In recent months, Covid-19 has brought unprecedented challenges for the UK’s hospitality industry. In order to comply with government guidelines and help protect their customers, hotels, restaurants, pubs and other businesses across the country were forced to close their doors. Whilst some were able to adapt, offering takeaway options and modifying their services, many had to cease operations entirely.
As restrictions begin to ease, many in the sector are struggling to get back on their feet. The financial implications of recent months, shifts in consumer behavior and the threat of a potential second wave on the horizon mean the road to recovery could be a long one.
In an effort to support businesses during this time, the government has launched its new ‘Eat Out to Help Out’ scheme this month. Offering a 50 percent discount to consumers choosing to eat at participating restaurants, this initiative forms part of a wider effort to boost the country’s economy post-pandemic. Many in the industry will be hoping to use it to bounce back, to begin attracting customers and turning over a profit again.
But this scheme will not last forever. With it currently set to end after one month, it’s impact could be relatively short term. Which begs the question: moving forward, is there another, longer-term solution that should be being considered to help revive the hospitality sector?
The subscription boom
In recent years, subscription-based models have emerged as a key for businesses across a range of different sectors to ensure a stable revenue stream and for consumers to get the products they want in a convenient, low cost way.
Whilst, the sharp rise in subscription-based streaming services – such as Netflix and Disney+ - has dominated the headlines in recent months, those operating within the food and drinks sector have also witnessed a shift in consumer behavior. From groceries and meal-planning boxes to coffee delivery services, the number of people signing up to subscription-based models is steadily increasing and Covid-19 has solidified its growth.
There are several key players in the industry who are already reaping the rewards. For example, whilst many businesses have struggled to survive the pandemic, Gousto – the subscription-based recipe box provider – has recently announced plans to create 1,000 new jobs as part of an expansion following a 115 percent spike in sales during the first half of 2020. Meanwhile, as well as providing 100 percent relief and pausing billing from March through June, hospitality platform Resy has expanded its reservation service to enable its network of restaurants to offer takeaway and delivery options, as well as merchandise and gift cards. The adaptability offered by subscription-based models is proving to be a lifeline for many hospitality organizations battling the current period of uncertainty.
In fact, according to our recent CPG Subscription Report, 61 percent of UK consumers who have a CPG (Consumer Packaged Goods) subscription have one with a food and beverage organization. The industry is currently leading the way when it comes to CPG subscriptions, coming ahead of the electronics (33 percent), pharma and beauty (33 percent) and fashion (31 percent) markets. This demand is only set to increase as time goes by, with consumers who have a subscription being 2x more likely to get another in the next 3 years.
Getting ahead of the game and tapping into the subscription economy now will not only help organizations to bounce back following the global pandemic. It could also boost an organization’s profitability further down the line. Covid-19 has provided all industries with an opportunity to re-think the norm, and the same goes for hospitality. Why can’t your restaurant be a service-based company that offers easy to cook meals inside the home using your own recipes? Why can’t your café offer subscriptions to your artisan coffee beans? The answer is simple, you can, it’s just going to mean re-thinking of your business model.
The price is right (but the customer experience needs to be too)
Despite the growth in popularity, for CPG companies – including those operating in the food and drinks space - the transition to subscription products is still in the relatively early stages. Once adopted, there are several key areas that businesses must work on in order to ensure that this new strategy is a success.
For consumers, whether in prosperous times or in the midst of a global pandemic, the priority is remarkably consistent: they want subscriptions to deliver real value. But their definition of value is much more than simply a price point. Whilst saving money is important to 72 percent of consumers when signing up to a subscription service, it will often not be enough to make them stay long term. This is because, the overall customer experience is the true driver of subscription decision making.
In terms of delivering this overall customer experience, flexibility is often high on the agenda for those signing up to a subscription-based service. The ability to opt out or even just temporarily suspend a service is seen as a really important factor. Moreover, the fear of being bound to a company or service is enough to put 42 percent of consumers off signing up in the first place. Therefore, hospitality businesses looking to capitalize on a subscription-based model need to put the customer in the driving seat and ensure that they feel in control.
This sense of freedom is something that needs to continue, even once a customer has signed up to a subscription service. Customers don’t want to feel locked into a model that isn’t working for them. So companies that enable changes to their subscriptions are likely to see a very positive impact on the bottom line. In fact, research from the Subscribed Institute recently discovered that brands which average one change for every single subscription, almost triple their growth rate, proving the importance of continued flexibility.
Another key area to focus in on is convenience. It’s important to remember that the delivery mechanism for the subscription must be more convenient than traditional purchasing. It must take the pain out of the weekly supermarket shop or bring the restaurant experience to a customer’s own kitchen. The best, most popular subscriptions will save time, deliver to the home or be something that the customer would struggle to get hold of under normal circumstances.
Customization is the third piece of the customer satisfaction puzzle and is likely to be the defining factor which enables a subscription service to stand out from its competitors. Consumers have higher expectations for the relationship in a subscription model than they do with a single purchase and it’s important to meet these. Taking unique preferences into account is likely to enable businesses to build a better relationship with their customers, encouraging a longer commitment and lessening churn.
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Subscribe, survive and thrive
Many businesses in the hospitality sector have shown immense resilience in the face of the global pandemic. However, as the ripple effects continue to impact the UK’s economy, we’re not out of the deep end just yet. The government’s ‘Eat Out to Help Out’ scheme will offer some much-needed relief over the course of this month and is a positive step in the right direction. But what comes next?
For businesses in the sector looking to fortify themselves long-term, adopting a subscription-based model is an avenue worth exploring. For those that do, focusing on adding value and improving the overall experience for customers will prove critical in building and retaining loyalty long term. If businesses are able to deliver the right blend of flexibility, convenience and customization, subscriptions could prove to be a sustainable solution helping businesses to both survive this current time of uncertainty and thrive in the future.
John Phillips, General Manager, EMEA, Zuora