The idea of operating a subscription box eCommerce store sounds ideal. You know exactly how many boxes you are going to ship every month, you can predict how much you are going to grow with relative ease, and your main metric to measure your success is the predictable and comforting metric of MRR (monthly recurring revenue).
However, running a profitable subscription box isn’t as easy as choosing a product, throwing it in a box, and putting it online with a monthly price tag. It’s a delicate eCommerce balancing act, combining research, marketing and branding, product design, manufacturing, fulfilment, and customer service. Our story today is about a young company out of Melbourne, Australia (Metorik’s home town!), which has been able to find that delicate balance.
While Scratch may be young, being operational for less than one year, their mission is bigger than this chihuahua’s bark. They are taking on the Australian pet food giants in a 3 billion dollar industry that is completely unregulated. Co-founders Mike Halligan and Doug Spiegelhauer are giving the power back to the people (and their dogs), offering a pet food subscription box that is healthy, affordable, transparent and 100% Australian made.
We (Eric and Bryce) took this opportunity to sit down in person with Mike at a cosy cafe in the hipster suburb of Abbotsford, Melbourne to talk about about Scratch’s story over a few cups of coffee and tea.
Scratch’s story started quite a few years ago...
Back in the days of WordPress blogs, Mike actually owned his own marketing agency and had people asking him if he could create blogs for them. Armed with only the knowledge of building his own blog, he took on the challenge and said yes.
After building a few blogs, he started to realise a trend. There was a large demand for people who wanted custom blog designs but didn’t want to pay agency prices. Mike went on to create over 100 custom designs and “got a crash course in WordPress”.
A few of the brands he was working for asked if he could create eCommerce stores for them. At the time he was using WP eCommerce (and hating it), but shortly after, WooCommerce 1.0 was released and he switched straight away to it. “This was my first taste of eCommerce”. He then decided to sell the blog design agency and start an eCommerce agency.
“After a few years working for 3 different businesses, with 3 different sets of customers, problems and growth potential, I had learned a lot about eCommerce”.
3 years on, he moved back to Melbourne and got a job as general manager at watch company THE 5TH.
Mike had just moved back into his parent's house and was spending time with one of the cocker spaniels he grew up with, Brandi. You could say that dogs were on his mind. “I remember watching a video about unboxings, and how the box and the presentation is basically half the product in the eCommerce world. The lady in the video was talking about how she gets a box of dog toys delivered every month. The box had the dog’s name in it and that made her feel very special.”
This got him thinking that the pet industry is such an interesting and emotive brand category. But in the same breath, he couldn’t put his finger on a brand that represented the love that owners have for their pets.
Around that time, a story came out in the media about a dog food brand that killed a few dozen dogs and made hundreds of others sick. What made it even worse, was that the brand was aware of the issue in December, but only pulled it from the shelves in April when it was published in the media.
“After that, I started researching the pet food industry.... How it works, who made it and how something like that could have happened. I found out it was all unregulated and that you can basically make [and sell] whatever you want. These big giant businesses weren’t putting the dogs health first and weren’t made accountable.”
This was the spark that set Mike on the path to create Scratch. From there he went down the rabbit hole of finding out how dog food is actually made. He also started researching the direct to consumer model and how not having the cost pressures associated with sourcing wholesale inventory and a physical store could dramatically reduce the cost of the pet food.
An advantage he had was that his sister also worked at a pet food store. This enabled him to discover the wholesale price of all the different dog food brands and see what the markup actually was. “I didn’t know much about making dog food, but I could see that there is x amount of dollars [markup] which I could use on better ingredients and more transparency.”
The subscription model was one of the main factors that was going to set Scratch apart from other dog food brands. The only issue is that subscription boxes tend to have a notoriously bad reputation in Australia.
Mike wanted to use the subscription model as a way to solve a problem.
“I thought, what is the journey of buying dog food? Well, it’s going to a store, seeing 80 options on the shelf and being confused as to what the difference was… knowing which is actually healthy and which claims are true. And then once you finally choose, the bags are big and heavy to bring home.”
So Mike had done the research and had come up with a solid idea and branding strategy. There was one major problem though: he had no idea how to make dog food - arguably the most important piece of the puzzle! And while he thought the chances of finding someone who could make dog food was slim, he ended up finding the perfect partner - Doug. Doug had worked in the dog food industry for 8 years and made food for a lot of the big companies. He actually tried to get a project over the line to sell direct to consumer within his company, but often at bigger companies “this kinda stuff doesn’t happen”.
Mike and Doug got to work in creating their new dog food subscription box, Scratch. But there were many things to consider:
How are we actually solving the customer’s problem?
Well, they were making the customer buying experience more convenient through delivery.
