwayCD4 http://tech.sina.com.cn/i/2017-07-19/doc-ifyiakur9515821.shtml https://www.shobserver.com/news/detail?id=92807 https://baike.baidu.com/item/%E7%9B%92%E9%A9%AC%E9%B2%9C%E7%94%9F http://insights.thoughtworkers.org/new-retail/ https://www.cbnweek.com/articles/normal/22018 https://www.sec.gov/Archives/edgar/data/1701114/000104746917003765/a2232259zs-1.htm https://blog.blueapron.com/gear-up-for-kids-cooking-camp-2017/ https://www.themealkitreview.com/plated/?utm_source=quora https://www.sec.gov/Archives/edgar/data/1701114/000104746917003765/a2232259zs-1.htm reference:https://www.fatbit.com/fab/technologies-will-drive-entrepreneurship/ A Blue Apron thesis submitted to Anglo-American University for the degree of Bachelor in Business Administration_Spring 2018 _by ARINA TOKORYAN