Subscription models are big business. Whether it’s a TV streaming platform, gym class, or even WiFi doorbell service, businesses know that little and often is a great way to create a monster revenue stream.
In the US alone, it’s thought that the average consumer spends $640 on digital subscriptions every year - an increase of around 7% over just a couple of years.
Now, it seems as though restaurants are jumping onboard the subscription bandwagon. In February, coffee chain Panera Bread debuted its $8.99 per month subscription service in a bit to drive more traffic and generate higher food sales.
Customers who sign up are provided with access to unlimited drinks (including hot and iced coffee) in any sized cup. And the tests were pretty impressive; Panera Bread benefitted from a 200% uplift in guest frequency and an increase of 70% in food orders.
If you’re a restaurateur, you might be wondering if you can repeat this success. So, let’s get into the nuts and bolts of a restaurant subscription service and see if it’s right for you, and if getting in on the trend early doors could net you a lot of press coverage.
1. There are clear customer benefits
Why, you might ask, are restaurant subscriptions likely to be of interest to your customers? Isn’t it yet another monthly payment they’ll need to account for? Well, absolutely, but if you’re a regular customer of a specific restaurant, wouldn’t you jump at the chance to save on whatever you spend each month at that venue (even if, occasionally, you might inadvertently spend more because of the perks on offer)?
There are some other telling benefits for customers:
- subscription services are convenient - they’re about as ‘set and forget’ as it comes;
- you receive what you’d typically buy anyway, albeit at a discounted rate;
- if the subscription includes delivery, you probably won’t have to repeat the ordering process each time; and
- subscriptions make monthly budgeting much easier.
Remember - food subscriptions already exist and are big business. The likes of HelloFresh and Huel have become incredibly successful thanks to their efforts in carving out a niche which contains millions of potential customers.
2. It’s good for business…
Selling your stuff at a discounted rate? That doesn’t sound like much of a benefit, right?
Well, think about Panera Bread. As soon as they started testing their subscription service, they saw both footfall and food orders increase. This is because the subscription only includes unlimited access to specific products - in their case, a carefully selected range of drinks.
If you do the same, you’ll be able to encourage more people into your venue each week and watch as the upsells increase.
Beyond the potential revenue-making opportunities afforded by a subscription service, there’s the smaller benefits (it’ll likely make table management far easier if you increase the number of regular repeat bookings), and the bigger stuff, such as improved brand awareness and advocacy.
Oh, and it’s great for cashflow, because you get the money upfront, too!
3. Your offering might already be a perfect fit
While delivered-to-your-door food package subscriptions have been around for a while now, restaurant subscriptions are still pretty rare.
However, with bigger brands gradually testing the subscription waters, it’s likely they’ll start to become more commonplace. And that means a trickle-down effect for independent operators is almost inevitable.
There have been some failures which are worth keeping in mind, though. Burger King’s $5-per-month unlimited coffee subscription was canned within months of its launch.
If you run a traditional restaurant, you’ll need to think carefully about bringing in a subscription service and treat any foray into that world as a test. Basing the subscription service around wet sales is a smart move, and should encourage more food purchases, but it’s not guaranteed.
Subscriptions are currently best suited to delivery services, whether that be pre-prepared meals delivered direct to customers’ doors or the rising trend of ‘make it yourself’ raw ingredients delivery.
4. The numbers can really stack up
There are three factors to take into account when working out the pricing for your subscription service:
- Your costs: there’s no point in offering a subscription option if you don’t have a handle on what it costs to deliver it.
- The competition: are they offering anything similar? Have they tried and failed? Why?
- The customer lifetime value (CLV): do you expect to make a profit immediately on each subscription sale, or is it more likely to offer a return later on in the customer’s lifecycle?
There’s no definitive calculation for working out the cost of a subscription service, but you can get started by working on a few numbers. Just bear in mind that having a good handle on your venue’s profitability is always a great starting point.
Firstly, note down your costs:
- the average cost of the product(s) you want to include in the subscription
- any material costs (such as delivery boxes)
- the cost of any fulfilment (such as a delivery service)
- your transaction fees for accepting payment
Then, look at your average spend per customer, based on the products you want to include in the subscription fee. You can do this by estimating the number of return visits for your loyal customers and the total price they pay each month, on average, for those products.
From here you’ll have two numbers - your costs to provide the products, and what loyal customers pay on average each month to receive them. Your subscription pricing should be placed somewhere in-between, in order to either enable you to break even or maintain a small slice of profit (whichever you’re most comfortable with), but at a rate which offers a ‘no-brainer decision’ for the customer.
If you’d rather take the long-term approach, pricing your subscription at a loss but at a rate which should encourage more upsells and increase the LTV of each customer is the way to go.
5. Subscriptions build habit and long-term loyalty
It’s not guaranteed, but there’s a strong chance you’ll see more brand advocacy build among your customer base if you give it a try.
There’s lots of psychology behind successful loyalty programs, a key element of which is the feeling of being part of a special club. This is where subscription services score highly; they draw people in on the basis that they’re getting something for less, and because it’s tied to a monthly payment, they’re more likely to become fans of the business in question.
6. Is there an alternative to restaurant subscriptions?
If restaurant subscriptions don’t sound right for your business, there is an alternative that’s worth considering.
This involves giving customers the option to pay for what you offer them in instalments. It’s another way of spreading out the cost, and you can incentivise the program by giving them the opportunity to redeem their spend against special offers.
It’s not that different to a subscription model, but it encourages a different way of thinking on behalf of the customer and might be more palatable for your audience.
We hope you’ve enjoyed this introduction to restaurant subscription services. The key takeaway is this: treat any form of subscription service at this stage as purely an experiment - it’s still early days for this kind of program in hospitality.