Subscription Services on the Rise – Opportunity for the Tea Industry?

Kokoro Care Packages
Kokoro Care Packages is one subscription-based business that’s succeeding in the space, while bringing attention to Japanese tea. Photo: Courtesy of Kokoro Care Packages. (Courtesy of Kokoro Care Packages)

Allan Shulman, co-founder of Toronto, Ontario-based DollarTeaClub.com – a tea subscription service that makes loose-leaf tea easy and affordable for everyone – offers tea subscription services from $1 a month, along with accessories and other tea-related products. He’s just one of thousands of entrepreneurs across numerous industries who are taking advantage of the subscription model...and succeeding. “I started the business right out of college – my inspiration being how difficult it was to find good tea while in college. There wasn't a tea shop in town and Canada has very expensive shipping,” shares Shulman.

Today, DollarTeaClub.com offers a shop full of tea and accessories, in addition to its no-contract subscription plans. And for similar tea businesses, subscriptions are booming.

Growth of Subscription Services
Tea writer and blogger Scott Anderson, founder of TeaMinded, a fan of tea subscriptions, says, “It seems like just a few years ago the tea subscription business model was mostly a niche offering with only a few select tea brands venturing into the space. Now it’s becoming quite prevalent, and it’s great to see so many tea brands being innovative with their subscription-based options.”

Overall, the subscription marketplace has grown more than 400 percent over the last 8.5 years, according to Zuora Inc.’s latest Subscription Economy Index (SEI), which is designed to measure the collective health and growth of subscription businesses across industries. In fact, subscription sign-ups in total are on the rise, per Zuora, and while S&P 500 companies saw sales contract at an annualized rate of negative 10 percent in Q2 2020, subscription businesses expanded at a rate of 12 percent.

“If the subscription economy is about anything, it’s about a fundamental return to customer relationships,” says Tien Tzuo, co-founder and CEO at Zuora. “It’s the agility of the subscription model that uniquely positions businesses to adapt quickly to customer needs and provides them with consistent, ongoing value – regardless of economic climate.”

Zuora – a subscription management platform provider – also released the newest edition of its Subscription Impact Report, designed to measure the economic impact of COVID-19 on subscription businesses. The report – analyzing both subscriber acquisition rates and average revenue per subscriber – shows that subscription businesses are proving their resilience despite the COVID-19 pandemic. The report also shows that half of subscription-focused companies are still growing and have not seen a significant impact to their subscription growth rates amid COVID-19, while 18 percent actually experienced an acceleration. And while 17 percent of companies experienced slower growth, they are still growing, and only 14 percent of the companies analyzed experienced a contraction in subscriber growth.

"It shouldn't come as a surprise, but subscriptions continue to deliver above market growth,” says Zuora. “…we believe the current crisis will only accelerate the shift of the modern global economy towards digital services and subscription models.”

A Win/Win Model for Tea Businesses, Consumers
According to TeaMinded’s Anderson, subscription services are a win/win when done right – both for the tea brand and the customer alike. “The subscription model creates business growth opportunities for the tea brands through recurring revenues and the compounding value of customer relationship and brand loyalty,” he says. “For the tea drinker/customer, it exposes them to a broader range of products and the opportunity to create curated tea experiences, which is where the innovation piece comes in and is so important for the tea brand to deliver on.”

Kokoro Care Packages is one subscription-based business that’s succeeding, while bringing attention to Japanese tea. The company’s subscription packages offer authentic Japanese food – both through a subscription model and via care packages – while supporting local Japanese farmers and producers. Their boxes are available in two options – Subscriptions or Collections. The subscriptions are available monthly and seasonally, and they feature tea and other Japanese products. They also offer packages identified as “Collections,” one of which is their recently-launched Japanese green and specialty teas package called “Ryu Care Package,” which is filled with a curated selection of authentic Japanese teas.

Kokoro Care Packages offer authentic Japanese food – both through a subscription model and via care packages. The packages regularly feature Japanese teas, and they offer a special tea-focused Care Package. Photo: Courtesy of Kokoro Care Packages.

