Can Zoe app trim enough of its own fat to fight fit again?

Its premise is that by paying for a poo test, blood fat test and wearing a blood sugar monitor, the app can understand how you specifically respond to different foods. With this data, the app – a subscription to which comes at £24.99 per month for a 12-month membership, or up to £59.99 per month on a rolling membership basis – can be used to scan supermarket products or recipes, which are scored from 0 (bad) to 100 (good) for that individual. Furthermore, it provides nutritional lessons (as co-founder Tim Spector modestly puts it “designed by myself and other world-leading scientists”), the ability to track progress and ongoing support from Zoe’s dedicated coaches.

Despite the high cost – or perhaps because of it – the app has convinced thousands of its promise. Some 130,000 in 2023, in fact. Documenting one’s ‘Zoe journey’ has become a common brag on LinkedIn, and the branded arm-worn, yellow glucose monitor something of a status symbol in exclusive gyms and at posh school gates.

Little wonder the company has been considered a UK unicorn in waiting, and won investment last year from Steven Bartlett, among other celebrity endorsements. In January came retail play: the £2 for 150ml, M&S Food x Zoe Gut Shot.

So why are things seemingly already falling apart for Zoe?

Last week, CEO and co-founder Jonathan Wolf announced the company was reducing its headcount as part of an urgent economy drive that needs to reduce costs by 20%. Without cutting staff, the brand’s “monthly burn-rate will be much too high” he added. The company will also halt its current search for a London headquarters, stop developments on its US warehouse and “significantly reduce contract costs” as part of the move.

Zoe app’s rapid growth and financing

Growth has been rapid. The company’s accounts show revenue of £29m in the year to August, 2023 – up more than 500% from the previous year period. It had raised £80m, including in February a whopping £7m crowdfunding raise – the fourth-biggest in Europe of all time. And doubled its headcount.

At the same time, gross margin was only 28% in 2023 (up from 13% in 2022) and net losses had doubled to almost £20m.

“Twenty-eight per cent is a very low gross margin compared to other VC-backed tech startups,” comments Growth Hub analyst Seb Johnson, “and will make it significantly harder for Zoe to achieve profitability. Based on their current margin, Zoe would need to grow revenue to over £100m to achieve profitability while keeping all other costs the same – no easy feat.”

But Zoe might have to do more than simply trim its own fat to prosper. It is facing the prospect of thousands of users now coming to the point where they’ve used it long enough to properly gauge its effectiveness. And many are letting their memberships lapse.

As Spector told the Financial Times, the company hopes users will remain paid subscribers for decades: “We’d like to think Zoe is for life.” But for many, the ongoing subscription is simply too high. Assuming they find it actually effective, once users have made the necessary adjustments to their diet and weekly shop – what more has the app got to give?

“The pricing absolutely creates churn,” commented one former user on LinkedIn. “There seemed no point to stay a member once I’d learnt what was and was not good for me,” said another. “I would have retained/renewed my membership had it been more affordable, but it felt too expensive to warrant, given that I was only using the app for recipes and checking products,” another posted.

Churn is a major factor in success

Wolf said the company would be “discussing this internally” this week.

The company cannot suddenly start haemorrhaging users. And it must firmly face off the growing scepticism about the app’s effectiveness.

“Other prominent healthtech startups had their moments in the sun before crashing down to earth,” says Johnson. Take 23andMe the direct-to-consumer genetic testing service to which customers send off a saliva sample for analysis and get back information on their ancestry and predispositions to genetic diseases.

It became a publicly traded company in 2021 and gained a market capitalisation of $6bn. By 2024, its valuation had fallen to “nearly $0”.

“It never reached profitability and could never prove it improved health in the way it set out to,” Johnson says. 

Might the same fate await Zoe? What does your gut say?