Blue Apron is being acquired by Wonder, a deal announced recently with a price tag of $103 million, significantly lower than the company's market cap of over $1.9 billion when it went public in 2017. Blue Apron has reported a roughly 15% decline in year-over-year revenue in its most recent earnings report.
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GLOSubscription startups have always been enticed by the promise of recurring revenues, but a recurring challenge they face is the difficulty in achieving profitability. Sometimes, the pressures on these businesses become insurmountable, leading to significant industry transformations, like the meal kit sector. In some cases, companies are forced to contemplate shutting down entirely. Two recent instances exemplify this, though there are several others that illustrate the point.
According to reports from sources such as Bloomberg, SmileDirectClub is on the brink of liquidation unless it can secure a buyer in the next few months. The company, which specializes in dental treatments where customers buy teeth aligners and finance them over several months, has received loans from its founders totaling tens of millions of dollars as it seeks a buyer. However, given its staggering debt of over $900 million, declining revenues with a 19% year-over-year decrease, depleting cash reserves, and negative adjusted EBITDA (a rough measure of cash flow), macroeconomic pressures have taken a heavy toll on the company.
Similarly, the “buy or go bust” strategy has also affected other companies. As previously noted, Blue Apron is being acquired by Wonder, a deal announced recently with a price tag of $103 million, significantly lower than the company’s market cap of over $1.9 billion when it went public in 2017. Blue Apron has reported a roughly 15% decline in year-over-year revenue in its most recent earnings report, with a decrease in its customer base from about 349,000 to 267,000 over the same period, despite an increase in orders and average revenue per customer. Furthermore, the company’s adjusted EBITDA has been negative.
There are other companies that have successfully reinvented themselves and adapted to changing market dynamics. For example, Birchbox found a buyer back in 2018, and BarkBox has diversified its model to extend beyond subscription services.
For many of these businesses that focus on repeat customers, loyalty is a critical factor. Loyal customers, accounting for 30% of a firm’s customer base, contribute to 80% of its revenue, according to PYMNTS Intelligence data. The main reasons consumers opt for a subscription are enjoyment, convenience, and cost, as indicated in the chart below.
For companies that successfully navigate these challenges, the rewards can be substantial. The latest subscription report shows that among the most loyal customers, high-income consumers earning over $100,000 annually make up half of this segment.
There are clear indications of what motivates these subscribers to stay or cancel their subscriptions. As many as 37% of the most loyal subscribers would cancel their subscriptions if free shipping were not included, and 28% would do so due to excessive promotional materials.
Marketing and shipping costs are significant expenses for subscription companies, and efficient management in these areas can help improve overall operations. Additionally, payments play a crucial role, with 70% of companies reporting that failed payments negatively impacted customer churn rates in the last 12 months, and roughly 25% of subscription firms identifying failed payments as the most significant contributor to customer churn.
