By Craig Giammona
For some investors, the meal-kit dream is alive.
Sun Basket, a premium meal-kit service backed by billionaire Paul Allen and the consumer-product giant Unilever, has raised $57.8 million, overcoming investor pessimism fueled by the struggles of competitor Blue Apron Holdings Inc.
The funding round, led by the Silicon Valley venture firm August Capital, values Sun Basket at more than $500 million, according to a person familiar with the matter who asked not to be named because the details are private. The company, which tailors meal kits to vegan, paleo and other specialty diets, saw revenue almost quadruple in 2017, recently hitting an annual rate of roughly $275 million.
Meal-kit companies intrigue investors because their use of technology and direct relationships with consumers could squeeze profit from the low-margin grocery business. But they have come under greater scrutiny following the troubled IPO of Blue Apron, which has plunged since going public in June.
Blue Apron, which is projected to hit about $930 million in revenue this year, is unprofitable and has been weighed down by operational issues and high marketing costs, raising questions about the viability of the industry.
“We’re betting that the market sentiment is wrong,” Tripp Jones, a partner at August Capital, said.
Despite Blue Apron’s stumble, meal-kit companies are drawing attention as the food industry reacts to Amazon.com’s takeover of Whole Foods Markets Inc. With more grocery purchases poised to move online, brick-and-mortar chains are boosting their technology spending and trying to lock in customers.
Amazon is eyeing food kits, as well: The e-commerce giant filed a trademark application in that area last year, a move that weighed on the shares of Blue Apron.
Sun Basket, which is not profitable, has turned down a “couple of overtures” about a potential acquisition, according to Adam Zbar, the company’s founder and chief executive officer.
“There’s been some turbulence in the market, but we’re showing the economics can work,” Zbar said.