Restaurants turn to loyalty programs to retain digital gains

An employee carries an order for a customer at a Domino’s Pizza restaurant in Detroit.

Sean Proctor | Bloomberg | Getty Images

Forget the battle for chicken sandwich supremacy. The loyalty program war is approaching.

Digital restaurant orders jumped 124% in the year ended March, according to the NPD Group market research. And the growing popularity of online ordering during the coronavirus pandemic is motivating large fast food chains to use rewards programs to retain new mobile app customers. Right now, most restaurant chains automatically enroll customers in loyalty programs after customers order through a mobile app.

Starbucks, Panera Bread, and Domino’s Pizza led the way, while Chipotle Mexican Grill launched its own version in 2019. But last year drew even more players into the arena. New entrants are Wendy’s, Taco Bell from Yum Brands and Burger King from Restaurant Brands International, and McDonald’s and Jack in the Box are preparing to launch loyalty programs later this year.

“With Covid-19 and the change in consumer behavior, we’ve really seen a giant increase, of the biggest brands that were kind of holding on, I would say, are now launching programs for consumers to come back and keep that loyalty,” he said. said Elle Kross, director of customer strategy for travel, hospitality and food services at digital marketing firm Movable Ink.

According to Aaron Allen, founder of restaurant consulting firm Aaron Allen & Associates, loyalty programs are helping fuel more frequent visits and higher average checks.

For example, Chipotle CEO Brian Niccol told analysts in April that the company’s loyalty program generated additional transactions in its “light, medium and heavy consumer segments.” Before the pandemic, the channel’s program had 8.5 million members. Today, it has more than 21 million members.

Digital orders made up the majority of the company’s quarterly sales for the first time in the first three months of this year. Chipotle continued to push consumers towards its loyalty program by offering them advance versions of new menu items and keeping certain items, like the quesadilla, available only digitally.

However, these are not the only factors behind the boom in loyalty programs among restaurants. Businesses are also keen to learn more about customers by collecting and analyzing data based on their ordering preferences and personal information. This consumption data can be used to better target customers, both with marketing offers and for future opportunities, such as new menu items.

“We’ve come a long way since the Subway punch card,” Allen said.

For now, customers do not hesitate to give away this data about them in exchange for a free drink or an occasional discount. Goldman Sachs surveyed 2,000 consumers about their opinions on the technological features of the restaurant industry. Loyalty programs are gaining in importance for these consumers, according to the survey.

Although restaurant loyalty programs differ in design and rewards, most programs do not use separate tiers based on the number of points members have accumulated, unlike airline rewards programs. For example, Starbucks dropped its levels in 2019 in an effort to get new members more involved in its loyalty program.

In the three quarters following this change, Starbucks added 3.1 million loyal members, up 15% from the same period in 2019. And throughout that period, it has seen strong growth. quarterly comparable store sales in the United States, excluding when the pandemic began to take hold. a toll on the business.

During the crisis, the coffee giant made another major change to its loyalty program, expanding the number of payment options to include cash and PayPal. In this year’s Starbucks fiscal second quarter, 52% of sales at US-owned coffee shops were from Starbucks Rewards members. Mobile orders accounted for 26% of transactions held by U.S. companies, up from 18% a year earlier.

This is the kind of digital growth and loyalty that McDonald’s hopes to emulate with its next rewards program. The chain’s U.S. president Joe Erlinger told analysts in April that the company had digital sales of nearly $ 1.5 billion in its first quarter, including orders on its digital kiosks, its mobile application and its delivery platforms. But that number could be even higher. In February, it was testing the program at 900 of its 14,000 locations in the United States, with restaurants in Arizona, Nevada and New England.

Restaurants also rely on loyalty programs to bring a more personal touch to interactions with customers, even when they are zooming in and out of the drive-thru lane. Panera Bread’s new restaurant design will automatically recognize loyalty members whether they go through the drive-thru or enter the location.

“Once you are identified, the vision is for us to interact, recognize and treat as a person, with preferences,” said Eduardo Luz, Panera’s brand and concept director, in an interview in May. “That’s what you expect when you go to a neighborhood cafe.”

Luz said the company is considering several options to make it a reality, including scanning a code or microfencing technology. The first location with the restaurant’s new design is slated to open in November in Ballwin, Missouri.

One of the big questions for restaurants with existing loyalty programs is how to retain members even if competitors are launching competing plans. Fast food chains may need to increase the number or quality of rewards for members, betting that the consumer data advantage outweighs those losses.

“The breaking point or the tipping point is that we don’t want to download an app for every place we visit,” Allen said. “So we think it’s another driver dividing the haves and have-nots.”

Big restaurant chains like McDonald’s and Chipotle have the capital to invest in technology, like improving mobile apps and creating frictionless reward programs. But small chains and independent restaurants won’t be able to keep up in the same way. Instead, third-party companies could create loyalty programs for smaller players, but companies using those plans won’t receive the same customer data as a chain that has built its own rewards program.

Competition is likely even among the big chains. Allen predicts that restaurant giants will become more savvy and aggressive, employing strategies similar to those in the hospitality industry. Hilton Honors, for example, is the award status for customers of competing hoteliers.

Kross cited Dunkin’s Year in Review emails for loyalty members, similar to those created by Peloton and Spotify, as an example of a fast food chain that is already getting creative. These types of summaries recap a member’s year, giving data on how many free drinks they’ve earned at Dunkin ‘or how many hours they’ve worked with Peloton.

“I think it’s really great because no two emails are the same, because no consumer will be the same,” she said.

About Robert Moody

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