Store Operations

Is a Subscription Service Right For Your Retail Grocery Store?

It’s Sunday afternoon and it’s time for your shoppers to start grocery shopping. Instead of driving to the store and making sure they bring the bags in this time, your customers log onto your website, select the items they need for the week, and then hit order and “subscribe.”

Now, you’ll deliver those items to their door this week and every week based on an advanced subscription algorithm—is this the future of grocery? Companies like Amazon Fresh, Blue Apron, and Replenium are hoping so.

How CPG Fits The Subscription Model

Right now the subscription grocery model is growing more in other parts of the world, like Japan, France, and India. In the U.S., Amazon is duking it out with Walmart and Target for online sales. According to a Nielsen report in early 2016, online product sales in the U.S. are roughly 60 percent non-food to 40 percent food, “the exact reverse of the total in-store CPG picture, which is about 60 percent food and 40 percent non-food.”

Subscriptions Help Solve the Supply Chain Conundrum

One of the biggest advantages to the subscription model for the retail grocer besides customer loyalty is the ability to correctly forecast inventory for the upcoming weeks. Out-of-stocks and other on-shelf availability issues are major concerns for any retail grocer but the subscription model mitigates these issues altogether.

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Does the Subscription Model Fit Your Strategy?

Currently, home grocery subscription services are only available in certain urban areas but the demand is forecasted to continue to grow in the coming years. Leaving you to decide two major things. Should you take the plunge and if so when? But before you come to that conclusions there are a lot of other questions to answer first.

For example, Amazon charges about $26 a month between the monthly cost of Amazon Prime and Fresh. Would that price point work for other retailers or does it only work because of Amazon’s volume? And then you have to wrestle with:

  • Is the subscription model mostly for millennials (who are fueling dozens of restaurant delivery startups) or for traditional shoppers? What demographics lend themselves to a service where you can get the same items delivered week after week?
  • What happens to impulse purchases or things consumers forgot (a common shopping phenomenon)?
  • What about price changes and sale items? With dynamic pricing, will customers expect the same bill week after week for the same items?
  • What happens with coupons and ad spend in the store? What about consumers who are buying strategy is to stock up on sale items?
  • How will retailers introduce new or seasonal items in a way that works with customers’ established buying habits? Holiday parties, family gatherings, BBQs, and tailgating can all affect item counts and disrupt the subscription algorithm. How does a subscription model adjust for these shifts?

How Tech Is Changing Retail

We’ve seen subscription models work for other industries, such as fashion. Stich Fix delivers custom fashions to your door, based on your style and budget. And certain consumer goods segments like Dollar Shave Club and Harry’s have been very successful. But creating a subscription service clearly requires some changes in the management of brick-and-mortar retailers. A lot of strategy needs to go into deciding whether your customer base is likely to go for this new functionality and justify the cost.

Creating a New Business Model or Adjusting the Old?

In addition, you need to know how you’re going to maintain your relationship with customers through a user experience that parallels the one you offer in the store. And you need to determine how many deliveries you can afford to make to customers with your chosen subscription price. Also you have to have a POS and inventory system that makes sure your shelves are stocked for not only online customers but also for those who do prefer to shop in the store.

Also your relationship with CPG companies will change. You’ll need to navigate new waters to determine which products will be available for a subscription service. Plus, promotions and sales will have to be supported both online and in the store.

Creating the Customer-Centric Shopping Experience

Finally, all the changes happening in the grocery industry mean you need an expert in digital strategy who can make sure you’re taking the steps you need to take, at the times you need to take them, to remain competitive and relevant in your market. Only the data can really tell you whether a subscription service makes sense at a given location or at this moment in time.

As you know the retail industry is one of the biggest targets for disruption with tech startups and established companies constantly trying to create a better shopping experience and for consumers that also improves margins for retailers and their suppliers. The trick is knowing which ones to adopt and when.

Editor’s Note: This blog was originally published by RW3. RW3 was acquired by Wiser Solutions in early 2022 and this blog has been revised and repurposed for a global audience.

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