When most people think of QSR loyalty programs, (if they do at all) it’s usually on the order of buying X amounts of product and then receiving free food. Yet discount-heavy reward loyalty programs have seen a massive shift into more personalized, interactive and brand-focused efforts.
Loyalty programs for QSRs are now so ubiquitous that when Wingstop CEO Michael Skipworth recently mentioned the possibility of beginning a loyalty program on the company’s recent earnings call last week, it was major news in the QSR world.
QSR Insider spoke with Zach Goldstein, chief executive and founder of Thanx, a San Francisco-based guest engagement and retention platform, about the shift in loyalty programs in QSR.
Interview edited slightly for clarity and length.
QSR Insider: What's the problem with typical discount-heavy loyalty programs?
Zach Goldstein: Historically, restaurants have relied on discounts to acquire customers and drive traffic. Offering discounts has also been a key way for restaurants to incentivize customers to overcome the traditional friction associated with enrolling and engaging with loyalty programs. The greater the friction, whether from app requirements or check in procedures, the greater the discount needed to drive adoption altogether.
With labor skyrocketing and cost of goods higher than ever, restaurants need to protect margins, and discounts only whittle away at critical profits. Add in the existential threat of third-party delivery platforms siphoning cash via commissions while offering deals on your very same menu items, and discounting becomes a race to the bottom for restaurant brands.
What can a more custom-targeted approach accomplish?
True customer loyalty requires understanding individual customers and personalizing the interactions with those people.
Restaurants must look to enhance the customer experience and incentivize direct ordering through access, exclusivity and personalization. One way to offer exclusivity is to engage guests with hidden menus featuring exclusive items made available only to customers who order directly or reach a certain spend threshold.
What is it about loyalty programs that work? Who is doing it well?
Loyalty programs work because personalized communication drives six times higher revenue impact versus generic marketing, and because 80% of revenue comes from just 20% of customers, so it's important to know exactly who those customers are.
To find the best examples of loyalty programs, look outside restaurants.
I fly United over other airlines because of my loyalty status. Not only does United never offer me a discount, sometimes I pay more because I am hoping for a chance at an upgrade. This is a principle I call "access over discounts."
In restaurants, we have seen brands from Chipotle (Guac Mode) to Union Square Hospitality and Velvet Taco (secret VIP menus) utilize this principle to drive revenue impact.
How big a difference can loyalty programs make to a QSR's ultimate success?
It is mission-critical to capture customer data and, for a restaurant, there are only two ways to do this: loyalty programs and reservations (at least until restaurants go 100% digital). For QSRs, reservations aren't a thing (Actually outside white tablecloth venues, it's hard to capture enough data from reservations alone), so loyalty is now a must-have.
I loved this recent Wall Street Journal headline about McDonald's: "The battle isn’t for the tastiest sandwich or best drive-through—digital reach is what matters now in fast food." A loyalty program is the reason for a consumer to come to you instead of a third party.
Wingstop teased a potential loyalty program on its recent earning call. Why do you think it was slow to adopt a program?
Wingstop was far ahead on first-party digital ordering, which was a driver of higher average tickets (digital customers spend more) and higher margins (less sacrificed to third party) — a lead that only widened as others played catch up in COVID.
But the advantage has narrowed now as everyone has a digital ordering solution in-place and even the third parties are launching loyalty models of their own. Wingstop now finds themselves behind others like McDonald's, which had sworn off loyalty but now find it to be a major driver of lifetime value. Loyalty went from "nice to have" to "must have," which is why we have seen anti-loyalty adherents like Chipotle, then McDonald’s and (soon) Wingstop launch programs of their own.