Burgers, bread and bras all available as subscription services get serious

Industry

Published: 31 May. 2020, 17:14 Updated: 31 May. 2020, 19:10

Burgers, bread and bras all available as subscription services get serious

A subscription box from Lazy Society, a shaving equipment subscription service. [LAZY SOCIETY]

Subscription services are not a new idea. For decades, people have had the newspaper delivered every day, or a pint of fresh milk waiting on the doorstep in the morning. Things started to change with the dawn of the online era, as subscription services started offering a wider range of products and more convenient services, and now the outbreak of the coronavirus pandemic has caused their popularity to jump up as consumers look for new ways to shop while avoiding face-to-face interactions.

In Korea today there are subscription services for pretty much anything, from hamburgers to cosmetics and even makgeoli, or Korean rice wine.

“Subscription services have become the general trend as people look for 'untact' shopping options based online, while the sharing economy, the icon of contact consumption, has shrunk,” says analyst Kim Tae-heon from IBK Securities.

'Untact' is a Korean term that uses the prefix "un-" to create a new word that is the opposite of contact.

“[Subscription services] offer convenience, more product options and price discounts to consumers, while companies can secure a stable profit by transforming customers into subscribers,” added Kim.

Earlier this month, Burger King launched a membership club that gives the member one King Chicken burger a week for a monthly fee of 4,700 won ($3.80).

In March, big box store Traders initiated a coffee membership service that allows subscribers to get an Americano every day for 4,980 won per month — if they pay with a Samsung card — adding up to an 85 percent discount. Following its popularity, Traders launched a pizza service in June.

More traditional subscription services that involve something being sent to a subscriber's house have also become more common. Start-ups, like shaver subscription service provider Lazy Society, are particularly active in the growing market.

The global subscription service market is estimated to stand at $530 billion this year, up 146.5 percent from $215 billion in 2000, according to data provided by Credit Suisse.

Subscription services

Subscription and membership services largely fall into three different categories, depending on how, or if, products change hands.

Streaming services like Netflix, Wavve and Melon, for example, offer unlimited use of their content if customers make payments every month, but subscribers don’t actually take ownership of anything.

The second category — most common with consumer goods — involves the regular delivery of a product. In exchange for a monthly payment, subscribers take ownership of the items.

Lingerie company Inthewear, for instance, offers a bra and underwear set delivered every month for 15,000 won ($12.1). Subscribers can have their bra size measured before subscribing to the service and are asked their preference for design and color.

Toun28 provides skincare products every 28 days. The company says one’s skin type changes every month, and therefore, people should change their skincare products accordingly. Prices start from 39,000 won per month.

Food and beverage packages also fall into this category.

Starting this year, Bae&Brewing, a traditional liquor company, started a subscription service for makgeolli and pan-fried dishes that are usually regarded as a match for rice wines. In July, CJ CheilJedang expanded the types of food that it offers subscription services for on its online CJ The Market to include desserts and dietary supplements.

“Continuous purchases result in higher brand loyalty,” said Kim Chi-ho, a spokesperson for CJ CheilJedang. “Based on subscribers’ previous purchase data, the company can rapidly capture consumer needs and build marketing strategies that can improve services and help develop new products.”

Renting products, like clothes and luxury bags, is another type of subscription service. In this case, consumers have to return the goods.

Clean Bedding delivers clean mattress cover, pillow covers and a duvet cover for 40,000 won a delivery. Open Gallery offers monthly artwork rentals, with prices starting at 33,000 won, depending on the size of the artwork.

“Unlike the older generation that focused on saving money to purchase more valuable possessions [like luxury clothes or bags], millennials set a higher value on a better quality of life or experience,” said Song Myung-jin, a research fellow from Startup Alliance, a support center for local start-ups.

“Subscribers value convenience and diverse experiences. Subscribing to daily necessities like shavers or sanitary pads lifts the burden of repetitive shopping, while subscribing to flowers or artwork can help people learn their preferences.”

Subscription services also offer a more exclusive service.

“Subscription service is a VIP marketing in that it gives people what they like and offer something that they would like that they didn’t even know of based on the past records,” says Prof. Seo Yong-gu, who teaches business at Sookmyung Women’s University.

Bakery brand The Menagerie at Shinsegae Department Store in Yeongdeungpo District, western Seoul, offers a membership service. [SHINSEGAE DEPARTMENT STORE]

Opportunity for startups and conglomerates

In the online era, subscription services have given start-ups an opportunity to compete against conglomerates, or even collaborate with them.

“Subscription services have always been around, but have gained momentum recently because the business model is more suitable online,” said Kim Jeong-hwan, CEO at Lazy Society.

Lazy Society in 2019 launched a service to provide men’s shaving equipment, partnering with BIC, a major player in the global wet-shave market. The number of subscribers to the services has grown 1,000 percent since the early days, according to Kim.

“In the past, major retailers dominated offline channels with their capital strength," says Kim "They spent a lot on marketing, which inevitably raised product prices.

"Consumers these days are serious about cost-effectiveness. For start-ups that offer subscription services, we can provide products at a much lower price since we skip distribution costs. Subscriptions also free us from paying for additional marketing cost once we secure subscribers.”

Seong Ju-hee, CEO of Closet Share, a start-up that rents clothes and bags, has seen the same benefits reflected in her business.

“Sixty percent of subscribers who utilize our service continue using it for an average 15 months,” said Seong. “We spend marketing costs just to secure new customers. But the risk to a subscription service is that it’s difficult to secure new customers since customers feel pressured about committing to being charged monthly.”

For larger companies with offline stores, subscription or membership schemes are attractive because they can lead to frequent customer visits.

The cafe at a Traders branch in Hanam, Gyeonggi, offers coffee and pizza subscription services. [EMART]

Traders saw subscribers to its coffee membership scheme visit the store an average 12 times a month in March and April, six times more than average customers.

Traders says the figure is meaningful because it is higher than the average number of times people visited convenience stores and discount marts last year, which was 6.9 times and 4.6 times, respectively, according to data provided by the Korea Consumer Agency in February.

The membership schemes are part of the offline store’s efforts to diversify services to survive, according to Ju Kyung-don, a spokesperson for Emart that operates Traders.

“Subscription lessens the chance of customers going elsewhere when they shop, locking them into Traders,” explained Ju.

Shinsegae Department Store in January introduced a similar service at its bakery. Subscribers can pick up bread every day for a monthly fee of 50,000 won.

“We haven’t yet seen any meaningful growth since the service began due to coronavirus, but our goal with the service is to attract people to the store, which could lead to the purchase of other products,” said Choi Ye-seul, a spokesperson for Shinsegae.

But the key to success in subscription services seems to be early adoption.

“When it comes to subscriptions, it is crucial for firms to be the first to adopt the service,” said Prof. Lim Chae-un, who teaches marketing at Sogang University. “They first need to lure customers using loss-leading products to expand market share because people usually subscribe to a single company for the same product and are unlikely to switch once settled.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]