Subscription Services Move Offline

In the 1970s and 1980s, myriad teens responded to Columbia House ads offering 13 records or tapes for $1. The catch? They had to buy several items at inflated prices (plus shipping costs) in the ensuing years. Customers were also sent (and billed for) monthly selections — unless they mailed back a refusal card by a certain date. Despite lots of fine print and a dubious reputation, the tactic worked, with Columbia’s 1996 sales peaking at $1.4 billion. By 2015, digital music’s growth bankrupted Columbia. It probably would have died anyway, with the 2000s giving rise to Internet-based subscription companies like Amazon Prime, Dollar Shave Club, Stitch Fix and Blue Apron. These entities provided straightforward membership information with no purchasing com-mitments and easy opt-outs. They raised the bar, revolutionizing attitudes toward subscription services. According to Deloitte Consulting, 37 percent of shoppers have used a subscription service over the past 12 months, while 49 percent plan to join one over the next year. “Subscription models are now a part of the average customer’s behavioral DNA thanks to pioneers like Netflix, Stitch Fix and meal kits,” said Eduardo Luz, chief brand and concept officer for fast-casual restaurant chain Panera Bread. “They’re ahead of the curve and create an easy consumption process. Customers understand the value.” Amazon Prime has become an industry benchmark, with about 112 million U.S. subscribers as of December 2019, per Statista.com. Members spend roughly $1,300 annually, more than twice as much as non-Prime shoppers, according to Tinuiti’s 2019 Amazon Consumer Shopping Study. But not all modern subscription services are Internet-based. Over the past year, Panera along with convenience stores and other restaurants have entered this lucrative space. Unlike Internet-based companies, they target on-the-go shoppers via proprietary mobile apps. The emphasis is on physical store locations and frequently purchased, replenishable categories like fuel, coffee and popular foods. These subscription categories drive traffic and add-on sales. Like online-only models, though, subscriptions involve repeat purchasing and customized, artificial intelligence (AI) driven shopper offers. Data generated by subscriptions is more consistent than that generated by loyalty programs. Monthly payments are automatically and conveniently processed via apps. Foodservice is a desired subscription segment, with 45 percent of consumers wanting a beverage subscription and 41 percent wanting a food one, according to a Wiser poll that asked: “Are Subscription Services the Future of QSRs?” Demographically, 53 percent of subscribers are aged 25 to 34, making subscriptions a good fit for c-stores and restaurants, according to AlixPartners’ Consumer Subscriptions Survey released by the consulting firm in February 2019. Consumers’ trust and understanding of Internet-based subscriptions has transferred to brick-and-mortar models. “The biggest barrier to introducing a new model or product is whether it forces a customer to change behavior,” said Luz. “Introducing [the subscription] model into our customer orbit is a natural extension of [guests’] preexisting behavior.” Launched eight months ago, Panera’s coffee subscription service boasts almost 850,000 members. Guest frequency has grown more than 200 percent. Food add-ons increased 70 percent, Luz cited. Ninety-plus percent of members renew monthly. Internet-based subscriptions have also made consumers “comfortable and familiar” with monthly fees being automatically paid via their credit card or other means, said Monica Minford, senior director, digital, for Missoula, Mont.-based HuHot Mongolian Grill. “Why shouldn’t that trust translate to our business? We don’t do shipping or fulfillment. But our Grill Pass gives people a reason to visit monthly. The goal of having repeat customers is the same.” HuHot’s Grill Pass subscription, which was offered for two consecutive years and redeemable within a six-month period for HuHot’s signature create-your-own stirfry entrees, increased customer spending by 80 percent and store visits by 30 percent. Grill Pass purchasers spent 44 percent more than before, adding beverages, desserts and appetizers. “Customers weren’t as frugal because entrees were already paid for,” said Minford. Packages offered were: five Grill Meals for $50, 11 meals for $100, and 25 meals for $200. Other restaurant and c-store chains offering subscriptions include Cumberland Farms (coffee), RaceTrac Petroleum (fuel), Olive Garden (pasta), Circle K (car wash) and Smashburger (burgers). It’s All in the App These restaurant and c-store subscription formats would not be possible without proprietary mobile apps. Initially launched to digitize and facilitate loyalty engagement, apps’ interactive, complementary functions now include payment options, ordering, delivery (or curbside pickup) and subscriptions. “Technology was a big piece,” said Minford. “Compared to 10 years ago, it made things easier. We worked with our loyalty provider to add subscriptions. Now, everything can be loaded onto somebody’s account and we receive valuable data.” Many subscriptions require joining app-based loyalty programs. While both involve points, perks and cross-category offers, there is a key difference: subscribers become regular customers, yielding consistent, more actionable data. Loyalty members, on the other hand, may not be regular shoppers. The Bond Report found consumers belong to an average of 14.8 loyalty programs, but are active in only 6.7, on average. “Almost half are absent,” said Amanda Lai, senior consultant at McMilland Doolittle LLC. “Subscription customers have more regular shopping behaviors.” Trevor Boomstra, a director in the restaurant, hospitality and leisure division at AlixPartners, believes that subscription data helps purveyors better understand guests’ behavior “along the lifecycle, from acquisition to special promotions.” These additional insights, he noted, “help better shape micro-marketing campaigns.” Panera has benefitted from the activities of both loyalty and subscription customers. For starters, more than half of transactions come from its 40 million-plus MyPanera loyalty members, cited