Skip To Main Content
An illustration shows colourful cereal spilling out of a mailbox
Features
From Pivot Magazine

Explaining the appeal of subscriptions to Canadians

From cereal services like Magic Spoon to giants like Netflix, is the subscription service model here to stay?

An illustration shows colourful cereal spilling out of a mailboxSubscription services from meal kits to beauty samples got huge boosts during the pandemic (Illustration by Dan Parsons)

When Gabi Lewis and Gregory Sewitz launched their first business in 2014, they sought to offer a healthy, high-protein snack for adults: chocolate-covered crickets. They managed to sell their business in 2018 and soon set their sights on a more traditional food staple—cereal.

The result was Magic Spoon, which offers a direct-to-consumer service that ships healthier takes on the sugary cereals we grew up eating to hungry mouths across North America. Launched in 2019, Magic Spoon earned over US$4 million in sales in its first year.

Thanks to an expansive ad campaign (you’ve likely heard them advertised on your favourite podcast), they’ve come out of the gate as a leader in a growing market of cereal-subscription services that include HighKey snacks, co-led by a former General Mills executive, and Toronto-based startup Cereal Box Club.

Each month, Cereal Box Club mails customers a hard-to-find box of cereal—i.e., Caramel Apple Jacks, Star Wars puffs or Birthday Cake Cookie Crisp—along with a selection of specialty treats, like Skittles Dips, Jolly Rancher Gummies and Pop Tart Bites. Launched in the summer of 2020, Cereal Box Club rode the wave of pandemic-induced online shopping that has made subscription services a boon for e-tailers of all stripes.

The “subscription economy”—which includes Amazon’s Prime membership scheme and streaming apps like Netflix—has grown 400 per cent in the last decade, according to a survey by the subscription management software platform Zuora. The global consulting firm McKinsey & Company reports that 15 per cent of online buyers have signed up for at least one such service—a pretty big number considering an estimated 2.14 billion people worldwide will be digital shoppers by the end of 2021.

With more consumers stuck at home, the pandemic has offered an obvious vessel for growth in the business model. “We’re under no illusion of that lasting forever,” Magic Spoon’s Lewis told Fast Company amid lockdowns in 2020, “ . . . but there are people buying food online right now who just didn’t before all this. I don’t think all that is just going to go away.”

Yet, as more autopay deliveries of razors, beauty products, yoga pants, coffee beans, meal kits and rare junk food make their way to consumers’ doorsteps, some analysts question whether the subscription business model’s massive growth will continue in a post-pandemic landscape. “Bricks-and-mortar retail will always have an advantage when it comes to immediacy and the ability to touch, feel, taste and smell the products,” says David Soberman, professor of marketing at the University of Toronto’s Rotman School of Management.

Research points to plenty of incentives for companies to jump on the subscription bandwagon. Aside from predictable revenues, there is also a greater average spend per consumer (30-40 per cent more than what non-subscribers spend), to say nothing of the cycle of data that helps better serve customer needs and inspire loyalty. Consumers of subscription services in general say they sign up for the value for money, the quality and originality of the products, the curated experiences and the convenience of home delivery, according to McKinsey research.

In spite of the potential benefits, major traditional retailers haven’t had much success so far with subscription offerings of their own. Clothing giant Gap pulled its subscription boxes just a year after launching the service in 2017 and Walmart’s quarterly beauty box received mixed reviews. The services that are most likely to succeed, Soberman says, are those offering premium replenishable products a step above what you’d find at your local mall. “They tend to be specialty items for which people develop a real affection,” he says. Premium coffee, indie beauty products, artisanal dog treats and, yes, obscure breakfast cereals can offer just enough novelty and exclusivity to convert one-time buyers to long-time users.

A second category of success, according to Soberman, belongs to subscription services that offer a home experience consumers won’t get elsewhere. The soaring popularity of meal-kit delivery services like Montreal-based Goodfood—which made it to the top three of the Financial Times’ 2021 ranking of the fastest-growing companies in the Americas—allows subscribers to whip up healthy home-cooked meals with specialty ingredients. “All of a sudden, we’re all gourmet cooks,” says Soberman. “It’s reflective of a cultural change from the ’60s, when we thought convenience foods were the greatest thing.”

The biggest caveat with subscription services, says Soberman, is they require the consumer to develop a whole new set of skills. “When you shopped at the grocery store, you learned how to smell the end of a melon to see if it’s ripe,” he says. “Now, with multiple subscriptions, you need to learn inventory management and new financial monitoring skills.”

Set-it-and-forget-it monthly payments run the risk of draining consumers’ bank accounts for goods and services they no longer use. “When the rate of consumption equals the rate of replenishment, life is good,” Soberman says. When there’s a mismatch, tiered pricing schemes can offer flexibility when consumers’ needs or budgets fluctuate.

The number one reason consumers cancel subscriptions is the perceived lack of value, according to McKinsey—and once they’re gone, they’re gone. Just 11 per cent were likely to return after unsubscribing.

Subscription services can also fall out of consumers’ good graces when they don’t offer clarity on what members are agreeing to. Fashion site JustFab (now called TechStyle), which offered Kate Hudson’s Fabletics athleisure line and the Kim Kardashian-associated ShoeDazzle, received hundreds of complaints filed with the Better Business Bureau for its misleading VIP program, which left consumers unaware that they had opted in until they were charged. Still other subscription-based retailers have caught heat for making cancellation difficult—Amazon Prime reportedly requires members to navigate through six separate web pages in what one watchdog called a “deliberate attempt to confuse and frustrate customers.”

If the subscription boom has taught online retailers anything, it’s that customers are keen to stay on board as long as they’re getting a healthy dose of transparency with their box of Dunkaroos. “The old P.T. Barnum ‘there’s a sucker born every minute’ model is outdated,” says Soberman. “Companies that are truly successful make sure consumers are repeat and loyal.”

RETAIL INNOVATORS 

Learn about the retail delivery service whose revenue has grown 297 per cent over the last three years, the chain of stores that has gamified the shopping experience and the lineup management app that is changing the customer experience.

undefined