Reprinted from CrainsNewYork.com
Updated: July 12, 2012 12:53 p.m.
Nekisia Davis, founder of Early Bird Foods in Brooklyn, recently took a marketing gamble. Foodzie, a San Francisco firm that sells monthly subscriptions for its boxes of small-batch, artisanal food, wanted to include a bag of Early Bird’s olive oil-tinged granola in one of its March shipments. While Ms. Davis found the idea of 2,800 potential new customers alluring, the deal did come at a cost. The size of Foodzie’s one-time order was more than double what Early Bird typically fills in a week, but Foodzie would pay about 20% less than what Ms. Davis charges other stores that carry her goods. “It’s about exposing 2,800 people to Early Bird who haven’t heard of us before,” she said.
In the end, the deal seemed to pay off. Early Bird has seen a roughly 30% increase in online sales since spring. “I only know this through many, many people telling me they received the box,” said Ms. Davis, whose 3-year-old company pulled in $250,000 in revenue last year. She said she would definitely do a deal like this again. “Foodzie markets to people who buy specialty food already—they’ll buy a $9 bag of granola and not blink—and that’s the customer base I’m looking for.”
Early Bird is one of many small companies in New York City testing the waters of subscription commerce (“subcom” for short), a rapidly growing corner of the $200 billion e-commerce market. According to industry insiders, more than 30 firms like Foodzie operate Web-based deal-of-the-month club models, charging anywhere from $10 to $40 a month for their preselected assortment of goods that target a particular niche. BarkBox, for example, sources high-end dog supplies, Bespoke Post culls men’s luxury lifestyle gear, and Birchbox, a New York startup that helped pioneer the market, sells beauty-product samples.
As the market swells—Birchbox has more than 100,000 paid subscribers, up from 50,000 in 2010—so does a potentially lucrative marketing channel for emerging brands. Cravebox, which was spun off of SheSpeaks, a winner in Crain’s New York Business’ Perfect Pitch competition, peddles lots of household brand names, but 40% of its product partners are small and midsize businesses, said Cravebox CEO Kitty Kolding.
“Target marketing can be a challenging and expensive thing to do, particularly if you [operate] in a small niche,” said Dan Hesse, founder and CEO of Local Offer Network, a daily-deals aggregator based in Chicago. With the boxes, “merchants now have a more effective way than ever to put their products in front of people likely to be interested in them.”
Elizabeth Stein, CEO of the three-employee Purely Elizabeth, an organic, gluten-free food line she founded in 2009, said she’s seen a sharp rise in repeat customers online since her cereal samples were included in an October box from Blissmo, which appeals to shoppers searching for eco-friendly products. “So many people are reluctant to try something new,” said Ms. Stein, whose Manhattan company has revenues of less than $10 million. “But this is about giving them an easy trial, and hopefully then they become loyal customers.”
However, as Ms. Stein and other small business owners can attest, the return on investment of getting into a box can be a little murky. The subcom space is a primordial soup; players’ business plans vary greatly. While Foodzie and BarkBox pay wholesale prices for the merchandise they pick, Blissmo asks partners to provide free samples. And Cravebox, which boasts 200,000 affluent subscribers, charges brands a $5 slotting fee for each box they want to be placed in, which can quickly add up for a small company. Most require partners to pay for shipping to their fulfillment centers, but many box companies will handle marketing extras like company write-ups.
“If you’re going to lose money on the transaction itself, you have to be very careful. Not only are you spending money to produce your product, you’re also paying to get it into the box,” said Utpal Dholakia, a management professor at Rice University’s Jones Graduate School of Business, who has been studying the subcom market. “And of course, the biggest hurdle is that there’s no guarantee that the consumer is ever going to buy anything from you ever again.”
Correction: SheSpeaks is no longer the parent company of Cravebox. That fact was misstated in an earlier version of this article, published July 12, 2012.
Foodzie is now Joyus Tasting Box
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