How are we going to ensure the customer trusts the brand?
The customer was going to be buying directly from Scratch, so they could ask any question on live chat. There was a greater level of service and trust they could build. “We also decided from the very start to reveal every percentage of every ingredient, so the customer knows exactly what is in the food.”
How are we going to package the food?
Not so much from the point of how it would look, but how it was shaped, how much each box would weigh, how large the box would be, how much shipping would cost, and how many boxes would fit on a pallet?
“We heard from Who Gives A Crap that they had to completely re-engineer how many boxes they sold at a time and re-do all their SKUs. Shipping costs can get very expensive, especially when you are wasting 20% of the space on a pallet and that cost is being passed onto the consumer”.
They knew that the margins on each box of food wouldn’t be high, so for the business to succeed, they needed to be as efficient as possible from day one. They ultimately settled on a 7.5kg box so that the customer could get a box delivered to work and even take it home on the train if need be.
Everything came together quite quickly and within 5 months they were ready to ship their first box. “The first few months of operation was good growth, but the last 3 months have been mental growth.”
Scratch run a pretty neat stack using WordPress and WooCommerce to handle their marketing and eCommerce, and Metorik for their reporting and email automation.
Often subscription services are clunky and don’t give the end customers control over their subscription. For example, easily cancelling or pausing their subscription. Scratch's success hinged on a smooth and easy subscription system. And that’s exactly why they chose WooCommerce.
WooCommerce Subscriptions allowed them to “customize and remove any friction. Friction equals churn, and churn equals less dollars.” And while some store owners may find Shopify’s subscription system easier to set up, it doesn’t offer nearly the amount of customization options as WooCommerce. For example, Scratch were able to completely customize the onboarding process (which we think is absolutely amazing).
When a new customer lands on their website, they are asked a few questions about their dog: their name, sex, breed, age, weight and activity level. Based on their answers, a ‘box’ with the recommended renewal cycle for their dog is automatically added into the cart. The attention to detail is out of this world, and the experience is so seamless that it would even get dog owners themselves barking out of excitement.
“The age, weight, activity level and body shape all are fed into an algorithm designed by our nutritionist. That determines a calorie recommendation, and we know how many calories are in a 7.5kg box of Scratch food. So we use that information to tell you that for your dog our box will last you x days”.
Rather than having many different sized boxes, depending on your type of dog, Scratch has opted for a simple 1 SKU approach, which we found to be quite clever and unique in the subscription world. After all, sending one product on a schedule is a lot cheaper than designing and producing a range of products.
To take it a step further, if you have a puppy, as it gets older and bigger, you can change its weight and activity level on Scratch’s website. The website will then automatically update its feeding suggestions and recalculate how often to send you a box.
While WooCommerce has many stellar features, some stores can find it lacking in certain areas. For Mike specifically, those areas included Woo’s dashboard, reporting, and 3PL integration.
“The way that I look at it is WooCommerce doesn’t care about the end customer. They care about the developer and hope the developer will make it good for the end customer. But very few developers actually understand the end customers and merchants. Metorik stands out as a customer-centric product. It was completely built and iterates on the needs of its customers.”
For Scratch, WooCommerce reporting and segmentation are “horrible and basically non-existent”. This made the decision to subscribe to Metorik a no brainer. Metorik gives them instant and detailed insights into what they need to know. “If you are curious about something, you can dive deep. If you want to automate something you can easily do that as well. We use Engage to automate little things that WooCommerce simply can’t do, which makes a big difference.”
For example, after a customer’s first renewal, they are sent an email automatically saying that they are about to receive another box of Scratch food, an explanation of how it all works, and if desired, an option to easily delay their next order. On their second renewal, the customer doesn’t need the hand-holding anymore, so they automatically stop receiving that email and start receiving a different one.
Mike also uses the segmentation system to analyse and compare customer purchasing behaviour. For example:
How do Melbourne and Sydney customers differ?
How do Brisbane customers who pay $5 for shipping churn compared to Melbourne and Sydney customers who get it for free?
What’s the average subscription frequency of dogs in Brisbane, where there are bigger yards and fewer apartments?
“We can dive into any question. Some relate to product development and business strategy, and others to marketing.”
By the end of our chat with Mike, our cups were empty and we were all caffeinated. To add to that, the staff at the cafe were very confused as to why there was a microphone that looked like a snowball on our table and what the hell we had been talking about for the last hour.
Needless to say, we thoroughly enjoyed our chat with Mike, and can’t wait to keep supporting Scratch on their quest to make every dog (and owner) happy and healthy. I’ll leave you with Mike’s concluding statement:
“I’d recommend Metorik to any subscription business, and anyone on WooCommerce who is curious and intelligent.”