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Meal Kits Make Walmart Inc Stock an Even Better Buy Now – Investorplace.com

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Earlier this month, Walmart Inc (NYSE:WMT) unveiled its own meal kit service, offering pre-packaged, ready to prepare dinners for two at prices ranging from $8 to $15. It could provide just the boost Walmart stock needs.

It was, calling a spade a spade, a shot across the bow of not just Blue Apron Holdings Inc (NYSE:APRN) and its solely-focused peers, but a poke at Amazon.com, Inc. (NASDAQ:AMZN) as well after it waded into meal kit waters in the middle of last year.

Walmart stock didn’t budge on the news because… well, the average Walmart stock holder knows this won’t likely make a huge or immediate impact on the retailer’s top or bottom line.

Indeed, though the meal kit industry is worth $2.5 billion and grows at 20% per year, it’s been brutal for most players. Most of the standalone companies in the highly-fragmented industry are still losing an alarming amount of money.

Nevertheless, Walmart can leverage its deeper dive into the meal kit business, and in some regards do more with then than the frenzy-data-collecting Amazon can even do with its meal kit arm. See, unlike Blue Apron and its frenemies, Walmart doesn’t actually have to make a penny with its meal kit venture.

It’s Not Really About Meal Kits

For the record (not that it really matters to owners of Walmart stock), Walmart’s been in the meal kit game since late last year. It was just selling kits put together by third parties.

As of early March though, Walmart was putting its own meal kits together, first on a limited basis, but with plans to ramp up their availability to about 2000 stores by the end of the year.

Most investors see two sides to this coin. On the one side there’s the labor-intensive cost of assembling and preparing ingredients for a product that’s not an especially high-margin business.

As Blue Apron CEO Brad Dickerson recently noted, “Although food is the largest cost, labor is probably the most impactful cost.”

On the flip side, meal kits are an opportunity to not only prevent a consumer from buying meal kits from Amazon, but an opportunity to forge a relationship with a proven fan of e-commerce; Walmart’s meal kits can be ordered online and ready to pick later that day.

Oh yeah… that scheme also draws shoppers into the store, where they just might buy something else while they’re there.

The upside is far greater than the downside, even if Walmart ends up losing money on the meal kits themselves. They can offset that cost in a multitude of other ways, not the least of which is simply gleaning more and more information about those shoppers.

It’s also in sharp contrast to Blue Apron’s model, which will only ever be able to make money in one way… if it ever actually manages to make any money.

The kicker: Unlike Blue Apron, use of Walmart’s meal kits service sidesteps the commitment to a subscription most consumers dread. Nielsen’s “The Meal Kit Opportunity” report posted late last year explained:

“[I]n-store meal kits require less commitment [on the part of consumers] than a paid subscription and offer more flexibility for retailers and suppliers to experiment with components and ‘levels’ of convenience that keep consumers coming back.”

Bottom Line for Walmart Stock

That being said, if any organization is going to have a shot at making meal kits a profit center in and of themselves, Walmart stock owners can take some comfort in knowing that Walmart is better positioned to do so than most.

Unlike Amazon and Blue Apron, Walmart’s already got the facilities it needs to stage meal-kit-building anyway. It’s already got access to groceries and ingredients anyway. And, perhaps most important, it’s got space and access to foods at scale.

Whatever the case, don’t look for this venture alone to reinvigorate Walmart stock, which has been struggling since January of this year, mostly thanks to a slow-down in its e-commerce business.

Even with 2,000 locales offering them by the end of 2018, it will still only be a tiny fraction of Walmart’s total revenue.

Don’t be surprised, however, if Walmart is able to leverage this venture into something more akin to the ecosystem Amazon is trying to build all around its loyalists.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.