Is this prime time for CBD subscription models to make a mark in the market?

Subscription services are a niche area of the CBD market that could benefit from the ongoing COVID-19 pandemic.

Such services offer a way for consumers to experience new products at a time of potentially growing interest in wellness while still adhering to social distancing measures and continued precautions.

In a recent survey of businesses which offer customers subscriptions in the US, 67% of retailers said they found they delivered greater revenue, 61% said subscriptions made them more profitable, 55% reported increased customer loyalty, and 50% said greater revenue predictability had benefitted them.

The survey was carried out by Napco on behalf of Ordergroove, whose CEO and founder, Greg Alvo, said: “What I think we’re seeing is they’re all part of the same macro trend and strategy, which is about creating recurring customers, developing relationships with them and making it all about driving frictionless experiences and recurring revenue.”

There are currently a limited number of companies offering CBD subscriptions in Europe, where the trend is less firmly established than in the US. CBD companies on both sides of the Atlantic can learn lessons from the experiences of other sectors which have been involved with subscriptions for longer.

 

Guaranteed monthly income

 

There are advantages for both businesses and consumers in such arrangements. Businesses get guaranteed predictable monthly income and easier access to financial services based, and can build a loyal customer base that may purchase other products.

“The capital generated from subscriptions is, by and large, slow and steady,” said George Muharib, founder and CEO of UK vape retailer IndeJuice, which at present does not stock any CBD e-liquids. “This gives businesses a strong backbone that they can rely on in the way of guaranteed income.

“Ultimately knowing that x number of customers are highly likely to be returning next month allows businesses to better plan spend on marketing and all other operational expenses.”

Muharib told CBD-Intel subscription services had a huge positive impact on the rate of returning customers.

He said subscriptions meant customers could rely on a consistent experience while companies could add complementary verticals at no extra cost. This can benefit consumers as guaranteed sales make supply and waste issues easier to deal with as well as adding other business benefits which companies can choose to pass on.

“By committing to a subscription service, a CBD business will be able to lower the per-item price as a result of the high likelihood of recurring revenue,” Muharib added.

 

Green credentials

 

However, there are disadvantages.

For consumers, subscriptions rarely fulfil monthly requirements perfectly – almost always providing too much or too little. They can also lead to stagnation in product choice – a pertinent issue for CBD, where product offerings are constantly evolving and there is much dissatisfaction with current items.

“Subscription fatigue” is also a factor, given the number of categories offering subscription options, according to e-business consultant Dan Barker.

One way to manage that could be through thinking about product selection. This can also help with sustainability goals and the “unboxing experience” – the sense of anticipation and satisfaction gained from opening a surprise item.

This is one of the main drivers for consumers continuing to subscribe to a service, according to to IronLinx, a US logistics company that handles CBD subscriptions boxes.

The company recommends careful thinking about the design and arrangement of packaging – considering not only the experience of opening it but also the materials used and the weight in order to meet the eco-friendly credentials likely to be important to many potential CBD subscription customers.

“Even if the products are sustainably sourced, subscription boxes tend to be heavy on both packaging materials and the overall generation of waste, such as unwanted and/or disliked products,” IronLinx told CBD-Intel. “As consumers become ever more conscious and demanding on the sustainability front, sellers would be wise to consider ways to minimise the overall ecological footprints of their boxes.”

 

Disruptions to supply

 

There could be serious issues too for companies that become too reliant on subscriptions. It may mean, for example, that one disruption in a key area could take out a whole month of revenue – a serious issue during ongoing coronavirus disruptions.

So far those disruptions have been manageable – at least for the US subscription service Hemp Crate.

“COVID-19 has actually had very little impact to our operations thus far,” said Hemp Crate’s founder Ryan Culver.

He said the company had experienced some supply chain issues but added: “Most of our partners are staying open and shipping product that we are reordering consistently. The only real disruption has been on tincture bottles from overseas for one partner.”

However, the firm was still worried about any possible disruption to mail services, which could have a big impact on its ability to do business. This has not been a problem up to now, Culver added.

Early in the pandemic, the US Postal Service announced that it would not interfere with regularly scheduled – and legally mandated – letter and parcel deliveries.

Muharib suggested that if mail were to be disrupted, one possible solution might be through creating an Amazon Prime-like subscription service. His company IndeJuice, which has a large product range, offers a model whereby customers pay a flat fee (in this case £3 per month) to receive any of the items included in the service at a reduced price or with free shipping included.

 

Staving off subscription fatigue

 

This lessens the chance of a disruption upsetting everything while also eliminating the aggravation stemming from subscriptions being unable to match monthly variability in usage and staving off “subscription fatigue” by opening up a wider range of products.

This relies on consumers knowing about the products and knowing what they want. But Muharib believes customers ordering CBD subscription boxes will have done their research.

“Subscribers will initially be limited to the early adopters in this young market, those who have already done their own independent research and have bought into the industry,” he said. “This is because of the strict regulations that forbid companies from explicitly stating or claiming health benefits.”

But for Damien Brome, co-founder of Serenity Box, a UK CBD subscription service, one of the advantages for consumers is the ability to try a wider array of products that they might not have picked themselves. In an area like CBD, with limited general knowledge, this could lead to them finding a repeat buy item they otherwise would have overlooked.

“It is a low-cost, low-risk way for the UK’s customers to explore a rapidly expanding market,” Brome said. “Those new to CBD are already finding it difficult to navigate the market, understand which products are right for them and how CBD can benefit their health and wellness.”

 

What This Means: The stay-at-home culture that has arisen in the wake of the COVID-19 pandemic has seen a huge increase in the use of home delivery services, which were already booming with the growing normalisation of online shopping. At the same time, the crisis has made many people more aware than ever of their own health and wellness issues, creating a potential new market for CBD products. Putting those facts together means this could be an opportune time for subscription services offering CBD to get a toehold, and maybe more.

Peter Henn and Michael McGrady CBD-Intel contributing writers

Photo: Serenity Box

CBD-Intel does not provide legal, strategic or investment advice. Tamarind Media Limited, the publisher of CBD-Intel, does not accept any liability or responsibility for information or views published.