September 4, 2018

Building A Subscription Business Model For Your Food Business (PODCAST)


Adding a subscription model to your business can be a great way to make sure your customers get your product regularly and help you add consistency to your revenue stream. Today we’re talking with CeAnne Kosel of St. Fiacre’s Farm, purveyors of artisan loose leaf tea, about how they’ve worked to build their company’s subscription model and what they’ve learned along the way.

TRANSCRIPT:
Jennifer: Hi. Welcome, and thank you for joining us today.

CeAnne: Hey. Thanks for having me here.

Jennifer: So I wanted to just start at the beginning, because a lot of folks just are always curious about kind of the conception of the business. So how did you get into the tea business? Was this something you’d always planned on doing?

CeAnne: No. I just had a love for herbal medicine, and tea was one of those vehicles for using herbs as medicine. And actually started out as more of a herbal medicine company doing salves, and lip balms, and tea, and the tea just kind of took off and was popular. So we just went with the tea as our mainstay.

Jennifer: And correct me if I’m wrong. There’s an interesting backstory here too in that you guys grow a lot of the herbs that are used in the tea, right? Or you source them from local farmers?

CeAnne: Right. We grow a few of the herbs on our farm. The one we do most of is blackberry leaf. Being in the pacific northwest, that grows more like a weed around here. But we’re putting that to use, and one of our most popular teas. And then we grow a few other things this year. We’re focused on bachelor buttons. They add a lot of color to our tea. And then we utilize other fruits, flowers, and herbs from the Willamette Valley, anything from cherries, to flowers, to apples.

Jennifer: So how did you learn … You said that you were interested in herbal remedies. Were you self-taught with regards to what works, what doesn’t work, and then also then kind of figuring out how that also works from a flavor standpoint?

CeAnne: Mm-hmm (affirmative). Yeah, I used essential oils for the last 20 years, and so it’s just kind of a hobby of mine to read up on them. And I’ve taken a few courses on the internet. Other than that, though, it’s just self-taught. And I’ve had health issues my whole life, so I’ve always been in search for that one thing that’s gonna help me, and conventional medicine hasn’t been that thing, and herbal medicine’s been the most help.

Jennifer: So also, how many years has your company been in business now?

CeAnne: We will be celebrating our fourth anniversary tomorrow on the 17th.

Jennifer: Excellent. Excellent. Congratulations.

CeAnne: Thank you. Yeah, it’s been a long and short four years, depending on how you look at it.

Jennifer: Probably depending on what day it is too.

CeAnne: Right.

Jennifer: So we’re gonna be talking a bit about subscription models today, but can you tell us what sales channels you used when you initially started the business? And then why did you choose those, and what have you learned? And obviously, keeping in mind for those listening that this is with respect to your specific business, and obviously your specific customer segment as well.

CeAnne: Right. We started with craft shows and Etsy. So I grew up in a very crafty family, and was raised by two entrepreneurs. So we were always at craft shows growing up. My grandmother hand-painted saws for 30 years, and so I was just used to the craft show scene. So that’s where we started out was just local craft shows. Then we moved online to Etsy, and that went really well. So we decided to go with the farmer’s market next.

Jennifer: And then at what point did you decide to add a subscription model to your sales strategy? And why did you decide to add that as well?

CeAnne: So we added that last October, so it’s still fairly new. We haven’t gone quite a year yet. And we decided to add that because we have a lot of customers in the tea arena. They are collectors of teas, and so they have a lot of teas, they have a tea cupboard or a tea drawer, and it’s always full of this, that, and the other thing. But the problem is that they don’t usually drink all the tea, and so they have this sitting there. So our idea was that if we created a new tea every month for those adventurous tea drinkers, that they could try a little bit of it. And they wouldn’t be filling up their tea cupboard, but they would still get that new flavor to try out. So that was one of the reasons we started that on the customer end.

CeAnne: For our own business side, we wanted the creative outlet to be able to make new blends without the pressure of mass marketing the tea, and having to get it through the process of the grocery stores, and the labeling, and all that.

Jennifer: And I would imagine too, that then you have a better idea of how much also needs to be made.

