Subscription box companies struggle to adjust to life after lockdowns

During the pandemic lockdowns, receiving a home-cooking meal kit from a company such as Blue Apron was both an evening activity and a way to avoid heading to the grocery store.

But while sales of subscription boxes soared when consumers were wary of entering physical stores, many are now turning their backs on the services as life returns to normal.

“It didn’t fit our schedule,” said Megan, a 28-year-old communications professional who lives in San Francisco and asked not to share her last name. “We ended up having to plan our weeks around when the box arrived to not waste food.”

“Now that the world is more back to normal,” she added, “we’re looking for reasons to go out more and more.”

The decline in demand for subscription box services comes amid a tough year for ecommerce, where inflationary costs and supply chain pressures have led stocks to dip across the sector.

Among the worst-performing subscription companies has been Blue Apron, the New York-based meal kit service that went public in 2018 at a valuation of just under $2bn. The company is currently valued at $32mn after its share price dipped to just 80 cents, down 88 per cent this year.

Shares in Hello Fresh, a competitor, have fallen 70 per cent over the same period. Meanwhile, Stitch Fix, which sends members five items of clothing in a box every few weeks, handpicked by algorithmically-assisted human stylists, is down 85 per cent on the year, with investors growing wary once it became clear that the pandemic bounce was not permanent.

Members of the clothing service grew from 3.2mn before the pandemic to more than 4.1mn by October 2021. Membership has since fallen to 3.7mn, and revenue in its latest reported quarter declined by 22 per cent.

The company said that while the customers who remained were spending more, because of price increases and the end of promotions, it was having difficulty acquiring new ones — a pattern it said would stretch into 2023. In the summer, Stitch Fix laid off 15 per cent of its salaried workforce.

“We know that high rates of inflation are impacting consumer purchases, and high levels of inventory are impacting pricing, with deeper discounting across the retail industry,” said Stitch Fix’s chief financial officer, Dan Jedda, in a call with investors in December.

In a tough economic environment, customers are not hesitating to cut services they see as costly luxury expenses, or pandemic conveniences that have outlived their purpose, said retail analyst Neil Saunders.

The subscription box business model “works better when the economy is robust, and when consumers are confident, and when there is cash sloshing around,” he said. “As soon as those things end, the model comes under pressure. People question whether they really need these subscriptions.”

As a result, several of the leading subscription box companies are now embarking on a recovery plan: cutting costs and diversifying, leveraging customer data to launch new products that do not rely on subscription revenue.

“These brands have robust data and analytics capabilities,” said Eric Bellomo, emerging-tech analyst at PitchBook. “That’s a critical piece of their ability to stay above water here.”

Stitch Fix, for instance, wants to offer an alternative to the monthly fee model by launching a more traditional ecommerce store, said analyst Jonathan De Mello of JDM Retail.

“A lot of these companies are getting better at data-mining the customers now, to understand how to personalise as much as possible,” he said.

But turning round the companies’ fortunes will be one of the most challenging efforts in the ecommerce sector next year, Saunders added.

“I think the problem is the subscription companies are trying to reinvent themselves out of necessity, but they’re not necessarily doing it because they found something innovative to do,” he said.

Not every subscription company is finding it easy to pivot. Dollar Shave Club, a shaving supplies subscription that was acquired by Unilever for $1bn in 2016, said it had been more difficult than it expected to convince its customers to buy products beyond razors.

For Blue Apron, cost pressures have weighed heavily. The company shed 10 per cent of its workforce in December after an agreed funding injection from an investor did not materialise as expected this year. It withdrew revenue growth forecasts, reduced marketing spending by more than 20 per cent, and made several executive changes.

The company has said it expects “meaningful reduction in marketing, consulting and labour spend in 2023” — a reduction of $50mn compared to 2022.

In its attempt to diversify, Blue Apron is offering other services on top of its meal kit subscription, such as one-off party boxes for special occasions, like Thanksgiving, as well as an online market for wine and cookware.

It also broke free of its pure direct-to-consumer strategy by listing its meal kits for the first time on Amazon in October, following an earlier launch on Walmart.com. The deals do not require a subscription plan, but are still fulfilled by Blue Apron’s logistics network, which promises refrigerated and fresh ingredients.

Amid the gloom, Berlin-based HelloFresh said its tumbling stock price did not fairly reflect the strength of its underlying business, saying it was on course to increase revenue by at least 25 per cent this year.

“HelloFresh has achieved this against a challenging macroeconomic landscape, with high food price inflation, worsening consumer confidence and the consequences of the war in Ukraine, which have all been contributing to disrupting food supply chains globally,” said HelloFresh chief executive Dominik Richter.

“The trend towards eating more meals at home was significantly accelerated during the pandemic and we consider the majority of these key drivers — increased working from home, price sensitivity and focus on sustainability — to have become permanent,” he added.