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[11 comments]

Will Americans subscribe to online snack services?

January 24, 2014

After five years in the U.K., private equity-backed Graze.com has invested $5 million to launch in the U.S. Founded by ex-Lovefilm executives (the U.K. equivalent of Netflix), Graze is a subscription-based snack service.

Graze.com customers select four items from over one hundred options and wait for home delivery. They choose whether to take delivery once each week, fortnight or month. Selections and intervals can change at will. Online profiles reflect ratings, likes, dislikes and even allergies. New products are tested by several thousand subscribers, often dropped immediately if not popular.

Graze.com's boxes fit into a mailbox and contain one- to two-ounce portions of each snack in separate tubs. Healthy choices are easy to make. Americanized options include Mississippi BBQ Pistachios and Apple Crumble dried fruit and nut mix, while the Cheese Board is comprised of cashews, salsa corn sticks and herb crackers covered in an orange powder. The Salt & Vinegar Nut Selection includes almonds and peanuts.

Having signed up 55,000 customers pre-launch, Graze claims to have added 1,000 a day after that. CEO Anthony Fletcher added, "All I can say is it's even better right now" when interviewed by BakeryandSnacks.com just weeks later. "We're thinking very, very big."

In the U.K., approximately 300,000 snack boxes are delivered each day. Addressing the different postal options in the U.S., Graze has created logistics system, "The Brain," using data analysis from the postal service to decide whether USPS or Fedex would be most efficient to reach any one of 250 million given addresses on a given day from its Jersey City distribution center. At $6, including shipping, Mr. Fletcher insists Graze must "ensure the most reliable delivery system possible".

General Mills launched a competing subscription snack service, Nibblr, before Graze went live. Promoted through social media, choices include Apple of My Pie with cinnamon praline almonds, apple-pie spiced cookies and dried apples. Ale House Blend incorporates corn nuts, Brazilian Steakhouse Peanuts and Mini Pretzels.

Bloomberg reports Nibblr's internal box design, price, delivery intervals and customer options for controlling content and deliveries reflect Graze's. Nibblr's box, however, looks like a gift, leading Supermarket Guru Phil Lempert to surmise Millennial Women are being targeted. General Mills' marketing director describes their audience as "women looking for snack options at work."

FINANCIALS:     [NYSE:GIS] [ ]

Discussion Questions:

Will the subscription model work for snacks? Do you think subscriptions is better suited for retailers or can it work as well or better being managed by a manufacturer as in the case of General Mills?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How likely is it that subscription services for snack foods will succeed?

Comments:

I was a member of Goodies, the Walmart initiative that was focused on sampling. We got a box once per month, and it was a nice little box of cool surprises. I wouldn't've minded the option to tell them things like "no coconut" or "no peanuts" but even if there were some things that didn't fit what my family liked, we all liked getting the box.

I think this is a trend that grocers need to watch out for. In the "basic weekly supplies" category, I have shifted about 5% of my spend from my grocery store to Amazon subscription. Why? Because the grocery store eliminated my favorite flavor or product, but Amazon still carries it. And helpfully offers to remember when I bought it last so that I can figure out the right subscription frequency.

This "discovery" kind of subscription model is yet another bite out of the grocery store pie.

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Nikki Baird, Managing Partner, RSR Research

Subscription businesses tend to work well when the product is necessary, such as prescriptions. When the product is more discretionary, a small segment may seek out a service that provides variety and convenience, but such products rarely achieve critical mass. Think beer and wine subscriptions.

Subscriptions work much better for retailers than manufacturers, particularly for retailers with e-commerce expertise, since they can handle detailed logistics at scale, which a manufacturer is not built to do.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

I would have thought this was a long shot until the other day when I noticed my daughter had received a snack box at the office. I asked her about it and she said that the products were "good for you" and the small amounts kept her snacking in check.

Interesting.

Do I think it is a sustainable model? Yes, for the reasons she sited.

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Marge Laney, President, Alert Technologies, Inc.

I believe so. There are several other categories that have successfully launched subscription services, e.g., diapers.com, wag.com, soap.com, etc. Plus, the giant in online, Amazon, has seen its "Subscribe and Save" offering grow dramatically.

This is an opportunity for retailers to offer a subscription of regularly consumed products. Instead of having to subscribe to individual services and sites, the enterprising retailer could offer one-stop shopping, which has been the reason for existence of and at one time, the point of differentiation for supermarkets.

On the other hand, I expect other CPG manufacturers will follow the lead of General Mills and P&G, before GM, to offer alternative delivery options, beyond traditional channels. Their rationale for pursuing such initiatives is to take advantage of online opportunities, as well as protect themselves from the vagaries of demands imposed on them from bricks and mortar retailers.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

The model already works for all sorts of different products, and no reason it shouldn't work for snacks, too. Several retailers (like CVS) that I use now let you "subscribe" to fast-turning products, which makes total sense. With hassles over the time crunch, traffic, parking spaces, etc., this model should continue to grow. Right now, retailers are better set up to do this, but no reason manufacturers couldn't jump in and grab significant share. It's not rocket science, despite what people will tell you. For years, manufacturers been eager to get around their own hassles of shipping, slotting fees, reclaim, promo money, etc.

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Warren Thayer, Editor & Managing Partner, Frozen & Refrigerated Buyer

Subscription services are hot, and getting hotter. One of my CIO friends recently noted that "we've trained customers to think that waiting a day or two is fine," It just gets bigger from here.

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Cathy Hotka, Principal, Cathy Hotka & Associates

To paraphrase Bill Clinton, it all depends on what you mean by "work."

Is there a market? No question.

Is it a scalable market? My jury is still out on that one.

The notion of marketing snack delivery as -- essentially -- a healthy diet option is an interesting one and there may be enough customers out there to support a business, but your hard core snack consumer seems, at least to me, to fall a little more into the instant gratification and/or impulse camps. In other words, the real "mass" portion of the snack market is probably out of reach to a subscription service.

Those Cheeto scarfers probably aren't the subscription services' target market anyway, so I'll stay optimistic on this one as long as nobody tries to scale it too high.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

I think that the snack subscription service is not a sustainable model. The subscription model like this will be a novelty that many people will initially join, but quickly realize that is likely overpriced and does not serve a tremendous amount of value. This may serve as an effective marketing tool for sampling new promotional snack items, but I don't believe that this will take off as a long-term success.

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Jesse Karp, Omnichannel Consulting Manager & Loyalty Practice Lead, Cognizant Business Consulting

Subscription services are great for many categories. This is a wonderful way to test product, give your customer a welcome surprise, or just keep them loyal to a product they love.

I encourage retailers as well as manufacturers to look for those subscription opportunities and go for it.

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

If they are not already doing it, it would seem like Graze.com has a structure through which they could capture feedback from their customers regarding selected new products, and generate some additional income by selling the research findings back to the manufacturers. Being a retailer rather than a manufacturer allows them to offer a wider range of products and to distribute offerings from brands large and small.

Doug Pruden, Principal, CustomerExperiencePartners.com

"Work"? Again, I think we're into semantics here: I think in a few years, we'll hear that this was a "valuable learning experience."

'notcom'

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