CeAnne: Right. Yeah, it gives us a way to test new recipes to get automatic customer feedback from customers that know us. They know our brand, and they’re highly involved in everything that our business does. They’re like our super fans, and so they give us really good feedback. And they can tell us if they didn’t like something or other before we fully invested in all these labels and this big process of putting a blend out there.

Jennifer: I never thought about that, about the feedback from, like you said, these core users. That’s tremendous for you from a market research standpoint.

CeAnne: Right. Right. I mean, because you can put a blend out there, but you’ve already invested the time and the money, and then it may not do anything. And we have this open-ended customer base that way, and so you don’t really know. Is it the customer or is it your tea blend? Which thing has the problem? At least this way you’ve got dedicated customers that are coming back every month with their subscription, and they can give you good input, and they know your brand line. So they can say, “Well, this one was better than that one for this reason,” or whatever it may be.

Jennifer: And that’s interesting because you call your subscription service a club and not necessarily subscription. And when you think about the use of the word and sort of what that word means to people, the word club has more of a feeling of like you’re belonging to something and community, versus subscription is, “Okay, I’m paying for a service.” And so it is sounding like not only was that a word that you landed on because it sounded good, but that you were really actively working on kind of building this community of tea lovers.

CeAnne: Right. I have to give that credit to one of our tea club members, actually. It used to be called the subscription … I’m trying to remember now. I think it was St. Fiacre’s Farm monthly subscription. And one of them said, “You know, this is more like a club. You should call it a club.” And so we did. So not only are we getting advice on our tea flavors, and what works and what doesn’t, but also on some of our marketing too.

Jennifer: And so speaking of this marketing, we’ve already talked about some of the benefits to you as the business owner. How do you market what those benefits to the customer are? Because you talked about you’ve got basically a smaller bag of tea that you can try and consume rather than … And I’m a big tea drinker, so I’m thinking about all the teas that, yeah, are just sitting in my shelf right now.

CeAnne: Right. Right.

Jennifer: They’re just gonna sit there.

CeAnne: [crosstalk 00:08:03] said you are a tea drinker.

Jennifer: So when somebody comes over to the house, you’re like, “Please, would you like this one?”

CeAnne: Right, or this one, or this one, or 10 of these other ones.

Jennifer: Exactly. But that education piece for consumers is a hard piece even if you do have great benefits. So how did you go about marketing to consumers, especially when you were starting, and you’re saying, “Hey. Okay, I want somebody to sign on for multiple months in a row.” How did you market those benefits to them?

CeAnne: Right. So we had several different, excuse me, buckets that called our marketing program. So we went for the tea drinkers that have lots of teas and they still wanna be adventurous without having to dedicate themselves to a big bag of tea. And then we’ve got our customers who don’t really care to go to the grocery store, and they don’t know where to find a tea. And our tea comes right to their mailbox. They don’t have to go anywhere. Tea drinkers tend to be introverts. They wanna hang out at home, and the grocery store might just not be something they wanna do. And then we’ve also got those busy moms who would have to take all their children to the grocery store and go through the tea to find the one they want, or the working moms who are just, they’re busy. So to send it right to their house saves time and money.

CeAnne: And then we kind of focus more on our customer base with our other teas, so proven customers that already like the teas we have in our farm store. We offer those to them as an additional service saying, “You’ve liked these ones already that we already have, so how about we curate a special tea every month for you to send it right to your mailbox? And you’re getting new teas and you don’t have to take the time to go online, and go through the flavors, and you get to be part of our special VIP club.”

Jennifer: So how did you then, as you were setting this up, how did you go about figuring out what the right pricing model for you was going to be?

CeAnne: Our general plan for figuring out pricing, not just on the tea club, but all of our teas, is of course taking competition into consideration, and looking at what they’re doing compared to what we’re doing, and then also looking at our financials. We wanna make sure that we have the margin where it’s gonna be worth it. So we take our cost, and then our retail’s 50% or around there, and making sure we keep that within comparison with our competition.

Jennifer: You and I talked a little bit initially, prior to this interview, about some kind of the logistical hurdles. It sounds great. Okay, here are these benefits to a subscription model to myself, to the customer. I can figure out the pricing, but then there’s these logistics. And so one of the logistics is actually kind of managing this. Do you manage all the subscription models? Does this all go through your website? Did you end up having to get like a third party add-on system to your website to make it work? How did you make it look seamless to the consumer?

