Everything’s becoming a subscription, and the pandemic is partly to blame
Six restaurants in Washington, D.C., joined together earlier this year to sell a subscription supper club. They offered home delivery of a gourmet meal from a different chef each week for six weeks for $360. It sold out in six days.
Subscriptions boomed during the coronavirus pandemic as Americans largely stuck in shutdown mode flocked to digital entertainment and signed up for regular home delivery of boxes of items such as clothes and chocolate. But what really set the past year apart was the increase in subscriptions in the hard-hit services sector. Owners of restaurants, hotels, home-repair companies and others upended their traditional business models to try subscriptions and often found more interest — and revenue — than they anticipated.
"This was really about flipping the business model for restaurants: paying before eating instead of eating before paying," said Vinay Gupta, a winemaker who spearheaded the Summerlong Supper Club in Washington and New York City.
The subscription economy was on the rise before the pandemic, but its wider and deeper reach in nearly every industry is expected to last, even after the pandemic subsides in the United States. The UBS financial services firm predicts that this "subscription economy" will grow to $1.5 trillion by 2025, more than double the $650 billion it's estimated to be worth now.
Subscriptions bring in upfront revenue, strengthen relationships with customers and give companies much deeper data on what sells. Even hotels and car washes have begun offering an enhanced and more exclusive experience — for a monthly or annual fee.
However, the rapid growth of subscriptions has created a host of challenges for the economy, far outpacing the government's ability to scrutinize aggressive marketing practices and ensure that consumers are being treated fairly, consumer advocates say.
Even so, subscriptions remain wildly popular. The growth reflects a transition in the economy from spending heavily on goods back to services, as Americans feel more comfortable with traveling and being in crowds. Although e-commerce and entertainment subscriptions to sites such as Netflix, Hulu and Disney+ made headlines during the pandemic for soaring growth, analysts expect that more service-sector companies will now see skyrocketing interest.
The typical U.S. consumer now has two to three subscriptions, according to user data from budget app Mint and research by Tien Tzuo, author of "Subscribed" and chief executive of subscriptions platform Zuora.
There's a growing trend of "power subscribers" with 10 or more recurring payments, according to budgeting app Truebill. The app's users average 17 subscriptions and typically spend $145 a month, according to an analysis Truebill did for The Washington Post. Last spring during the shutdowns, Truebill users averaged 21 subscriptions, as people tried different entertainment, home workout and delivery services.
"It might feel a little odd right now because it's new. But when cable TV first came out and we went from four to 150 channels, we didn't know what to do with 150 channels. Then there was 1,000 channels. I think people will want more," said Tien Tzuo, former chief strategy officer at Salesforce and founder of Zuora.
Already, companies Apple, Peloton and NBCUniversal's Peacock video-streaming platform are reporting that subscriptions have been key drivers of revenue growth. For example, Peloton's subscription revenue grew 144 percent in the first three months of this year compared to a year ago, and subscribers to Apple's various services for fitness, games, music and podcasts have increased by 145 million in the past year.
Travel website TripAdvisor is starting a $99 annual TripAdvisor Plus product that offers exclusive deals and dedicated customer service lines, which could influence an industry wrecked by pandemic shutdowns.
"Post-COVID, we think the regular traveler is ready to embrace the subscription product," TripAdvisor chief executive Stephen Kaufer said on a recent earnings call. "Subscription products in general have been doing quite well. . . . Many others have educated consumers on the notion of signing up for something on an annual basis."
Businesses say subscriptions also give them even more data on what customers like and how best to cater to them.
"We are shifting from a transactional economy to a relationship-driven one," said Adam Levinter, author of "The Subscription Boom." "A subscription is a recurring touch point with the customer. It's that constant reminder that people have a relationship with the brand."
Subscriptions are not a new concept. The idea of paying a recurring fee for a farm share or a wine -of-the-month club has been around for decades, but analysts say the rise of smartphones and rapid home delivery in the past decade have made customers increasingly willing to try new products and shop in different ways.
The trend appears likely to endure. Truebill has seen little decline in spending on food-delivery subscriptions and home-workout services, such as Peloton, even as spending on gym memberships has ramped up in recent weeks.
Indeed, that's part of the reason Federal Trade Commission regulators are looking at ways to make it harder for companies to trap consumers into monthly subscriptions that drain their bank accounts, attempting to respond to a proliferation of abuses by some companies over the past few years.
Even customers who understand what they signed up for sometimes say that they are shocked to realize how much they are spending each month and that they are ready to pare back.
"Subscription services are a sneaky wallet drain," said Angela Myers, 29, of Pittsburgh. "You keep signing up for things and they make it really hard to cancel."
Myers said she signed up for a monthly clothing delivery from Stitch Fix and meal kits from Blue Apron at the start of the pandemic shutdowns last year. She's paying $120 most months on top of subscriptions to Netflix and cable, and she's ready to prune.
The media industry, in particular, illustrates that there can be saturation points for subscription-laden sectors. Although overall subscriptions soared during the pandemic, Netflix, Disney+ and HBO Max have all had slowing subscriber growth this year.
