Do coffee shop subscriptions work?
Today we rely on subscriptions for everything, from listening to music to staying fit. But can a subscription model really work for a coffee shop?
Before the Covid-19 pandemic, customers were more than happy to grab a coffee as and when they wanted. Businesses catered to reasonably stable customer bases and customers were happy to pay what these businesses charged for quality coffee.
At the moment, the world may slowly feel as if it’s returning to the pre-pandemic “normal” – but many consumers and businesses are still adapting to radical changes in economic conditions and demand for products.
From content streaming services like Netflix and Spotify to all manner of scheduled food delivery options, subscription services have offered a feasible solution to these changes.
Coffee shops have cashed in on the potential financial benefits of subscriptions during the Covid-19 pandemic and beyond. For example, some in-store coffee shop subscriptions allow customers to receive a certain number of barista-prepared coffee drinks for a monthly fee.
There are also roasters and cafés that offer regular deliveries of coffee beans or ground coffee for the growing at-home consumption market. More and more consumers are purchasing home coffee machines to accommodate changing work patterns.
Numerous roasters have also established coffee bean subscriptions, including the likes of Blue Bottle in the US and Pact Coffee in the UK.
However, as more people leave their homes and rejoin the workforce, in-store subscriptions are injecting cash flow into coffee businesses that are targeting restored footfall and sales figures.
A prime example of the success of in-store subscriptions is British sandwich chain Pret A Manger, which launched its Pret Coffee Subscription in the UK in September 2020. The deal guarantees customers up to five coffee drinks per day for a £20 ($24.40) monthly fee, which has since risen to £25 ($30.50).
Meanwhile, US sandwich chain Panera introduced the Unlimited Sip Club deal for a US $8.99 monthly fee. Its offer includes hot coffee, tea, and iced coffee – plus unlimited refills – but excludes cold brew iced coffee, espresso, and cappuccino beverages.
What’s driving the popularity of coffee subscriptions?
The Covid-19 pandemic has been an incredibly challenging time for retailers, including cafés and coffee shops. Many industries have floundered, but others have adapted and survived, albeit while incurring significant losses.
However, subscription-based services like Netflix, Spotify, and Amazon Prime boomed when people were forced to stay home. For customers, subscriptions have proven to be excellent value propositions that come with added convenience and less admin.
This is not a new trend, by any means. In fact, a report published by Zuora shows that the subscription economy has grown more than 435% over the last nine years.
From a business perspective, subscription services are appealing to coffee shops that suffered economically because of Covid-19-related closures and restrictions. All businesses, regardless of industry, have had to become creative to stay afloat.
Many cafés, restaurants, and large chains have introduced drive-through and takeaway services to increase sales, and subscriptions are the natural next step once decent footfall has been restored.
Temporary measures have not been enough to save some coffee shops. Pret A Manger, for example, permanently closed 30 shops during the pandemic after reporting a 74% drop in sales.
The company was hit hard during the period, posting an operating loss of £226 million ($275 million) in 2021. However, new strategies – including the subscription model – have meant that sales have doubled in the first half of 2022, with the company actually turning a profit.
Food and beverage businesses have jumped on the bandwagon, recognising that the value of subscription services cannot be ignored. Subsequently, customers have taken full advantage.
Consider the financial savings provided by the Pret a Manger model: if a customer consumes five drinks per day, seven days a week, they would be getting hundreds of pounds worth of coffee beverages for a £25 ($30.50) monthly fee.
If a customer purchases a latte for £2.40 ($2.90), the Pret a Manger subscription would – in theory – allow them to redeem up to 155 lattes in a month. If bought without the subscription service, this would cost £372 ($454) – a whole £347 ($423.50) more than the subscription fee.
Beyond in-store consumption, roasted coffee subscriptions are empowering coffee enthusiasts to become more invested in at-home consumption. Whether they’re investing in traditional espresso machines or superautomatic coffee machines, the last two years have seen a significant uptick in the “prosumer” market.
Do coffee subscriptions work or has the trend passed?
Looking at the basic maths, it’s clear that coffee subscriptions are worthwhile for frequent coffee consumers.
They typically offer significant savings, leading customers to visit cafés more often, making them more likely to purchase a meal or a snack to accompany their coffee. For businesses desperate for cash flow, it’s a tempting – and perhaps necessary – strategy to adopt.
Furthermore, there are ways for businesses to mitigate any potential losses incurred by subscription services. In the case of Pret a Manger, subscribers can only redeem one drink every 30 minutes, ensuring that the service isn’t exploited.
Naturally, the model doesn’t work for everyone. Consumers need to weigh up how much they spend on monthly drinks, as a subscription simply doesn’t make financial sense for an occasional coffee drinker.
Likewise, businesses may find it useful to pilot a subscription model with a small group of customers to assess whether it will have the desired impact on post-pandemic recovery.
It’s important to note that subscriptions aren’t considered a panacea for the café industry. As mentioned, Pret a Manger raised the price of its service by £5 ($6.10) in February 2022, motivated by increasing overheads, VAT increases, and rising inflation.
However, the demand for subscriptions certainly seems to be there. Around 16,500 people signed up on the first day of Pret a Manger’s offer. This rapid success encouraged the company to expand its subscription service to its US locations in New York City and Washington, D.C. in September 2021.
Ultimately, many coffee businesses are yet to implement any sort of subscription service. However, the success of some existing models is clear, and if the last decade is anything to go by, the subscription economy is a promising source of revenue.