Retail subscription boxes across categories were one of the big winners in the first year of the pandemic, but many expected their popularity to fall away. Retail Week looks at how these services have adapted to changing customer behaviours
- The pandemic has spurred a huge uptick in subscription boxes with UK customers spending more than £1.4bn on them in 2020
- As customer behaviour has changed, brands such as Gousto, Mindful Chef and Birchbox have looked to innovate their offerings
- Others have looked to partner with FMCG giants such as Unilever and Nestlé
As with so many other trends that have exploded in retail since the pandemic began, retail subscription boxes were already an established part of the consumer ecosystem prior to 2020, and in 2019 Royal Mail forecast that the subscription box market would be worth £1bn in sales in the UK by 2022.
However, since the onset of the pandemic, the outlook for this area of retail has grown at an eye-watering rate.
The most recent Subscription Box Market Report, published in June 2021 by Royal Mail, showed that the market had more than doubled in size in three years and that consumers across the UK spent more than £1.4bn on subscription boxes in 2020 alone, with fulfilment providers delivering more than 88 million subscription boxes to customers across the country.
Data from PitchBook shows that more than $3bn (£2.2bn) of capital was invested worldwide in the sector between 2018 and 2020, with UK players such as Gousto raising over $155m (£114m) in equity in 2020 alone.
It has also led to a fresh round of partnerships between established retail brands and subscription box start-ups, such as the recent tie-up between Waitrose and Mindful Chef.
This in turn has seen more established retail brands wade into the subscription box market – including Liberty, which launched its own subscription service last October called The Beauty Drop.
Meanwhile, newer entrants such as Beauty Pie recorded a 70% surge in membership and doubled sales in the year starting with the onset of the pandemic in March 2020, while flower subscription service Bloom & Wild raised funds of £125m in 2021, which allowed it to snap up international competitors and expand outside of the UK.
However, with lockdowns lifted and restrictions unwinding, will this growth story continue?
Wants and needs
The driving factors behind the continued consumer demand for retail subscription boxes have shifted as the pandemic has progressed.
The Royal Mail report found that in 2020, 55% of new subscription box users signed up in order to treat themselves and ease the “lockdown blues”.
Across categories, the report found reasons for customers signing up were slightly different. In health and beauty, for example, many customers took the opportunity to trial new products at a time when they couldn’t physically browse in stores the way they may have done before.
Yet with restrictions having mostly lifted last year and traditional beauty retailers such as Boots reporting an uptick in footfall and sales, PwC senior retail analyst Kien Tan believes subscription boxes in this space will struggle to maintain momentum heading into 2022.
“Post-lockdown consumption will shift more out of home, so why subscribe to an in-home delivery? Especially given the highest interest is among younger people who go out most,” he says.
“Post-lockdown consumption will shift more out of home, so why subscribe to an in-home delivery? Especially given the highest interest is among younger people who go out most”
Kien Tan, retail analyst, PwC
For Shopfloor Insights founder Bryan Roberts, the future for recipe boxes is more secure. While food subscriptions surged during the pandemic as “people became more adventurous with cooking and cuisine”, he believes the more segmented ways in which people are now buying their groceries means that recipe boxes still have a future.
Kantar data showed that at its peak, grocery ecommerce penetration hit 16%. Even now, with customers ‘learning to live’ with the virus in the UK and minimal restrictions on bricks-and-mortar shopping in place, online grocery penetration in December was 12.2% – close to double pre-pandemic levels.
“People who enjoyed these boxes during lockdown will now maybe look to use them for two or three meals a week,” says Roberts. “They have a lot going for them: they are a convenient solution, there’s minimum food waste and they broaden a customer’s repertoire of dishes while remaining a relatively healthy option.”
One of the big winners in this space in 2021 was recipe box Gousto. The UK brand raised more than $155m (£114m) at a funding round in November and chief marketing officer Tom Wallis believes the brand is set to go from strength to strength in 2022.
“Retail subscriptions are ideally placed to capitalise on these trends and continue to deliver growth into 2022 and beyond.
“Online grocery adoption remains at double the level it was pre-Covid and the increase in working from home is a permanent structural change that means more at-home meal occasions for households across the country.”
Available data also shows that while the overall number of people who have used subscription boxes in the UK remains relatively small, conversion rates among those who have taken the plunge are high.
“Online grocery adoption remains at double the level it was pre-Covid and the increase in working from home is a permanent structural change that means more at-home meal occasions for households across the country”
Tom Wallis, chief marketing officer, Gousto
Data provided by Kantar TGI found that 7% of UK adults had tried a recipe box over the 12 months to April 2021 and 4% are still currently subscribed. Of that number, 57% had actually increased the frequency of their deliveries since the pandemic began.
There is huge scope for growth too, with 12% of UK adults currently considering ordering a subscription box in the Next 12 months, according to Kantar.