However, forecasts remain strong for industries just starting to open up to the subscriber model, especially in the service sector.
In the restaurant industry, subscriptions have become a lifeline during the pandemic, especially for smaller establishments that were forced to close their dining rooms for months. These boutique restaurants never aspired to get into the mass-delivery business, but they found a sizable share of customers willing to pay upfront for an experience.
Restaurants often include wine or cocktails, notes explaining the backstory of the meal and sometimes even suggested music, smells or decor to complement the cuisine.
"Our meal packages come with music playlists for the night. If it's French cuisine, we might include a French lavender candle and a French song play list," said Aaron Silverman, chef and owner of Rose's Luxury, one of the six restaurants that participated in the D.C. supper club subscription and also offers its own subscription. "This is not an alternative to takeout. This is an alternative to going out. It's an experience at home."
Table 22 is a new platform to help smaller restaurants manage subscriptions and delivery. It started in May 2020 with Saba San's in Austin and now has 200 restaurants in 60 cities, including Rose's Luxury, which has continued to grow its subscription business.
"Our average subscriber is spending $75 to $80 a month," said Sam Bernstein, founder and chief executive of Table 22. "Subscribers are often people who come in the most to restaurants. They are people finding new ways of experiencing these brands."
There's some concern that as Americans flood back into restaurants, they might pare back subscriptions, but specialty restaurants appear to be retaining subscribers.
Robert Haddad has also become a proponent of the subscription model. His family owns several car washes in the D.C. area. They opened a second location — Fusion Carwash in Frederick, Md., — this year designed around subscriptions. Every tier of wash, from the quick soap to the fancy ceramic coating and interior detailing — has a monthly subscription option for about 1½ times the price of a single wash.
Haddad was a pioneer of the subscription model. He started it about a decade ago at his family's Love My Carwash in Germantown, Md., after the Great Recession. Subscriptions now make up 30% to 40% of his business.
"When you have a large base of subscriptions, you know how much revenue you have coming in on a recurring basis, that helps you with budgeting, that helps you with labor scheduling and cost," Haddad said, adding that the word of mouth generated by loyal customers more than makes up for the occasional super-active customer who takes advantage of the subscription to get daily or hourly washes.
But there are also concerns that the subscription boom is another iteration of the two-tiered economy. New subscription services across many industries are creating an entirely different experience for people willing to pay.
"These subscription services do reinforce the divides between haves and have-nots," said Liping Cai, a professor and director of Purdue University's Tourism and Hospitality Research Center.
Several prominent hotels and resorts began piloting subscriptions last year hoping to take advantage of the "digital nomad" crowd that could work anywhere and might want a change of scenery from their apartments. Some hotels told The Post that they were surprised to find interest from college students and retirees as well.
CitizenM, a Netherlands-based boutique hotel chain, began a subscription program last year that offers 29 nights at any of its properties around the world for $1,500 a month. CitizenM said more than 230 have been purchased.
Freehand Hotels, a boutique chain based in the United States, has a $2,999 subscription for travelers to stay at any Freehand property for up to a month. The company received 200 inquiries in the first month and several dozen people have signed up, said chief commercial officer Edward Pinchard. Subscribers like that they can stay in New York during the week and fly to Freehand's Miami location for the weekend, he said.
Another drawback to this new luxury hotel subscription model is that discounts and services such as daily room cleaning that had long been standard in hotels before the pandemic could easily evolve into subscriber-only perks, said Wayne Smith, professor of Hospitality and Tourism Management at Ryerson University in Canada.
"What was normal before covid, does that now become the enhanced service for a fee?" he said.
Selina, a boutique hotel chain whose investors include WeWork co-founder Adam Neumann, began a subscription last year called CoLive at its properties in Europe, Latin America and the United States. Prices range from about $350 a month for a hostel-style bed to $5,000 a month for a luxury suite in Tulum, Mexico. CoLive comes with a free welcome drink and complimentary yoga and wellness classes, as well as discounts for food and other services.
Mark Biery, Selina's global head of subscriptions, said he expects subscribers to eventually account for half of the chain's business. The company plans to offer an annual subscription soon that would allow people to visit Selina's different properties throughout the year.
Souhila Hamiham signed up for the hostel-sized-bed CoLive subscription in October. Her marketing job suddenly allowed her to work from anywhere and she decided to head to Mexico. She had initially stayed at an Airbnb but found it boring to be alone. She discovered Selina and immediately loved that the properties offered co-working spaces, wellness classes and a community of other digital nomads. She ended up living at CoLive properties for eight months with stints in Mexico, Costa Rica, Colombia and Brazil.
"I met a lot of people doing this. We started planning our travel together. It was really cool," said Hamiham, 22, who normally calls Toronto home. "Now that I've tasted this, there's no way I'm going back to [the] office. If I have to go back to the office, I would look for another job that offers me the chance to travel and work remotely."
The Washington Post's Yeganeh Torbati contributed to this report.