Subscriptions seriously boost food delivery sales — but not for everybody

Subscription services for everything from food delivery to ridesharing are booming in popularity, with consumers around the globe signing up for everything from repeated Amazon deliveries to recurring Lyft rides.

But how do those subscription programs influence consumer spending — and how do they affect competitors? According to a new study from the UBC Sauder School of Business, they can seriously boost spending at specific businesses, as well as more on restaurant delivery spending overall.

For the study, titled Expanding Markets or Capturing Share? The Effects of Subscription on Spending and Share-of-Wallet in Restaurant Delivery, researchers analyzed the credit card data of roughly 65,000 Postmates customers, over 2,000 of whom had signed up for Postmates Unlimited — a precursor to DashPass, DoorDash’s subscription program. Specifically, they examined consumer spending on restaurant delivery, in-store restaurants, grocery stores, grocery delivery and meal kits six months before and 12 months after people subscribed.

The researchers found that when consumers sign up for restaurant delivery, they spend a whopping 85 per cent more on that platform over the following year — driven primarily by customers placing orders more often.

That boost declines over time as subscribers cancel, but they still tend to spend more than those who don’t subscribe, which suggests that subscriptions trigger lasting behavioural changes that can have long-term economic benefits for businesses. 

“It’s most salient for people when they first sign up for the subscription. Then they kind of drop out over time,” says UBC Sauder Assistant Professor Dr. Shin Oblander, who coauthored the study with Dr. Daniel McCarthy of the University of Maryland, Dr. Young-Hoon Park of Cornell University, and Yeohong Yoon of Emory University. “But there is still a significant effect even for people who have canceled.”

So what does this mean for competitors? It depends on what the consumers did before they signed up. Those who had previously used multiple delivery platforms (the researchers call them “multihomers”) show larger and more lasting spending increases with the company they subscribe to, and reduced spending with competitors. 

Meanwhile, those who have only ever used the platform they subscribe to (“singlehomers”) show smaller spending increases on their platform of choice and also tend to increase their spending with competitors. In other words, for newbies, the subscription might be acting as a gateway to the larger restaurant delivery market.

The researchers also found that the boost to the companies that draw subscribers, and the displacement of competing firms, is even greater in cities where the subscriber firm already has a greater market share.

To see if the results would generalize to other platforms, the researchers then analyzed data for DashPass, which was launched 11 months after Postmates Unlimited. They found the results were remarkably similar, confirming the power of subscriptions — even in locales where there’s a range of restaurant delivery options.

The findings show that subscription programs can serve dual purposes: they can take spending away from competitors when the consumer is already spending across different platforms, and they can expand the overall spending of consumers who are new to the restaurant delivery market. 

The study is the first of its kind to look at whether subscription services come at a cost for competitors, and has important implications for businesses that offer, or are thinking about offering, subscriptions — especially in markets with established subscription offerings.

“We're not seeing a category expansion for customers with prior subscription experience. Their lift is coming entirely from spending less at competitors. So the first to market was more successful at getting people to spend more in the category overall,” explains Dr. Oblander. “And as the market has gotten more mature, people are more stable in their habits. It becomes more a game of trying to get share from competitors.”