“I think with all subscription services, it's important to keep customers engaged and to build a community where you're offering something personal and unique,” explains Lillian Rowlatt, co-founder of Kokoro Care Packages. “We're the only service that offers high-quality artisanal foods from Japan, and every month we try to come up with a creative theme which can help people try the authentic version of foods they may have heard of or introduce them to new foods they haven't tried – all the while allowing them to experience Japanese culture and feel connected to the local producers and farmers we partner with and support.”

For Kokoro Care Packages, sourcing the highest-quality products and teas has always been their top priority, since the company launched in 2018. “We want people to experience not only the high quality of Japan's famous green teas – including sencha, genmaicha with matcha and houjicha – but also some of the more local specialty teas that they may not have tried, such as soba tea, shell ginger tea, indigo blue tea, goishicha [fermented green tea] and kuromamecha [black soybean tea],” explains Rowlatt. “All of our teas are all-natural and made locally in Japan, some with centuries old farms and traditions. Something like our goishicha is very rare, even within Japan, and every tea has a unique taste and story behind it.”

Currently, Kokoro Care Packages delivers to 35+ countries worldwide. “We have a large audience in the United States, but we also have notable communities in Canada, Australia, various European countries and even within Japan,” says Rowlatt. “We were surprised by how many locals in Japan enjoy our packages. I think this speaks to the quality and uniqueness of our products.”

Tips to Succeed with Subscriptions
Katherine Hunter-Blyden, founder of the firm KHB Marketing in Southern California, agrees that monthly box subscription services are on the rise and that the tea industry is no exception to this trend. Hunter-Blyden regularly assists businesses with their marketing strategies and offers support in executing digital marketing programs, such as subscription services.

“There are three critical factors that tea sellers must consider to make subscription services viable in the long term,” Hunter-Blyden explains. “They are the average length of a subscription, the price of the tea sold and the target acquisition cost or TAC. The length of the subscription service and the TAC have a direct relationship. This should be intuitive as the longer the customer pays for the subscription, the more revenue the business generates and the more they can afford to pay to acquire each new customer. The price of the tea and the TAC have a direct relationship as well. Again, higher price means more revenue with which to acquire a customer. In simplest terms, a successful subscription service will allow a seller to pay more to acquire a customer.”

Anderson of TeaMinded says one thing always remains critical for business success, and it's especially important with subscription services – stay true to your brand mission. “Don’t lose focus on the importance of delighting your customers,” he says. “This keeps all of us in the tea community smiling and enjoying being introduced to a wide variety of new teas.”

Anderson believes that tea brands who succeed in this space are those that offer multiple tea options for subscribers, so customers can curate teas to their liking or curiosities. However, he says it’s also critical to build trust when it comes to subscription services. “This might include such things as generous return policies, free samples, a wide variety of subscription options, or smaller size offerings to accommodate and encourage new tastes,” Anderson explains. “There’s also an element of ‘risk’ for customers with subscription services, so it’s important for tea brands to earn and keep this trust with customers.” He suggests a customer questionnaire as a good idea to ensure a tea brand’s subscription product offerings match the interests and tastes of customers. “Consider asking for ongoing feedback along the way,” he notes.

Rowlatt of Kokoro Care Packages says her subscription company likes to be as personal as possible with their approach to marketing, to help the business succeed. “We want people to feel as if they're part of a community, as well as feeling a real connection with our local farmers and producers,” she says. “We try to market through different channels, where we think the niche audience would appreciate the quality of our products. We're not trying to be the loudest voice in the room – we like to embrace the humble quality and traditions of our local partners and find that when people discover our products, then tend to be happy that they did.”

Shulman of DollarTeaClub.com concludes, “We've faced more challenges than I can count [with tea subscription services], from shipping logistics, to branding and advertising in a digital world, to finding reliable sourcing partners and more. One thing remained true through all of these obstacles: Our love for innovating in the tea industry was greater than any challenge thrown our way.”

Aaron Kiel is the editor of World Tea News.