The Subscription Economy: UK retailers are buying into the growth opportunity of subscription boxes

The Subscription Economy: UK retailers are buying into the growth opportunity of subscription boxes

Key points

 

In the first two instalments of findings from Royal Mail’s report on the UK Subscription Box Boom, we discussed projected growth of the market and regional trends across the UK for the subscription box market*. The third instalment focuses on the opportunities for businesses.

In the third episode of our Royal Mail Subscription Podcast series, we spoke to Cure & Simple, Dog and Hat and Zuora about the growth opportunity for UK businesses in the subscription box market. Our research has found that six in ten subscription box businesses intend to invest in new or existing services in the next year, and over half of businesses agree that subscriptions are set to be a major focus of their company in the future. There is a huge opportunity for businesses looking to make an impact in the industry.

 

Delivering brand loyalty

Driving greater brand loyalty is a key motivating factor behind the launch of many subscription schemes and is cited by almost half (45 per cent) of those operating such a service. In an increasingly competitive retail environment, subscription box services offer an enticing option to lock consumers in to regular purchasing. Other important reasons for starting a subscription box service include the desire for greater control, in particular control of distribution (35 per cent), control of marketing and promotion (24 per cent) and lower start-up costs (24 per cent).

The community element of a subscription business is important for Susanna Morgan from Dog and Hat. When people subscribe, they are joining a community of coffee lovers, they're joining a group of people that like the same things that they do. They're not just receiving a box every month with coffee in it with no one talking to them, they're part of a club. Dog and Hat rotates the coffee, origins and roasters every month and take their subscribers through a journey which they share with them. Dog and Hat discusses brewing methods, what coffee machines they have and what equipment they use. They're looking for a community to be part of, a subscription business where you just ship boxes without any interaction can be a slightly lonely subscription and subscribers are looking for a community beyond that.

Linked to the desire to drive greater loyalty, retaining customers is seen as one of the key challenges associated with operating a subscription box scheme (21 per cent). The average retention rate for almost six in ten (59 per cent) of the businesses surveyed is three months or less. On a positive note, subscription box businesses tend to see a return on investment relatively quickly, with 62 per cent achieving this within three months of a customer being signed up to a service.

In the podcast, Charlie Pyper from Cure & Simple discusses the benefits of cash collection. At Cure & Simple, no order is shipped unless they have received payment for it. It’s an automated process so every night they are charging people's cards on a reoccurring basis, which is then putting orders into their internal systems which then allows processing and shipping via Royal Mail. Cure & Simple thus gets paid upfront for every service they provide.

 

International opportunities

Nine in ten (90 per cent) businesses surveyed make at least some of their subscription revenue from outside the UK and just under a quarter (24 per cent) makes more than half of their sales from abroad. Low growth in UK retail sales and the growing attractiveness of UK prices is making international expansion opportunities increasingly appealing. With relatively low start-up costs, subscription boxes are an attractive option for businesses targeting overseas markets. Popular overseas markets include the Republic of Ireland and France - where 46 per cent of subscription businesses which export overseas make at least some of their sales – as well as Germany (39 per cent) and Spain (31 per cent).

 

 

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