CeAnne: Right. So we did add a third party to our website. We use Weebly for our design, and we do all of that in house. We needed mostly a payment processor that would handle the recurring payments, because it’s not something that our e-commerce offers at this time. And so there was a plugin that we used for that. It’s gonna be different with whatever website service you’re using. I think like … Oh, who’s the big website design?

Jennifer: Squarespace is a big one.

CeAnne: I drew a blank. I’m thinking for bloggers.

Jennifer: Oh, WordPress.

CeAnne: WordPress, yes. I think WordPress has a membership plugin. So we looked at that, but we’re not using WordPress, and so that was gonna be more work on our end just due to our website service. But we’re using Paid Members, I believe it’s called, as our third party. So that goes between our e-commerce and Stripe. And so it creates a little bit of a headache, because you’re going through three different services. You have to make sure everything meshes, and that was probably the hardest part of setting up a membership was just the bookkeeping end. And that’s not really my personal talent. I don’t tend to do numbers and technology so well. I’m more on the design end of things, so …

Jennifer: So yeah, that kind of payment processing software, all of that, it’s like all of that fun stuff that often times we food entrepreneurs aren’t really thinking about. Were you guys aware of that as you started the subscription system? Or did some of it … And if you were aware of it, were you like, “Okay, we wanna launch this in three months,” and it took you three months to kind of work through all of those challenges? Or did it take you longer to work through those challenges than you were anticipating? I’m thinking of somebody who might be listening saying, “Oh, wow. I really wanna do a subscription model with my food business.” But then what sort of timeline do they need to be looking at to potentially actually get it up and running?

CeAnne: I’m kind of the person that just dives in and figures that out later, so we didn’t have like a real plan ahead of tie. Our plan was what kind of tea are we gonna do? Can we make sure that this is beneficial to us rather than just going to cost us time and money? We did figure out that part ahead of time, but the whole details of the thing kind of was a figure it out as you go. And the problem we had with it didn’t really come until it started growing a little bit. It didn’t happen with the first few. The issue with our specific third party provider is that they took payment and then logged it underneath an email address, and there was no place for a name. And so we’re having to match things up by email address.

CeAnne: And then we had a bunch of our super fans want to gift these subscriptions, which has been super popular, but then they’re using their email address. Then they would send four gifts plus have theirs, and so we’d have this account that has the same email but it’s got five subscriptions with five different payment dates. And so it created a big headache. And we made it work around that, and just skipped the third party for the gift subscriptions, so it was a little website design to direct then. But I think you’re gonna have that no matter what you do. There’s gonna be something that you didn’t anticipate that you just have to work through as you go through it.

Jennifer: Yeah. Oh, that’s very true. What about, a little less tech savvy, but what about just the logistics of, okay, you’ve gotta get all of this packed up. And obviously, you’re shipping out orders anyway, so you’re familiar with like, “Hey, I’ve gotta box everything up and get it out.” But because everything’s going out on a certain day or certain week, do you guys have to schedule in like, “Hey, this week we are gonna do all the getting all the boxes ready, and all the labels ready.” And how did that kind of change either your day-to-day or your week-to-week scheduling?

CeAnne: Right. So our tea club goes out on the sixth, goes in the mail on the sixth, so the goal is to have it ready by then. Some months when we’re busy, that means it’s the day before we’re packing everything to get it ready to go. But we tried to simplify things by using similar packaging to our other stuff. We do a lot of things in house, so it was really kind of set up for that. We print some of our own labels still, and I do the graphic design. So I can change those at whim. We use the same bags. There is some planning in making sure we have a tea recipe ready, that the ingredients are dried, and everything is ordered, and blended, and ready to pack. And then we include a newsletter, so that needs to get done.

CeAnne: So we just kind of set aside the last week of the month. And we of course have other orders and things we have to work around, but we kinda know every month the last week is dedicated to tea club mail, and we need to focus on getting that done. Usually, I order ingredients for the next month right after the month goes out, so that that’s there on time. So there is a little bit of planning, but we try and keep it simple and in line with our other processes as much as possible.

