Consumer giants spurn risks to chase online subscribers

Major consumer companies including Unilever, Procter & Gamble and Nestle are pitching new online subscription services, which promise stable revenues, lower delivery costs and valuable data about customers.
Major consumer companies including Unilever, Procter & Gamble and Nestle are pitching new online subscription services, which promise stable revenues, lower delivery costs and valuable data about customers.PHOTOS: AFP, REUTERS

LONDON (REUTERS) - Major consumer companies including Unilever, Procter & Gamble and Nestle are chasing consumers who want food and household goods delivered automatically, even though this kind of business has not always worked.

The companies are pitching new online subscription services, which promise stable revenues, lower delivery costs and valuable data about customers.

The world's biggest packaged food company, Nestle, whose Nespresso coffee is already a sizeable subscription business, recently launched a subscription programme for nutritional drinks in Japan and expanded ReadyRefresh, an online bottled water service, in the United States.

It also wants to expand the Tails.com subscription pet food from Britain to continental Europe, one of its executives told Reuters. It is testing the service in France for a possible launch this year.

Unilever on Monday will launch its Skinsei brand in the United States after testing, offering "personalised" skincare by subscription. Unilever expanded its Dollar Shave Club subscription razor service to include cologne and beard oil in 2018 and toothpaste in 2017.

Meanwhile, Procter & Gamble, the world's largest home and personal care company, expanded its Gillette on Demand razor subscription service to Canada. Subscribers can text when they are ready for their next shipment.

Selling directly lets manufacturers skirt retailers, giving them more profit and control over pricing, promotions and merchandising. This helps when retailers such as Amazon and Sainsbury's are pressing consumer product companies for discounts and pouring resources into own-label products.

Subscription selling gives them guaranteed revenues, a better picture of customers and can make goods cheaper to deliver.

"They're getting it to you on a specific date, but they don't have to get it to you in one or two days," said retail analyst Scott Mushkin at Wolfe Research. "It's a way for them to manage down their logistics and distribution costs."

Amazon has offered discounts since 2006 with its Subscribe and Save programme, which gives people up to 15 per cent off when they sign up for repeat deliveries of household items.

It is now "a multi-billion-dollar business inside Amazon", said Mr Tom Furphy, CEO of venture capital firm Consumer Equity Partners and former vice-president of Amazon's consumables unit, which launched the service.

WANING INTEREST

Ms Liz Cadman, founder of mysubscriptionaddiction.com, said children's educational boxes were the US website's hottest category in 2018, followed by grooming, make-up and beauty. Biggest losers were snacks, clothing and pet goods, she said.

The trouble with subscriptions, analysts say, is high cancellation rates as consumers get bored, high marketing costs, costly delivery and the fact that people often end up with goods they don't want.

Mondelez International has suspended its Oreo Cookie Club, a programme rolled out last year. For US$20 (S$27.10) per month, subscribers got a box containing Oreos in different flavours, with recipe cards, candy and merchandise such as Oreo-branded socks, sunglasses or cups.

After three months, Ms Ruby Scarbrough cancelled her subscription, saying in an online review that she could buy the cookies more cheaply at a store.

Mr Jeff Jarrett, global head of e-commerce at Mondelez, pointed to the challenges of delivering mass-market snacks economically and keeping customers interested.

Nobody has "cracked the code" for snack subscriptions, he said, though Mondelez may give its Oreo club another shot, likely with more flavours, better merchandise or a better online experience.

General Mills axed its Nibblr subscription snack business in 2015 after 18 months. A similar project from Kellogg, reportedly planned for that year, never materialised. Walmart shut its Goodies subscription snack business in 2013 after a year.

While subscriptions delight some consumers, they frustrate others because "you end up with too much of the product or too little", Procter & Gamble CFO Jon Moeller told Reuters.

GROWING, BUT HOW MUCH?

Subscriptions represent about 10 per cent of all US online sales, and more than 1 per cent of all retail sales, said Mr Burt Flickinger, managing director of consumer consulting firm Strategic Resources Group.

He said subscriptions are the hottest part of the industry, growing more than 17 per cent a year and outpacing overall online sales, which are growing more than 12 per cent. He said subscriptions may exceed 10 per cent of the US retail market in five years and 15 per cent in 10 years.

Euromonitor International says subscription shaving clubs, including Dollar Shave and Harry's, took about 12 per cent of the US$2.1 billion American market for men's razors and blades in 2017, up from 6.4 per cent two years earlier. But Dollar Shave's sales have slowed dramatically, with Unilever in October citing growth of around 10 per cent year-to-date, compared to more than 50 per cent in 2016, the year it bought the brand.

Unilever said a slowdown was not unusual but it was "pleased with performance" at Dollar Shave, whose North American business would be close to break-even level this year.

Unilever's global brand vice-president of skincare, Ms Valentina Ciobanu, told Reuters the company wants to make its subscriptions more flexible, because consumers demand options when they buy.

"We don't force you to subscribe at the beginning," Ms Ciobanu said about the Skinsei brand, which she created inside the company. Skinsei aimed to keep shoppers loyal in part by making changes to the products it recommends based on the season of the year and other factors, she said.

Ms Ciobanu said Skinsei's products could be combined into more than one million skincare regimens. She declined to give sales projections.

However, she and other executives said it was unclear whether subscription brands would take off or remain niche.

"For now, it's still early adopters. The question mark is how long will it take to become more mass, and I think nobody has the answer to that question," said Mr Bernard Meunier, who runs Nestle's Purina Petcare business in Europe, Middle East and North Africa.