Royal Mail has launched The UK Subscription Box Boom Report including an in-depth look at the subscription box* economy. Forecast to be valued at £1 billion by 2022, the report highlights key trends across the market, providing advice and insights for businesses already operating in the space or looking to do so in the near future.
Start-ups vs. established brands
The meteoric rise of subscription boxes has largely been driven by start-ups. The low barriers to entry in the subscription box market have meant that even with limited capital and resources, entrepreneurs can establish and build a successful business.
Such success is now sparking interest from bigger brands including Gillette and Sephora hoping to emulate the performance of subscription companies such as Dollar Shave Club and Birchbox. Yet, subscription box companies have not always considered big retailers and brands to be their direct competition and have found ways to work in collaboration. Brands such as Graze are now stocking their products in conventional retail stores, while Unilever acquired Dollar Shave Club for $1 billion in 2016. Brands like Estee Lauder have also made use of the wealth of data that subscription brands hold on their customers to find new ways of targeting shoppers with their latest products.
The subscription box business model presents significant opportunities for international expansion, with our survey revealing that nearly 90 per cent of subscription businesses make at least some of their sales overseas.
Moves by overseas brands, including Birchbox, Harry’s and Dollar Shave Club to enter the UK market have been mirrored by the efforts of UK brands to conquer territories abroad. Graze garnered over 150,000 US subscribers within just three months of its launch in the USA in 2014 and now enjoys a major presence on the US snacking scene.
Popular markets for international sales among businesses include Ireland and France, where 46 per cent of subscription businesses have an overseas presence. Germany (39 per cent) and Spain (31 per cent) are also common destinations for international entrants.
The subscription sweet spot
“Churn” – or the proportion of customers who decide to cancel – is one of the biggest challenges facing subscription box businesses. Keeping customers engaged is vital, and a number of subscription businesses have developed innovative ways to do so. This includes diversifying their business model to reduce their reliance on subscriptions, as well as launching new products and features.
Retaining customers is key for any subscription business. Even a small percentage of shoppers cancelling their subscription each month can have a significant impact on the subscriber base. For this reason, subscription brands have had to be innovative in their approach to combatting churn.
Innovation can sometimes be as simple as keeping customers engaged using a magazine. Shaving subscription business, Cornerstone, for example, credits the launch of its “15 minutes” male lifestyle magazine with a major reduction in its churn rate. The title now claims a readership of 130,000. Similarly, among beauty box retailers, there has been an increasing trend towards personalisation, with Birchbox trialling Birchbox Select, which enables customers to pick out specific items or tailor the box to their cosmetic requirements such as dry skin and coloured hair.
Overcoming the key barriers to the take-up of subscription services requires the delivery of a highly convenient and flexible service that is easy to cancel and offers something shoppers cannot easily get in conventional retailers. This might include unique products, a tailored, curated selection or just the element of surprise.
Delivering a convenient experience from start to finish is also key. There is clear demand from busy shoppers to have items delivered hassle-free without them having to wait in at home. Letterbox delivery is highly sought after and brands, such as Garçon Wines, with its pioneering, flat wine bottle are seeking innovative ways to respond to this need.
The final piece of the jigsaw lies in delivering a unique selling point; something new, different or surprising, which helps the brand stand out from the crowd.
Asher Budwig, Managing Director of Lola’s Cupcakes said “Excitement on the un-wrap, something delicious inside, with a continued stream of innovation are all key success factors in the subscription box market for Lola’s Cupcakes.
“Our latest innovation, brownie boxes through the post, is an exciting new chapter for our company. We’ve been watching the subscription box market grow, alongside the success of ‘through the letterbox’ products, and we realised our brownies could work in a similar way.”
Joseph Robinson, Consulting Director at GlobalData, said: “Spurred on by the growth of mobile devices, the subscription retail segment has moved on from a past focus on magazines and newspapers, to embrace everything from recipe food kits, to shaving gear and self-care. While still in its infancy, the category is now in a phase of growth, with major global brands such as HelloFresh, Harry’s, Birchbox and DollarShave Club increasing their efforts at expansion. At the same time, homegrown start-ups such as Cornerstone are greatly exceeding their own expectations for their subscriber base, while established subscription brands, such as Graze, have also found favour overseas. GlobalData forecasts that by 2022, the UK market will have almost doubled in size to £1bn.”
A spokesperson from Royal Mail said “Businesses across the UK understand the significant growth opportunities that subscription services can deliver. The market is growing at a phenomenal rate. Future success will hinge on overcoming the key barriers to the take-up of subscription services whilst keeping subscribers engaged.
“At Royal Mail, we are ready to help businesses across the UK to succeed in the subscription space whether they already have a subscriber base or are looking to enter the market.
“With the UK’s biggest by far "Feet on the Street" network covering 90.000 postmen and women, Royal Mail is playing a key role in keeping carbon emissions low. The vast majority of subscription items are letterboxable and so are ideally suited for on-foot delivery by Royal Mail and do not require a van delivery.”
This is the sixth and final instalment of Royal Mail’s subscription box series.