The explosion of the global subscription eCommerce market has been a major impact of the pandemic.
Consumers under stay-at-home mandates turned to subscriptions to fulfill daily needs for everything from entertainment to personal care products to pet supplies. Subscription commerce sales increased 41% last year and are expected to reach nearly $28 billion by the end of 2021.
The subscription model’s appeal is enduring well past reopening, with PYMNTS research from September confirming that consumers’ appetites for subscription commerce have grown since March 2020. Today, 205 million Americans have at least one subscription service, up 13% from the 182 million counted in the first quarter of 2020. By 2025, the subscription market is expected to reach $478 billion, representing a compound annual growth rate (CAGR) of 68% since 2019.
The food sector in particular is gaining steam. The model is making inroads into every aspect of food service, with even QSRs such as Taco Bell launching subscription packages. The approach could not come at a better time for eateries. Restaurants that relied on office workers for the lunch-hour rush are suffering as many employees continue to work remotely. Subscriptions serve as an extension of the loyalty program concept, offering merchants and restaurants recurring revenue and a high level of brand engagement.
The following Deep Dive examines the most recent developments in food and restaurant subscriptions. It also explores how the model’s various forms — including meal kit, direct-to-consumer (D2C) and restaurant subscriptions — are poised to help sustain the sector long into the future.
From Meal Kits to QSR Subscriptions
The pandemic fundamentally changed the food service sector. The combination of restricted options for dining out, little time for food preparation and the culinary limitations of takeout made meal kit subscriptions among the breakout stars of 2020. Frankfurt-based meal kit provider HelloFresh, for example, with the largest market share, reported 2020 sales of 970.2 million euros ($1.1 billion) for the third quarter of 2020, a year-over-year increase of 120%. The once-struggling industry found its footing amid last year’s tectonic shifts, and analysts have predicted its gains will become permanent. Businesses that deliver ready-to-eat and ready-to-cook subscription meal kits are expected to grow at a CAGR of 13% and reach $27 billion in market size by 2028.
Similarly, the pandemic nudged the once-niche D2C food subscription market into the limelight as grocery retailers experienced shortages of food products such as meat and fish. Shoppers previously hesitant to purchase meat products online pivoted in response to supply chain challenges, and observers say those habits will have staying power. A March study of online subscription meat ordering showed that Net Promoter Scores, a measure of consumer experience in which scores over 50 are considered excellent, have jumped from 26 to 59 since January. PYMNTS research also revealed rapid growth in the share of consumers who would be “very” or “extremely” interested in using D2C food or grocery subscriptions, rising from 50% in February to 56% in May.
Perhaps the most innovative subscription concept to hit the food industry has been the restaurant subscription. Eateries in distress during the pandemic launched numerous survival strategies, with some reinventing themselves as grocery stores or switching to takeout, and others seizing on the subscription model. Enthusiasm was high, with 55% of New Yorkers in one survey expressing interest in subscribing to local restaurants, many hoping to help keep them afloat. Restaurant subscriptions still are a relative rarity, but industry experts remain optimistic about their potential, especially for QSRs.
How Subscriptions Could Help Sustain the Restaurant and QSR Sector
Subscriptions are a logical step for restaurants, given the increasing popularity of loyalty programs with consumers. Subscriptions borrow attributes from the loyalty program formula, including recurring revenue and higher brand engagement via regular purchases. They also prolong the customer life cycle and incentivize subscribers to make frequent visits.
While some chains experienced growth during the pandemic, the QSR, fast casual and full-service sectors still face a revenue crunch as crowds remain thin during the workweek. Developing and launching subscription programs could hasten their recovery and pay dividends going forward. Subscriptions can provide a revenue stream independent of on-premises sales and entice customers to return to downtown locations.
Taco Bell, encouraged by a 35% spending increase per visit after introducing its loyalty rewards program in 2020, began testing a subscription taco program in Tucson, Arizona, in September, offering customers one taco per day for a monthly fee. Panera’s monthly coffee and tea subscription service, which launched in February 2020, has acquired more than 500,000 subscribers and helped lift average order sizes, resulting in a 70% increase in food add-ons among subscribers.
Subscription services boost customers’ perception of value and provide a digital connection to patrons that can be leveraged for better promotions, fresh marketing and stronger loyalty. The restaurant and food sectors soon could find the subscription model becoming an essential ingredient in their recipes for long-term growth.