"Little-box retailing" continues to grow, but to succeed in online subscription services, you need a well-defined niche.
A fast-moving trend dubbed "little-box retailing" has taken off in the past couple of years, sparked by the success of Birchbox, which started sending women curated boxes of cosmetic samples in 2010 and currently boasts some 400,000 subscribers.
As reported in the Washington Post, industry estimates say 400 to 600 box services have sprung up in the United States, with even more overseas.
As reported in the Washington Post, industry estimates say 400 to 600 subscription box services have sprung up in the United States, with even more overseas. Now subscribers can get convenient home delivery of everything from pet toys and baby products to fishing tackle and artisan foods.
The primary market is time-pressed young millennials, says Bala Ganesh, UPS retail segment director. The 2015 UPS Pulse of the Online Shopper™ study found that 34 percent of millennials were already enrolled in a curated online subscription program, compared with 20 percent of all online shoppers. Significantly, nearly half (45 percent) of the online shoppers surveyed would consider enrolling. "The opportunity is certainly there, especially among millennials," Ganesh says.
Old model with new twists
Of course, the subscription-based business model dates back to the newspaper industry, and still offers many of the same business benefits: a predictable revenue stream, increased customer loyalty and the chance to upsell.
In this online renaissance, however, two subscription-based business models seem to predominate. The first is an "of the month" approach in which, for example, a customer receives two or three predetermined bottles of wine per month – they don't get to choose. The second, curated approach lets customers keep what they want and return what they don't for a full refund.
The curated version requires fairly sophisticated back-end computer power. "You need an initial online assessment that buckets people into different categories so you understand who likes what – similar to a matchmaking website," Ganesh says. "Then you'll need a systematic way to track returns, and a recommendation engine that learns from patterns that emerge and corrects itself."
Healthy growth for healthy meals
It's also clear that you need a well-defined niche to catch the brass ring. One company that seems to have done just that is UPS customer HelloFresh, which delivers healthy recipes and locally sourced, farm-fresh ingredients for six to 12 meals to the customer's doorstep, once a week, for fees that start at about $9 per meal, including shipping. Primary buyers are health-conscious young couples who don't have time for grocery shopping and want meals easy to prepare in about 30 minutes.
HelloFresh started in Germany in 2011 and launched in the United States in late 2012. CEO Seth Goldman says U.S. growth has exceeded 500 percent annually. "We look for double-digit growth every month, and it's accelerated tenfold over the last year as we understand our customer base more and build out our team here," he says.
Originally based in New Jersey, the U.S. operation added a distribution center in San Francisco and then expanded to Dallas, based in part on demographic analyses of the Internet population provided by a UPS retail solution support team. "One of the main reasons we chose UPS was the creativity and vision of the UPS team," Goldman says. "They saw a pathway that let us expand faster nationally."
HelloFresh uses a combination of ground and air services to provide two-day delivery anywhere in the country. To streamline fulfillment, UPS added CrossWare to WorldShip® functionality, so that built-in system logic decides whether to use ground or air service, based on the destination ZIP Code. Subscribers receive added flexibility over home delivery with UPS My Choice® membership.
"Early on, UPS recommended a direct ship alternative using refrigerated line hauls that will reduce the number of packages going out via air," Goldman says. "That will improve the quality of the product and the number of packages exposed to the elements for two whole days." Another way UPS has helped: implementing a Sunday pickup in San Francisco so that meal kits arriving on Monday are as fresh as possible. "Freshness is critical in our business – you can't inventory spinach."
According to Goldman, "When we started with UPS it was just about getting boxes delivered, but now we are going to want to use logistics as a strategic weapon to outflank our competitors. The next 12 to 18 months will be exciting."
For more insight on UPS e-commerce solutions, download the new UPS/comScore study.