Jennifer: How far in advance do you plan out the recipe component? Do you know that six months from now you want to be featuring X, or …

CeAnne: I’m afraid I’m not that organized.

Jennifer: I was just thinking, that sounds like one of those things that probably sounds great in theory, but doesn’t actually happen.

CeAnne: Right. I think we started out with that plan. I had all these ideas. But as it goes on you find they dwindle, or you’re taking in advice from your current members, too, and what they want, and what they didn’t like. So your idea for six months down the road might just be something that wasn’t something they want, so now you’ve gotta change it.

Jennifer: That’s a good point.

CeAnne: So we try and go with the season. So we’re almost 100 degree here today, so we’re doing iced teas probably … Maybe through September. We’ll see what the weather does. And then we’ll get back more into the warming teas. There’s just certain teas that work better cold than they do hot, and so you don’t wanna go for hot teas in the hot months, and cold teas in the cold months.

Jennifer: Yeah. So a last question, and obviously we’re just kind of covering the very, very high level about subscription models today, but what would you say kind of your biggest lesson learned has been as you’re kind of almost a year into this?

CeAnne: Have a process in place. We did some planning, and there’s gonna be problems that you run into you weren’t expecting. But have kind of a general flow ready of how you imagine it working, at least, so you have something to work off of. And then I’d recommend trying to schedule your stuff out ahead of time if you can plan ahead. But like I said, you’re gonna run into things or your customers aren’t gonna want what you had planned. But you could plan a couple months out, or three, or it depends on your product, too. With tea, we don’t have a cook time, because they’re just blending loose herbs, whereas if you’re making a jam or a jelly, you’ve got cook time and set time. So depending on what food you’re doing, you’re gonna have to plan out a lot more. So …

Jennifer: And I guess I should actually … I realized after I asked my last question, I actually do have one other question, which is: so almost a year into it, are you guys glad that you did create a subscription model? Do you feel like it’s been beneficial for your business?

CeAnne: Yes, I think so. We don’t have as much time to market it as we would like, because we have so many other things going on. So the growth hasn’t been huge, and for that reason it hasn’t supplied us with a recurring income like we were hoping it would when you’ve got someone signing up every time rather than this random customer. But I think we’ve learned so much from our customer base that we have, and with blending the new teas and just being able to play with recipes. So it flows to other things that maybe aren’t directly connected to the tea club, but it’s been an education that’s definitely paid for itself.

Jennifer: Excellent. Well, and again, as it continues it will be interesting to see how it grows going forward, too.

CeAnne: Right. Right. Yep. We’ve had the most growth from just exposure from other places. So we had someone do an unboxing on YouTube, and that really helped boost our sales a little bit there. But when we’re blending a new blend of tea and they don’t know what it’s gonna be, it kind of takes a lot of trust on the customer’s end to say, “Okay, I’m going to devote part of my budget to you, and I’m gonna get a surprise, and I might not like it.” So there’s some risk there.

Jennifer: Absolutely.

CeAnne: So that makes it kind of a unique subscription box. A lot of them are pretty basic, and you’re gonna get things that maybe are a bit more familiar. So that might be something we look into changing in the future, maybe increasing our subscription to include a more familiar tea with a brand new tea, or something like that.

Jennifer: And that’s where some of the fun, the creativity, of trying to figure out what does work best for your customer comes into play.

CeAnne: Right. And again, as a business owner it can get hard to just do the same grind every day. And the reason you started was because you had fun creating these things. And now you’re blocked into eight flavors, or 16 flavors, or something. You don’t get to play anymore because you’re busy working. It gives you the outlet to play and yet work at the same time, and hopefully make that grow into something, but it is actually work, too.

Jennifer: Yeah. Well, thank you so much. I appreciate you taking a little bit of time to share with us your experiences as you’ve been working to build your business and also to build the subscription side of the business.

CeAnne: Thank you for having me.

Jennifer: Thank you. Thank you so much. Are you there?

CeAnne: Yeah.

Jennifer: Yeah, thank you so much.

CeAnne: Thank you.

Jennifer: Yeah.

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