June 28, 2018

Restaurants - Update on Loyalty Program Trends

DPZ, EAT, SBUX, YUM
By Bill Becorest
Restaurant companies are turning to heavily data-driven loyalty programs with strong mobile capabilities, seamless user experiences, and expanded rewards parameters to mitigate intense competition.

Tech Advancements Shaping Loyalty Trends
Membership in loyalty rewards programs increased yy for eight of nine store managers during 2Q18 at Domino’s Pizza Inc., Yum! Brands Inc.’s Pizza Hut and Brinker International Inc.'s Chili’s Grill & Bar, aided by heavy advertising, growth in mobile usage and good consumer response to improved programs. Sales from rewards programs at least met plan for all nine managers, with all three Domino's sources exceeding. “There is just an over-saturation of restaurants out there, and our rewards program is one of our most important tools for keeping customers happy and keeping them coming back,” one said. The intense competition in the restaurant space has driven strong demand for loyalty technology, according to loyalty industry executives. “We’re seeing a surge of innovation within the restaurant industry,” one said. “Restaurant companies that invest in heavily data-driven, mobile models that can provide customers with a combination of spend-based rewards and 'surprise and delight' experiences will be best positioned.” 

All three loyalty executives said the use of rewards programs in the restaurant industry has increased yy, and that trend is expected to continue during the next couple of years. “Loyalty programs, especially those with a strong mobile capability, are definitely on the rise,” one said. “Companies are now implementing sophisticated programs that enable segmented rewards marketing, incentivize social media behavior, and gamification. Domino’s is a good example of a very successful program that is now integrating game play into loyalty.” Domino's Piece of the Pie Pursuit mobile game, launched April 2, lets players who beat all six levels in the game earn 10 rewards points. Each game highlights different ways to order Domino’s (phone, in-store, emoji, smart TV, [Alphabet Inc.'s] Google Home, and online).

Loyalty executives most frequently mentioned Starbucks Corp. and Panera Bread Co. as companies with the most effective rewards programs. “Both of these companies have put tens of millions of dollars into their rewards programs because they’ve made it a priority,” one said. “Not a lot of companies are prepared or willing to put that kind of emphasis into loyalty.” Another cited Panera for providing great “surprise and delight” experiences (unexpected rewards) and smartly constructed rewards. "[The reward] might be $2 or $3 off a salad, which is valuable and relevant, but still requires a customer spend, and it’s extremely likely there will be add-ons,” he said.

New technologies from companies like Kobie Marketing Inc., Chirpify Inc. and Thanx Inc. are making sophisticated loyalty capabilities more accessible. “Ten years ago, so many companies were just thinking about loyalty,” one source said. “Now it’s much more prevalent because, No. 1, competition is forcing the issue; and No. 2, there are more vendors with better tech, especially for point-of-sale integration. The solutions are much more streamlined, and the onboarding technology has improved.” For example, Kobie Marketing’s Kobie Alchemy solution is a software-as-a-service loyalty and CRM platform, capable of deep customer segmentation, fully configurable rewards tiers, and omnichannel campaign management. Chirpify’s platform enables companies to reward customers based on social media interactions and behaviors, including specific keywords, hashtags, photos, shares and follows. “If a company is venturing into rewards for social media engagement, I always advise the first thing to do is to quantify the dollar value of that social media action,” one loyalty executive said. “It has to have a value or it can’t be measured.”

All three loyalty executives emphasized that rewards programs need to be as friction-less as possible for the consumer, including the sign-up process and member recognition. For example, Reward Connect Technology from Thanx tracks rewards progress via the member’s credit card; no phone number input, QR code, or loyalty card needed. 

Three of nine managers — all from Domino’s — said their Rewards programs had a significant impact on sales during 2Q18, with five reporting a moderate impact, and one reporting a slight impact. “[Rewards] is a major part of our daily transactions,” one Domino’s manager said. “We constantly mention it to customers, have great advertising around it, and there are also lots of in-store signage and reminders.” A Pizza Hut manager who reported a slight impact cited over-saturation of loyalty programs in general, and consumer privacy concerns. “People want to cut down on all the junk mail and text messages they receive,” he said. One loyalty executive said some consumers may feel overwhelmed with loyalty offers. “The average household represents membership in 30 rewards programs. But it’s become beneficial to both sides. Consumers love rewards and experiences, while merchants are gaining a much better understanding of who their customers are, and when and why they buy.” 

Sales Impact from Rewards During April-Late June
(number of managers)
 Domino’sPizza HutChili’s
Significant3--
Moderate-23
Slight-1-

Company Culture, Management Support Drive Rewards Success
When asked what the biggest challenges were, related to having a rewards program, store managers said a centralized system made it difficult to assist customers (five mentions), followed by technical problems (four) and saturation of rewards programs (two). “We are powerless when it comes to directly assisting customers in the Rewards system,” one said. “We have to refer them to a tech support number, which frustrates customers sometimes.” One loyalty executive confirmed this frustration is why operational execution is key to a successful rewards initiative. “A successful program has to be part of the company culture from the very top corporate level on down. I know of one small sports bar chain with 33 units in which 70% of its sales come from loyalty club members. It’s because the CEO is passionate about the program.”

Another loyalty executive cautioned about the overuse of technology and over-complicating the user experience, citing Chili’s troubled My Chili’s + Plenti program -- operated by American Express Co.'s American Express Travel Related Services Inc. (terminated at the end of 2017 and replaced with the simplified My Chili’s Rewards program – see OTR Global’s April report). “When you are combining tablets with check-ins, and QR codes and rewards redemptions at multiple national chains, it may seem like a great technology advancement, but when you watch the consumer, they are more confused than anything else.” The source noted that coalition programs like Plenti are often problematic in the United States because the consumer marketplace is so fragmented. “It works in places like Canada, the United Kingdom and Scandinavia because you often have government-subsidized national gasoline and airline companies that dominate the marketplace,” he said. The Plenti program, with remaining partners Exxon Mobil Corp., Rite Aid Corp., Southeastern Grocer LLC's Bi-Lo, Harveys, and Winn-Dixie, will officially end on July 10.

ADDITIONAL QUOTES
“Panera is one of the more interesting loyalty programs. It feels a lot like a ‘surprise and delight program,’ but at the same time you can look into your account and find out how close you are to getting your free muffin.”

“Our own proprietary research shows that a consumer will not download an app unless they are already an advocate of that brand.”

“Simple but valuable perks are great. One example is a free cup of coffee every day of the month. Now this sounds pretty good to the customer, and the restaurant’s cost is cents on the dollar.”

“Rewards programs are increasingly being utilized as a central component of a restaurant’s sales and marketing strategies.”

“Plenti was a big mistake for Chili's. They jammed unwanted technology and an over-complicated loyalty program down the throats of their customers.”

Contributors: Maryann Jones

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