Luz. A MyPanera member’s life-time value is about five times that of a non-member. The value is even higher among coffee subscribers, who must join MyPanera. Valuing Existing Customers Restaurant and c-store subscriptions mainly attract existing customers, with subscriptions serving as add-ons to comprehensive app programs, explains Bobby Stephens, principal, retail/consumer products, at Deloitte Consulting. “Subscriptions amplify experiences. They’re not standalones and would have difficulty scaling. If there’s an owned app with an active user base, broad offerings supporting multiple dayparts and mobile ordering/delivery, subscriptions can benefit,” he said. “Throw a loyalty program on top and it’s a recipe for success.” Companies may sacrifice some profits, but targeting loyal consumers is more cost effective than attracting new ones. “Once a customer has subscribed, they’re allocating a percentage of their budget to that brand,” said Michelle Tempesta, head of marketing at Paytronix, a provider of customer engagement solutions and loyalty programs. “Their purchase becomes an automatic recurrence, which is gold. Consider the contrary, where the brand fights for and purchases consumers’ attention through advertising and discounts.” COVID-19 has made customer retention crucial as many shoppers are working at home now and visiting different stores. Sometimes, desired items are out of stock. During July, a Magid study titled COVID-19 and the Impact on the F&B Industry found that 19 percent of consumers were still shopping a different store compared to 30 percent in March and April. “Behavior has been turned upside down,” said Corey Chafin, principal at Kearney, a global management consulting firm. “It’s a blank slate. People are transitioning and may not practice old habits. Everyone is trying to maintain customers and acquire new ones. Consumers don’t think about shopping by channel. They want coffee and think about what’s convenient. Subscriptions can make a company top of mind as shoppers set new behaviors.” Subscriptions also can complement other app functions, such as geolocation and curbside pickup, helping retain customers while proving safety and convenience, said Steve Flynn, senior vice president of consumer/commercial brands at Magid, a consumer-centered business strategy company. “Retailers have to get into high gear about how to stay engaged in a non-traditional sense,” he said. When COVID-19 hit in March, Panera took this advice, eliminating its $8.99 monthly subscription fee along with product size and variety limitations (its subscription includes iced or hot coffee and tea). The chain promoted app-based omnichannel services, including Rapid Pick-Up, drive-thru and delivery, since 75 percent of coffee redemption occurs off-premise. Within three weeks, Panera added 700,000 subscribers. Recipes for Success Successful subscription programs involve more than comprehensive apps and cross-category promotions. Having an established store brand is key. According to AlixPartners, 89 percent of consumers are more willing to start a subscription with an established brand than an Internet startup, while 48 percent cite convenience as a major draw. Subscriptions must revolve around a product/category the company is known for. “Brand is critical; so is the item,” said Flynn. “They’re not all equal with subscriptions.” Case in point: In March, Burger King unveiled a $5 monthly coffee subscription. It was a good value, but lacked the Whopper’s cache and was discontinued. “Coffee isn’t what comes to mind with Burger King,” said Lai. “It’s burgers.” Companies must weigh a product’s value proposition, margin structure, destination purchasing status, buying frequency, and ability to generate add-on sales. Data scientists can then identify promotions that maximize goals. “What are the objectives, the analytics behind them? How does it affect overall business?” posed AlixPartners’ Boomstra. “Art and science must come together to decide what you can offer that consumers value.” Technology-wise, subscriptions are an additional function for increasingly comprehensive retail apps. But how subscriptions stack up against other functions and what their long-term marketing position will be remains to be seen. “It’s an emerging trend,” said Boomstra. “Subscription services are developing and people are figuring out how to use them.” Pioneers of the New Subscription Model Cumberland Farms’ Coffee Cup-Scription launched in July 2019 in conjunction with its new app. For $25 monthly, customers can receive two cups of coffee daily, bringing the price to 40 cents per cup. They can choose hot or iced coffee, as well as hot chocolate or tea. Introduced in June, RaceTrac Petroleum’s Rewards VIP costs $2.49 monthly. Members save 10 cents per gallon on their first 40 gallons of fuel and 3 cents per gallon afterwards on each fuel purchase. They also receive coupons and promotions for in-store products. Circle K recently launched a car wash subscription at four Illinois locations. Wash packages start at $19 monthly and feature member discounts. Users are given redeemable codes. However, it appears Circle Kmust work out some kinks as Google Re-views is flooded with complaints about malfunctioning codes. Panera Bread’s eight-month-old coffee subscription program has nearly 850,000 members. By eliminating the subscription fee, Panera significantly increased membership as well as shopping frequency, store traffic and add-on sales. Smashburger has offered its fourth-quarter $100 Smash Pass for several years. Members can receive a free burger or sandwich every day for 100 days at participating locations. Subscribers must join Smashburger’s loyalty program. HuHot Mongolian Grill’s Grill Pass subscription, which was offered for two consecutive years, focuses on its signature stirfry entrees. Shopper spending grew by 80 percent and store visits by 30 percent. Subscribers spent 44 percent more than before, adding beverages, desserts and appetizers. For nine weeks last summer, Olive Garden featured a $100 Never Ending Pasta Pass, good for unlimited pastas, sauces, soups and salads. For $500, it offered a lifetime pass. Previously, Olive Garden has offered a full-year pasta pass.

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