A recipe for a successful subscription
Ten years ago, a couple of guys from Berlin started a startup in meal boxes. In a short time, their company, HelloFresh, has grown into a successful, publicly traded multinational that delivers hundreds of millions of meals on a subscription basis. What is secret behind this success?
- 'Soft' subscription
- 100% data driven
- Focus on the entire value chain
To unravel the success formula of HelloFresh, we'll walk through the Business Model Canvas components together.
Customers who subscribe to HelloFresh are looking for more than just an array of foods in a box. Essentially, they are seeking four things:
- Inspiration: a wide and varied range of recipes and boxes every week
- Convenience: exactly the right (quantity of) ingredients delivered at the desired time
- Health: fresh and healthy food on the table every week
- Sustainability: high quality products and attention to the environment
HelloFresh delivers meal boxes in a soft subscription. 'Soft' means that although there is an ongoing (financial) commitment with the customer, the customer is free to (temporarily) stop or cancel the subscription. This is already a very modern and valuable element in the success formula of HelloFresh: no 'fine print' to keep customers locked in a contract for a longer period, but a flexible and transparent proposition.
The weekly compilation and delivery of meal boxes (in all variations) and managing the flow of subscribers (new, existing, cancelers, upgrades, downgrades) is an enormously complex job. To make this challenge possible, several activities need to be performed on a continuous basis. The two main activities are:
- Producing and delivering the box: purchasing, quality control, packaging, logistics etc
- Managing the relationship with the (potential) customer
HelloFresh is seen as a tech company and rightly so. The real value of this company lies in their ability to collect customer data in the broadest sense and do smart things with it. Two core competencies of HelloFresh stand out in this regard:
- IT & data infrastructure: managing a scalable IT and data insights
- Data-driven marketing: acquiring and retaining customers based on deep insights
Because HelloFresh operates on a subscription model, the company has now built up a great deal of knowledge of subscription marketing and managing the value of its customer base. In the early stages of the company, the focus was - logically - often on customer acquisition. Still, acquisition is very relevant of course, but customer retention and upsell have become increasingly important.
HelloFresh does not do food production but food curation. With the various ingredients, the company puts together the various boxes and delivers them in line with customer requirements. In this process, from product development (recipes, packaging etc.) to the actual delivery and interaction with the customer, HelloFresh leaves little to chance.
Each part of the value chain must meet high quality standards and also be in line with the desired branding. This means that HelloFresh attaches great value to far-reaching, strategic collaborations with its suppliers, including their food production partners.
The 'control' over the entire value chain can be seen as a key advantage over competitors in the meal box market. HelloFresh itself sees this as an important weapon against new entrants.
The trend towards healthy food and sustainability has led to a large and still growing target group for HelloFresh. The average age of the average customer is currently between 30 and 50 years, with most orderers being women. An important segment for HelloFresh is the family, with parents who have little desire or time to look for healthy recipes and buy the ingredients in the supermarket.
The proposition of HelloFresh appeals to people who attach importance to healthy food and convenience. And who are willing to pay for the meal boxes. This last aspect, the cost of HelloFresh, is an interesting one. It is not hard to determine whether the HelloFresh meal boxes are expensive or cheap. That depends on what you compare it to (what does someone 'normally' buy/cook?). What is fascinating is that HelloFresh nowadays explicitly mentions the 'low cost' element as an advantage on their websites. This could indicate that the company still has to fight the perception that their products are 'expensive'.
HelloFresh's online platform is set up for self-service. Customers can temporarily stop their boxes, adjust delivery times, change boxes or cancel in no time. This self-service and automation leads to a high degree of efficiency on the HelloFresh side, and customer satisfaction on the consumer side.
An important moment when HelloFresh comes into contact with the customer is of course during the delivery of the box. HelloFresh works largely with external logistics partners. The delivery moment, as a crucial moment of truth, will no doubt be closely monitored by the management of the company.
The online channels are central to HelloFresh, for both the acquisition of new customers and interaction with existing orderers. As a result, the company has two major advantages:
- Customers are not anonymous (as with many physical supermarkets) but known. With every order and every click, these customers become more familiar and the relationship grows. All this customer data can help retain customers, for example by building predictive models that identify potential unsubscribers.
- The various online channels provide a continuous flow of online data, which can be used to optimise marketing campaigns. This makes the marketing function increasingly efficient and reduces the Customer Acquisition Costs (CAC).
The focus on online channels does not mean that offline media and mass media techniques have been renounced. In the past, HelloFresh used to put promotional teams in the shopping street and nowadays TV commercials are regularly used for the aquisition of new customers.
All the above competencies have a (high) price. It is therefore no coincidence that it took a while for the HelloFresh group to become profitable. Now that a significant, global scale has been achieved, the costs can be recovered more easily.
Like many tech companies, HelloFresh is still growing solidly and its international expansion is by no means at an end. The solid growth rate means that there is still a lot of investment to be made, with new countries 'costing money'. However, due to its extensive experience in multiple countries and markets, HelloFresh is able to accelerate new country organizations to profitability.
HelloFresh has used the subscription model since its inception. Although customers can opt out at any time, the majority do not, and the company has a stable group of loyal subscribers. The result is a revenue stream that is recurring and highly predictable.
Customers make money by paying the regular subscription fee. However, upselling propositions, such as the sale of extra portions to existing customers, are also increasingly being used. The additional revenue from these types of upsell activities compensates for the loss of sales caused by discount promotions. Discounts are in fact still frequently used by HelloFresh to acquire new customers.
This case makes it clear that the subscription model can provide a great basis for a thriving business. The 'soft' subscription structure of HelloFresh contributes to the (often) long-term relationship that is built with the customer. It is - rightly - not about capturing customers with the help of the fine print of the general terms and conditions, but about offering value and transparency.
What is interesting is the increased focus on retention and upsell at HelloFresh. In itself, this is a logical step in the life cycle of the company. During the period of strong growth, the focus was automatically on the 'acquisition machine'. Now that there are many customers on board and growth is levelling off somewhat, it is natural to focus more on retaining existing customers and increasing customer value through upsell campaigns.
The quality of the HelloFresh business model lies in the consistency of all the core competencies. The sum of all those components provides a tasty recipe for a successful subscription business model.
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