Airlines, restaurant chains join the subscription bandwagon
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4 min read . Updated: 31 Mar 2022, 01:38 PM IST Opportunity to book consistent revenue and retain customers brings various marketers to try subscription models
Taco Bell, Sweetgreen Inc. and Alaska Air Group Inc. have introduced or tested subscription programs in recent months, betting that customers will be intrigued by the chance to pay upfront for a taco a day, discounted salads and frequent flights, respectively.
Subscriptions, which once primarily evoked a way to get magazines, newspapers or milk delivered, have expanded in the internet era to offer everything from videogames to pet food. Ubiquitous subscriptions include Amazon.com Inc.’s Prime fast-delivery service as well as Netflix Inc. and other streaming services.
Now, more companies in various sectors are trying out the subscription model, sometimes by providing discounts, like salad chain Sweetgreen. One attraction for brands is the chance to strengthen their direct relationships with consumers and lock in recurring revenue.
Taco Bell made its subscription club, called Taco Lover’s Pass, available nationwide in January after a test in Tucson, Ariz., in September. After testing prices of $5 and $10, the company is charging $10 for a 30-day subscription that lets customers get a taco a day from a menu of seven options.
Taco Bell, part of Yum Brands Inc., declined to say how many subscribers signed up but said the program has a 21% renewal rate.
“Consumers are showing us that they are interested in subscription models, as it eases decision-making," Tracee Larocca, head of brand creative at the chain, said in an email.
About 3.2% of all U.S. retail online sales came from digital subscriptions to physical products and their accompanying services in 2021, for a total of $29.11 billion, according to Insider Intelligence Inc., a research firm. That is up from 2.9% in 2020 and 2.8% in 2019.
Subscriptions’ sprawl into new categories got a boost when Covid-19 led many people to spend more time at home and accelerated the growth of e-commerce, analysts and executives said.
That was especially true for household basics that people were used to buying at stores, said Blake Droesch, senior analyst at Insider Intelligence. “The real opportunity in this space, and certainly [one] which was sped up by the pandemic, are these subscriptions that are offering value and convenience for these essential goods," such as groceries, personal-care and pet products, Mr. Droesch said.
Apple Inc.’s policy change last year forcing iPhone apps to ask users whether they want to be tracked has also made it harder and more expensive for companies to acquire new customers, said Oisin O’Connor, co-founder and chief executive of ReCharge Inc., a software company that helps merchants launch and expand subscription businesses. That shift has made retaining existing customers even more important, he said.
Alaska Airlines in February began offering its Flight Pass subscription program for credits toward round-trip flights within California, between California and Nevada or California and Arizona. A plan starting at $49 a month covers six trips a year and requires passengers to book tickets 14 days before they travel, while a tier that starts at $199 a month allows customers to book six excursions up to two hours before takeoff. The customer also has to cover airport taxes and fees for each flight and some popular routes require extra fees.
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The program appeals to college students and business travelers who know they need to fly and want to lock in rates, said Andrew Harrison, executive vice president and chief commercial officer at Alaska Airlines.
The airline declined to say how many people have signed up.
“We set very aggressive goals and are tracking just ahead of our full year projections," Alex Corey, managing director, business development and products at Alaska Airlines, said in an email.
Sweetgreen tested a subscription approach for a few weeks in January, during which customers could buy a one-time, $10 Sweetpass that provided $3 in daily credits for digital orders over the following 30 days.
The company declined to share results of the test but Chief Digital Officer Daniel Shlossman said the reaction from customers was positive. “We’ve been on this evolution and we’re testing back into what the future of loyalty will look like at Sweetgreen," Mr. Shlossman said. “And we don’t want it to be that one-size-fits-all."
Not every subscription effort succeeds.
MoviePass Inc., which let subscribers watch up to a movie a day in theaters for less than $10 a month, shut down in 2019; executives plan to bring it back in altered form this summer.
Challenges include rising competition and subscription fatigue, Mr. Droesch said. Customers also tend to think about subscriptions differently than more traditional expenses.
“The consumer isn’t necessarily going to factor in a meal-kit subscription with the money that they spend on groceries—sometimes they’re going to lump it in with the money that they fork over every month to Amazon for Prime or to Netflix or Peloton," he said.
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