Subscription e-commerce is having a moment in FMCG. From meal kits to cosmetics, pet food and tampons, startups such as Dollar Shave Club are proving there are endless opportunities.
According to a McKinsey report, the subscription economy in the US has grown by more than 100 per cent a year over the past five years. And Australians are following suit. In 2018 Australians spent $27.5 billion online, a 24 per cent increase on 2017.
Razors are one of those “no-brainer” subscription items, with two of the top three subscription companies for US men being shave clubs.
Oscar De Vries is capitalising on this trend, and with the help of his daughter, Oscar Razor is primed to take on the big players.
Oscar talks to Inside FMCG about why the subscription model works so well for his business and the social enterprise that makes it so unique.
INSIDE FMCG: Tell us how Oscar Razor came about?
Oscar De Vries: When e-commerce started really kicking off, selling direct to consumers just became a better and better option really. It’s becoming a really viable business alternative as opposed to supplying to retailers, which can be fraught with difficulties for a small supplier.
We basically started doing this online business where our focus is building up our own customer base rather than selling through retailers, where you lack that ultimate control and you’re always dependent on ranging decisions.
INSIDE FMCG: Why was the subscription model the best option for you?
OdV:The key thing I’ve seen in retail, particularly in the last 10 years, is that there’s this downward pressure on pricing and, of course, as a supplier there’s only so far you can go. You’ve still got to promote the product, and by dealing directly with consumers the benefit is that you can hold your price. You’re not cornered into this endless discounting and promotional spiral, you build up a direct relationship with people and providing you give a good service and deliver on time, it’s a very attractive model for a lot more people. You potentially have tens of thousands of customers as opposed to a handful of major retailers that are very powerful.
INSIDE FMCG: Why do you think this model works so well for this particular product and sometimes not so well for other FMCG products?
OdV: I think razors are just ideal really, as are products like contact lenses. If you shave regularly you just want a clean set of razors at set intervals and it’s just one less thing to worry about really, whereas with food shopping your taste is different from week to week.
INSIDE FMCG: Why did you decide to outsource assembly and order fulfilment?
OdV: As a small enterprise you’ve got to run ideally with as low fixed overheads as possible. So I made the decision in the beginning to outsource assembly and fulfilment to a third party. We started with a commercial enterprise but we came across a company called Beehive Industries. It’s a not-for-profit social enterprise, and they really appealed to me because elderly people and long-term unemployed, who tend to be over 50 or 60, come together there and they do assembly and fulfilment work for companies.
I’m an only child and my mother [who lived] in Holland towards the end of her life, was alone and living like a recluse. She was very capable physically but she just had nowhere to go to.
The great thing about Beehive is it gives people a sense of purpose. It’s kind of satisfying that you can put back into a great cause like that and kind of indirectly be of assistance to people. It doesn’t cost a business any more so it’s combining, as I call it, profit with purpose. You’ve still got to run a profitable enterprise but if you can put something back in a cause that resonates with you it’s so much the better
INSIDE FMCG: Are there other factors that allow you to offer your products at reduced cost?
OdV: When you deal with retailers you’ve got to allow a certain margin and you have to do all the promotional rebates. But if you want to offer a cheaper alternative to the consumer compared to Gillette by supplying people direct, you cut out a whole layer of margin and it enables you to offer a reduced price. We buy the razors from a contract manufacturer in the US, we don’t make them so we don’t have the same low cost as Gillette, but equally we don’t have the same margins built in for retailers.
INSIDE FMCG: A growing number of your subscribers are women, did you expect that to happen?
OdV: No, but what’s funny is my daughter Ella, who is the co-founder, she thought that we should never do a pink razor like Gillette did with Venus and charge a premium for it. A lot of women seem to appreciate that [Oscar Razor] is just a sleek razor and it hasn’t got all the fancy trimmings and equally not the additional price point over and above men’s razors – the pink tax. I think more and more women are getting onto that. I think they work really well for women. I’ve always thought of it as a bit of a marketing gimmick that [companies] charge extra for. So we might do it in a different colour but Ella says it can’t be pink!
INSIDE FMCG: So what’s next for Oscar Razor?OdV: We spent a few years getting the whole model right and we launched a new razor last year, but we’re at that fork in the road now to reach the full potential of the business. We need to do a capital raising to scale the business and that is a challenge in Australia because we’re up against Gilette who are owned by Procter and Gamble and Dollar Shave Club run by By Unilever, so we haven’t got that depth of capital behind us. We made a decision a while ago to do an equity crowdfunding, which means that the public can invest in the business and the money stays in Australia.