Do Restaurant Loyalty Programs Really Work?

How loyal are your customers? Chances are, not very. According to one study, 43 percent of diners said they spend less than 25% of their total 30-day restaurant budget at their favorite restaurants. None spent more than 50% there!¹

From Delta Airlines to Amazon, companies facing unrelenting competition have long turned to loyalty programs to increase repeat business. And for good reasons:

• The cost to acquire new customers is up to 25 times higher than retaining the customers you already have ²
• A 5% increase in customer retention can increase profitability by up to 25%³

This lesson hasn't been lost on the foodservice industry. After decades of lagging behind other industries, national chains like Starbucks, Panera and Chick-fil-A have developed sophisticated loyalty programs using smartphone apps and other digital tools.

But do these programs really work? A consumer study by Deloitte found that loyalty program ranked 19th on the list factors that drive restaurant traffic, well behind traditional attractions like food quality and service.¹

So why are so many large chains pursuing this tactic?

For many patrons, especially Millennials and younger, loyalty programs have become an expectation in fast food and QSR. Since Millennials tend to dine out more than any other age group, operators can't ignore their preferences. But Millennials are not alone in their love of loyalty programs.

• 44% of consumers strongly agree that they are likely to base their decision of which restaurant to visit on whether they have a loyalty/rewards membership at that brand. 57% of consumers aged 18-34 say the same.⁴
• 37% of consumers strongly agree that they are seeking out restaurant deals and promotions more often now than they were two years ago. This is particularly true among consumers aged 18-34, of which 46% strongly agree.⁴
• One-fourth of consumers, and 35% of consumers aged 18-34, participate in restaurant-based loyalty/reward programs.⁴

So do restaurant loyalty programs actually work?

Just judging by the proliferation of restaurant loyalty programs, the answer would seem to be yes. And then there are specific success stories.

• Panera: In 2017, the 25 million members of the MyPanera loyalty program were responsible for a whopping 51% of the company's transactions.⁵
• Starbucks: Transactions made using the loyalty program represented 36% of U.S. company-operated sales in Q2 2017. Their loyalty members' average ticket size is 3 times that of the average customer. ⁶
• Chipotle: Gained more than 3.1 million members in the first three months of their Chiptopia loyalty program. It accounted for 30% of all transactions within its first month.⁶

Researchers at Deloitte reached a supporting conclusion:

When a consumer is open to the loyalty program concept, there is a very high likelihood (71%) that this consumer will join the loyalty program of his or her most-frequented restaurant and then use it more than any other loyalty program.¹

The biggest stumbling block to participation? Not knowing the loyalty program exists at their favorite restaurant.¹

It's important to note here that beyond boosting traffic, the customer data generated by loyalty programs are extraordinarily valuable in and of themselves. This data can help you design offers targeted to specific customers based on which products they buy, where, when and how often. It can also help you deliver these offers inexpensively through personalized email campaigns and other channels.

Should you start your own loyalty program?

Today you don't have to be a corporate giant to start a robust loyalty program. Several loyalty program solution vendors offer the digital infrastructure and consulting you need to be successful in packages starting for as little as $27 per month per location.

Given the compelling economic incentives, it would seem to be a no-brainer. But, while loyalty programs can seem like a magic bullet, a good program by itself will only be successful if you've already nailed the basics things customers say they care about most: food quality, service and value.¹

If you have the basics down, a good loyalty program can be the icing on the cake that tips the scales, and the profits, in your favor.

¹ Deloitte, Second helpings: Building consumer loyalty in the fast service and casual dining restaurant sector, 2014
² Harvard Business Review, "The Value of Keeping the Right Customers," 2014
³ Bain & Company
⁴ Technomic Inc., Value & Pricing Consumer Report, 2017
⁵ Loyalty360, "Panera Bread Surges Forward, Builds More Customer Loyalty Momentum,"February 16, 2017
⁶ Aaron Allen & Associates, 2017
⁷ Technomic Inc., Q3 2017 – Q2 2018 Consumer Brand Metrics