Subscription-Based Food & Retail Businesses: Boom or Bust?

Let’s begin with a simple question: how many subscription services do you have?

If you’re like 15% of online shoppers, you’ve tried at least one of them – and it’s far more likely that you’re actually signed up for two, three or more.

When you think of subscription services, your mind probably jumps straight to media companies such as Netflix and Amazon Prime Video, but there’s another space which is seeing huge interest – and that’s food, retail, and CPG.

From razors for your face to kibble for your kitten, the subscription-based business model is far more than the new kid on the block. In fact, the concepts underpinning it have been around far longer than you may realize.

With that in mind, let’s take some time to explore the recent explosion of subscription-based businesses in the food and retail space – and decide whether it’s boom… or bust.

The origin of the species

There’s absolutely no doubt that the subscription model is here to stay. It just pairs so well with the convenience of our digital — and instantaneous — world that many more businesses are adopting this approach en masse.

In fact, if you’ve travelled on the subway, watched television or scrolled through almost any social media feed recently, you’ve probably seen countless subscription companies advertising.

So, it’s clear the model has staying power… but where did it all begin?

Believe it or not, the concept of regularly paying for an ongoing service dates all the way back to the 17th century, when consumers would subscribe to periodicals from their favorite outlets. From there, the concept of subscriptions became a mainstay in the publishing industry, covering both books and magazines with brands like Time Life Books.

It wasn’t really until the advent of the internet that the subscription model became truly viable once again. As a natural development of its publishing roots, the most common subscriptions remain in entertainment, with brands including Netflix, Spotify and Amazon Prime Video leading the pack. Netflix famously threw the video rental Goliath Blockbusters off the main stage by realizing the value of a subscription model ahead of time.

But entertainment is definitely not the only industry taking this business model by storm. Retail and food brands, while still emerging verticals, are beginning to have a vast impact. Two of the best examples are Dollar Shave Club with its famous subscription-based razors, and Chewy.com, which provides its “Autoship” service to keep pet food stocked up.

The model has become so popular that bigger brands are starting to pay attention and launch their own services.

Take Panera Bread, for example. It recently launched an unlimited coffee subscription, Panera+, for $8.99 a month. It’s surely only a matter of time until the larger players in this space, (Starbucks, we’re looking at you), follow suit.

Other up-and-comers in this space include everything from HelloFresh, a homemade meal kit subscription, to Vnyl, a monthly delivery of vinyl records.

The benefits of the subscription model

Okay, so we’re looking at a business model which has been in use for more than 300 years – it’s got to be doing something right… right?

Right.

There are plenty of reasons that businesses are pursuing the subscription-based model, but for now let’s just focus on the main ones:

• Just like a client retainer, subscription services unlock a reliable and consistent monthly revenue stream.
• Because customers pay an upfront cost, you’re able to be a little more aggressive when it comes to your overall pricing.
• Thanks to having a consistent MRR (monthly recurring revenue), it’s far easier for you to forecast for the future.
• Provided that your customers like your products, it’s much easier to drive up your customer lifetime value.

The darker side of subscription services

Sadly, as with all businesses, nothing is a sure thing.

Once the subscription trend really kicked in during the early 2010s, there were many companies who rushed to emulate this fresh new business model. But, for many of them, it was an exercise in futility. One great example of such a business is MoviePass, which, by all accounts, should’ve taken the film-going world by storm. As history can attest, that simply didn’t happen.

MoviePass launched in 2011 with a simple concept: customers could purchase up to three movie tickets each month for a set fee. Customers would simply pay their subscription, then use a mobile app to “buy” their ticket at the theatre. Not only did theaters not take kindly to this “disruptive” tech, the customer numbers weren’t there either. After multiple attempts to tweak the pricing structure, MoviePass quietly vanished in late 2019.

So, what’s the lesson here? There are several, but the key takeaways are:

● Always listen to your customer. Don’t just create a subscription product because it sounds like it has wings, but be sure to focus on solving a genuine problem.

● Target a demographic that actually wants the product and is ready to adopt it.

● If you’re disrupting an existing industry, be sure your business model is absolutely watertight.

How can you make sure that your subscription service is part of Camp Boom, not Bust?

If you are considering starting your own path into the subscription world, there are a few points you should consider first to make a success of it.

1) What problem are you solving?

As we’ve seen, there are plenty of examples of subscription-based businesses that succeed – and plenty that fail.

If you are to be in the camp that makes it, you first need to be crystal clear on the core problem or pain point that your subscription model solves.

Perhaps it’s being able to access niche or hard-to-come-by food products. Perhaps it’s ensuring a supply of the right type of products throughout the consumer’s lifecycle (for example, monthly subscriptions to baby clothes that size up as your child grows)

Determining the pain-point that your product fixes requires you to know your end consumer inside out. So make this a priority before launching into anything.

2) How will you safeguard against the potential pitfalls of operating a subscription-based model?

Just like any other business, risk is inherent to subscription-based services. One of the biggest risks for this particular model, however, is that customers can “pull the plug” at any time.

Each customer who churns shaves another tiny slice off your bottom line, so working on your retention is essential. It’s also worth planning for the ‘unplannable’ – global crises such as financial crashes and recessions (which seems extra pertinent given at the time of writing).

Would these situations cause them to instantly cancel their subscription, or is the value you create simply too high?

3) How will consumer trends affect the viability of your business model?

Another major aspect that can make or break a subscription brand, especially in the food space, is consumer trends.

Consider the ebb and flow of consumer trends before committing to the service you’d like to build.

This also means being ahead of the curve in understanding all of the social and ethical aspects that influence the product your business is built around.

For example, in the last decade, quinoa experienced a totally unexpected boom, but as consumers got wise on the impact that quinoa farming has on local communities (who now, ironically, can’t afford to eat it), sales have dwindled. Know your product inside out and be sure to plan ahead of shifting perceptions.

4) Is there actually any money in it?

Let’s be realistic here: if there’s no money in a concept, it probably isn’t worth pursuing as a business – and, as we’ve seen, not all ideas are winners.

That said, the numbers for subscription businesses are promising. Taking the UK as an example, the population spends a whopping £2 billion on subscription services every year – and 1 in 4 of all Brits are subscribed to at least one service.

So provided you find the right hook and answer the right pain point, there’s definitely money to be made.

5) How will you market your subscription-based service?

There’s a natural synergy with internet-based subscription services and another popular digital pastime: social media.

While traditional channels of online advertising will perform just fine for subscriptions, social media is the ideal fit – especially influencer marketing. By engaging with influencers and having them try out your product as part of a sponsorship deal, you can reach a huge audience of engaged consumers.

The demographic here is generally millennials, who, again, are the ideal target market for subscription services of all varieties.

Ready to hop on board?

If you operate in the food, retail, restaurant or CPG industry, you probably have a million ideas whizzing around your mind right now: could you create a subscription-based product of your own? Is it a good fit for your brand? What’s the best strategy for bringing something like this to market?

If all of these questions seem a bit overwhelming, don’t worry – Harvey is here to bring a bit of clarity to this muddle of possibilities.

With our expert team on your side, developing a subscription model which stands the test of time will be a piece of cake. And if you really like subscriptions, and want to see the model in action, why not check out our range of monthly SEO and digital services, too?

Say hello to Harvey today.