Eating places depend on loyalty applications to carry onto digital earnings
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 supremacy in the chicken sandwich. The loyalty program wars are coming.
According to market researcher NPD Group, digital orders in restaurants rose 124% in the year ended March. And the skyrocketing popularity of online ordering during the coronavirus pandemic is motivating large fast food chains to use rewards programs to attract new customers to mobile apps. Most restaurant chains now automatically sign up for loyalty programs as soon as guests order via a mobile app.
Starbucks, Panera Bread and Domino’s Pizza paved the way, while Chipotle Mexican Grill launched its own version in 2019. But the last year has brought even more players to the arena. Wendy’s, Taco Bell from Yum Brands and Burger King from Restaurant Brands International are among the new additions, and McDonald’s and Jack in the Box are preparing to launch loyalty programs later this year.
“With Covid-19 and consumer behavior change, we’ve really seen a huge upward trend, from the biggest brands that have somehow held out, I would say they are now starting programs to keep and keep consumers coming back . ” Loyalty, “said Elle Kross, director of Client Strategy for Travel, Hospitality and Food Services at Movable Ink, a digital marketing company.
According to Aaron Allen, founder of restaurant consulting firm Aaron Allen & Associates, loyalty programs contribute to more frequent visits and higher average controls.
For example, Brian Niccol, CEO of Chipotle, told analysts in April that the company’s loyalty program has driven additional deals in its “light, medium and heavy consumer segments.” Before the pandemic, the chain’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 has consistently pushed consumers into its loyalty program by releasing them early on with new menu items and by keeping some items like the quesadilla only available digitally.
However, these aren’t the only factors driving the boom in restaurant loyalty programs. Companies also want to learn more about customers – collect and analyze data based on their order preferences and personal information. This consumer data can be used to better target customers, both with marketing offers and for future opportunities such as new menu items.
“We’re a long way from the subway punch card,” said Allen.
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At the moment, customers don’t mind giving up this data about themselves in exchange for the occasional free drink or discount. Goldman Sachs asked 2,000 consumers what they thought about technical features in the hospitality industry. Loyalty programs are becoming increasingly important for these consumers, according to the survey.
While restaurant loyalty programs differ in design and rewards, unlike airline rewards programs, most programs do not use separate tiers based on the number of points earned. Starbucks, for example, lowered its levels in 2019 to encourage new members to join its loyalty program.
In the three quarters following the Starbucks change, 3.1 million loyalty members were added, up 15% over the same point in 2019. And during that period, the company saw strong quarterly sales growth in the same store in the US, a drag on business with the exception of the start of the pandemic.
During the crisis, the coffee giant changed its loyalty program again and expanded the number of payment options to include cash and PayPal. In Starbucks’ second fiscal quarter of this year, 52% of sales in company-owned cafes in the US came from Starbucks Rewards members. Mobile orders accounted for 26% of corporate transactions in the US, up from 18% last year.
That’s the kind of digital growth and loyalty that McDonald’s seeks to emulate with its upcoming rewards program. The chain’s U.S. president Joe Erlinger told analysts in April that the company had nearly $ 1.5 billion in digital revenue in the first quarter, including orders through its digital kiosks, mobile apps, and delivery platforms. But that number could be even higher. As of February, it will test the program at 900 of its 14,000 US locations, with restaurants in Arizona, Nevada, and New England participating.
Restaurants also rely on loyalty programs to add more personal touch to customer interactions, even when zooming into the drive-through lane. The latest restaurant design from Panera Bread automatically recognizes loyal members whether they walk through the driveway or enter the location.
“Once you are identified, the vision is for us to interact and recognize and treat you as a person with preferences,” said Eduardo Luz, Panera’s Chief Brand and Concept Officer, in an interview in May. “That’s what you expect when you go to a neighborhood café.”
Luz said the company is considering several options to make this a reality, including code scanning or microfencing technology. The first location in the new restaurant design is scheduled to open in Ballwin, Missouri, in November.
One of the big questions for restaurants with existing loyalty programs is how to keep loyalty members even when competitors have competing plans in motion. Fast food chains may need to increase the number or quality of member rewards and bet that the blessings of consumer data will make up for those losses.
“The tipping point or turning point is that we don’t want to download an app for every place we go,” Allen said. “So we think this is another driver that divides the haves and the haves.”
Big restaurant chains like McDonald’s and Chipotle have the capital to invest in technology such as improving mobile apps and building smooth rewards programs. But smaller chains and independent restaurants won’t be able to keep up. Instead, third-party companies could create loyalty programs for smaller players, but the companies that use these plans don’t get the same customer data as a chain that has created their own rewards program.
Competition is likely even among the big chains. Everyone predicts that the restaurant giants will become more savvy, aggressive, and adopt strategies similar to those used in the hospitality industry. Hilton Honors, for example, compares the award status for customers of competing hoteliers.
Kross referred to Dunkin’s loyal member emails created over the past year, similar to those from Peloton and Spotify, as an example of a fast food chain already getting creative. These type of summaries summarize the members ‘year and how many free drinks they made at Dunkin’ or how many hours they spent training with Peloton.
“I think that’s really great because no two emails will be the same, because no two consumers will be the same,” she said.