“There’s not been that many people who have trialled recipe boxes,” says Mindful Chef founder Giles Humphries. “The potential market is enormous across the spend of groceries as a whole. Ourselves and all of our competitors in this space, we barely cover a fraction of that spend combined, so the opportunity is pretty big.”
Adapt or die
As with any nascent start-up product boom, not all retail subscription box services have fulfilled their promise, while others have completely changed their business model since inception.
In the UK, Farmdrop – a recipe box service focused on delivering locally sourced produce – filed for bankruptcy last month after failing to raise the money it needed to cover its losses, while US recipe box provider Blue Apron has also struggled to retain customers or achieve profitability despite the pandemic.
Subscription box pioneer Birchbox, which was founded in 2010, has also struggled to find profitable growth and was forced to parcel itself out to existing investor Viking in 2018 for a fraction of its once lofty $500m (£367m) valuation.
The service has now been snapped up by new healthcare start-up FemTech for $45m (£33m), which has plans to revitalise Birchbox’s fortunes through personalisation.
“We will have gathered information so you don’t have to see thousands of products,” FemTech executive chair Kimon Angelides said of Birchbox to Forbes. “We’ll make suggestions on the things that match your biology and match your life stage.”
Gousto’s Wallis says growing demand has in turn improved margins and generated a profitable business. “Customers need to feel that you are adding value to their lives in order to choose you in the first place and then stick with you – this, in turn, drives profitable growth.”
Gousto is looking to invest its latest fundraising round into leveraging its extensive tech platform to offer customers the most choice of any of the recipe boxes. Mindful Chef meanwhile focuses on making healthier eating options more convenient.
While the brands are focusing on unique selling points to stand out from the pack, many are also looking at moving into new channels and products.
“When we started Pasta Evangelists five years ago, we envisioned DTC to be the future,” says chief executive Alessandro Savelli. “In our view now, an omnichannel approach is more powerful than a pure ecommerce strategy.”
“Customers need to feel that you are adding value to their lives in order to choose you in the first place and then stick with you – this in turn drives profitable growth”
Tom Wallis, chief marketing officer, Gousto
Mindful Chef by comparison has looked to branch out into different mealtimes, offering customers new products such as smoothies, frozen desserts and breakfast recipes, on top of its more traditional dinner options.
“It’s all about getting a customer to enter the Mindful Chef ecosystem with one of these products,” says Humphries. “Then we can trade them up by offering them other meals or whatever else.”
Shopfloor Insights’ Roberts sees similarities in the increasingly competitive recipe box market with the huge surge in on-demand grocery delivery firms and says each is struggling to make themselves stand out.
“There’s only so many providers that one market can take. As more retailers and FMCG brands look for new ways to reach customers, some of these brands may have their heads turned by M&A opportunities.”
Poacher turned gamekeeper
Pre-pandemic, a number of the big grocers looked into creating their own recipe boxes, including the likes of Waitrose and Tesco.
Roberts says these trials mostly came to nothing, as the assortment and manufacturing required were completely different from the skillsets of most grocers. That has seen grocers look to other avenues of reaching this customer segment, and in December Waitrose became one of the first UK supermarkets to partner with a third-party recipe box.
The upmarket grocer’s commercial director Charlotte di Cello says of the Waitrose tie-up with Mindful Chef: “There are things that make Waitrose Waitrose: great quality products, great service, great ethics and sustainability. These are super important to us and we won’t compromise.
“So if we’re going to partner with someone, it’s important that we see some of those core values and alignment. On this basis, Mindful Chef is a great fit for us because we care about very similar things.”
Mindful Chef became the first B Corp-certified recipe box provider in 2018, which di Cello says is also important for Waitrose consumers. She says that the frequency of orders is also a positive with customers ordering every week.
FMCG giant Nestlé snapped up Mindful Chef at the end of 2020, bulking up its direct-to-consumer offering. Nestlé at the time cited a shared ambition with Mindful Chef “to increase the availability and convenience of healthy food”, but its extensive data on existing customers would have been a welcome bonus.
Pasta Evangelists’ Savelli also sold a major stake in his business to the Barilla Group in January 2021 and believes that “ultimately, the long-term objective of an entrepreneur is to see his business develop and grow over time. Joining a larger group is one of the ways this can be achieved.”
However, Gousto’s Wallis says the brand has no plans for a major sale to an FMCG-backed group at any time and says instead its main focus is to “strive to create the ultimate experience for customers while offering the best possible value”.
The future of the subscription box market will likely be split into food and non-food categories. With the ongoing cost of living crunch only set to worsen in the coming months, many Britons who looked to non-food subscriptions as a treat during the long months of lockdown may choose to forgo them as a treat they no longer require.
However, with food retailing becoming ever more fragmented – and UK consumers more adventurous in their kitchens – food subscription boxes may be on to a better recipe in the long term.
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