Wednesday 24 June 2020 6:13 pmApater Capital Talk

‘Subscription box economy’ helps to fuel parcel delivery surge

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City A.M. contributor

“Just a second, I need to get to the front door – a delivery’s just arrived”: it’s become as familiar a scenario during a Zoom call as someone forgetting that they’re on mute.

The sound of doorbells ringing as packages are deposited on doorsteps, with delivery drivers dutifully stepping two metres back, has become a streetscape constant during lockdown. Hand-scrawled posters thank our postal workers and all those pounding the pavements with packages, along with the country’s NHS heroes. 

The growth of parcel ordering during lockdown has been highlighted by research by YouGov for Royal Mail. Nearly half (45%) of UK adults say they have been receiving more parcel deliveries since 23 March. 

DPD, whose increasingly familiar white, red and black liveried vans shuttle goods around the country for many leading retailers, said last week that it would be investing £200m to expand its network to meet an ‘unprecedented’ surge in popularity for its next-day parcel services.

Monthly moments of delight on the doorstep

The lockdown-triggered e-commerce explosion is driving this. One less obvious but related growth propeller is what has been dubbed the ‘subscription box economy’.

A subscription box is where people pay a fixed monthly fee for a box to arrive at a set interval (for example, every month) full of new delights to try out. Popular boxes include recipe/food kits, beauty products and alcohol.
Subscription services are growing at a ‘phenomenal’ rate, with growth of the UK market set to reach an estimated £1bn in value by 2022, according to an exhaustive 74-page analysis delivered by Royal Mail in February last year.

Grenadia is a company operating a review and comparison website – allsubscriptionboxes.co.uk – for boxes across all sorts of interest areas. Its founder, Michaël Maarek, says the subscription economy has “benefited hugely” from lockdown.

“During May our website for UK subscription boxes received 173% more visitors compared to the same period in May last year,” he tells City AM. “Categories that have enjoyed the highest increase in demand are kids’ boxes – parents are looking for innovative ways to entertain children while schools are shut – and food boxes, especially recipe boxes and meal-kits.”
Recipe boxes are Londoners’ most popular type of subscription box, according to Royal Mail’s research. Gousto, which is one of the best-known such brands along with the likes of Hello Fresh and Mindful Chef, announced in April that it had secured £33m of new funding from investors, saying it would be accelerating innovation including next-day delivery. The funding was secured before coronavirus but nonetheless lockdown has clearly got more people clicking (and cooking). 

Royal Mail’s director of parcel sales, Jon Nicholson, tells City AM that he has definitely seen a rise in subscription-based retail models since the pandemic forced high-street retailers to temporarily close. “According to our research, 15% of UK adults have ordered a paid subscription box online since lockdown began as more and more shoppers look to cheer themselves up through regular online purchases for items including health and beauty necessities, clothing and foodstuffs. These types of products lend themselves to a subscription approach, and once people are used to receiving goods in this way, the added convenience it brings is compelling.”

It’s a very similar story at DPD, whose chief executive Dwain McDonald observes: “The subscription box market has certainly been a significant development for us in recent years. It really suits our model as it is generally based on small- to medium-sized, regular shaped boxes being delivered next-day, seven days a week. People want to find original gifts that feel personalised for the individual. Lockdown has accelerated this trend with peaks such as Easter and Father’s Day seeing volumes almost double last year. They are easy to find online where people are browsing and looking for gift ideas.”

Brand building beyond the box

The rise of subscription boxes has largely been driven by start-ups but bigger brands are increasingly muscling in. All retailers love the revenue predictability while successful start-ups can even see their products end up in high-street stores, as has been the case with healthy snacks company Graze (which was acquired by Unilever last year).  

It’s also an international opportunity with nearly 90 per cent of subscription businesses making at least some of their sales overseas. 

Challenges include retaining customers after the novelty of having experimental eye-liner and unorthodox craft ale regularly turning up wears off. People typically tend to be hitting ‘unsubscribe’ and dialling direct-debit cancellation hotlines after just five or six months, according to different datasets.  

While lockdown has brought opportunities, it has also bought obstacles: for suppliers, supply-chain disruption; many consumers, meanwhile, will wonder whether many subscriptions are an unnecessary indulgence in these economically difficult times. 

“I think that the biggest ongoing challenge is the necessity to delight customers continuously every month with a new concept,” says Maarek, who says successful subscription-box brands tend to create a (virtual) community for subscribers and “build a brand proposition that goes beyond the contents of each box”. 

Out-of-the-box thinkers take note.  

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