More than a third of operators say they’re dissatisfied with their loyalty programs. | Photo: Shutterstock
If you follow the restaurant industry even casually, you have probably noticed that a lot of restaurants seem to be changing up their loyalty programs recently.
Over the past two years, a long list of chains, including Potbelly, Red Robin, Sweetgreen, Cava, Jimmy Johns, Krispy Kreme and more, have overhauled their programs.
“Absolutely, it’s all over the place,” said Olga Lopategui, owner of consulting firm Restaurant Loyalty Specialists. “It’s almost like, who hasn’t changed their loyalty program?”
Loyalty is one of the hottest areas of technology for restaurants right now. With consumers cutting back on dining out due to inflation and economic uncertainty, restaurants are looking for ways to drive visits and keep customers coming back. Offering them rewards is one effective way to do that.
It’s no surprise, then, that nearly half of restaurants (46%) said they planned to invest in digital marketing/loyalty this year, the most of any tech category, according to a survey from Restaurant Business and Nation’s Restaurant News.
But loyalty programs are also an area ripe for change. In that same survey, 37% of operators said they were dissatisfied with their current loyalty program, and just 19% reported being very satisfied.
The reasons for this are as varied as the new programs themselves. Operators and loyalty experts say restaurants want more engaging programs and more flexible technology. There are also practical reasons for changing, such as a desire to reduce the amount of free stuff a restaurant is giving away.
It’s not always that older programs are bad or ineffective, said Joe Yetter, GM of engagement for restaurant tech supplier PAR. “It’s that a lot of brands have been doing that for many years, and they need to just take it up a notch. … That base system got them from A to B, but now they need to go from B to C-D-E.”
“It’s almost like, who hasn’t changed their loyalty program?” —Olga Lopategui, Restaurant Loyalty Specialists
Many brands relaunching their loyalty programs are upgrading from a more basic structure to something more dynamic in hopes of grabbing customers’ attention and getting them to visit more frequently.
“A lot of programs were stuck in, spend X dollars, get some amount of currency back, and you could apply that currency to your future check,” said Zach Goldstein, founder and CEO of loyalty provider Thanx. “That’s not really that exciting to consumers and it’s not really differentiated.”
Wisconsin-based Toppers Pizza had been doing just that with its first digital loyalty program launched in 2021. Customers could earn 1 point per $1 spent at Toppers, and get a $10 reward to spend on anything once they’d racked up 100 points.
But as the Toppers team studied the results of the program, they found that the average customer spent $20 to $30 per visit, meaning it took three or four visits to earn a reward.
“We felt like that was just too long,” said Mac Malchow, the chain’s VP of marketing and development. “We wanted people to have an incentive to come back sooner. Even off of that first purchase, they could have the ability to redeem something in the loyalty program, and certainly by purchase number two.”
So about a year ago, Toppers began developing a new program that rolled out in September. Under the new format, customers still earn 1 point per $1 spent, but they no longer have to collect 100 points before they can get a reward. They can get a free dipping sauce at 20 points or free garlic knots at 50.
The mark of success for the new program will be whether the change boosts participation, which Toppers measures as the overall share of orders that come from loyalty members.
It’s still early, but the participation rate has increased to nearly 40%, up from the low 30% range. “I’m not sure if that will maintain or what will happen over time, but it’s the number we’re tracking,” Malchow said.
Colorado-based Cheba Hut also recently switched from a basic program to one that is more modern. In this case, the goal was to get more people to join the program beyond just the sandwich chain’s most loyal customers.
Cheba Hut’s previous program gave customers a $4.20 reward after they spent $100, a nod to the brand’s stoner theme. Adam Porter, the chain’s senior director of marketing, acknowledged that the program was not all that appealing for the average customer. Loyal customers picked it up, but it didn’t do much beyond that.
“Really the people that you want to incent to change their behavior aren’t people already walking in the door three times a month,” he said.
The other issue with the old program was that customers had to physically scan their receipt or app at checkout to collect points for that transaction. They didn’t always remember or bother to do this, which made Cheba Hut’s data on loyalty members unreliable.
So the chain went looking for a program that would be both easier to use and also more appealing to the occasional customer.
Cheba Hut’s new system, launched in July, integrates directly with its online ordering software and is tied to customers’ credit cards. This makes signup seamless—anyone who orders online is automatically enrolled—and it allows Cheba Hut to capture more transaction data than before.
As for the program itself, customers collect a currency called “Coin” at a rate of 10 Coin per $1 spent. They can then redeem Coin for food at various price tiers, creating a faster rewards cycle than before.
Cheba Hut has also made the program more experiential, creating a set of characters called the Munchie Mob who customers try to “tame” by earning and spending points. The Munchie Mob narrative is woven into the chain’s marketing emails and overall branding as well.
“It’s a bit more compelling and tells a bit more of the brand story than just being like, ‘Hey, here’s your $4.20 for spending $100,’” Porter said.
Cheba Hut’s new loyalty program centers on the Munchie Mob. | Images courtesy of Cheba Hut
He said that it’s too early to tell whether the new program has translated to higher customer frequency or spending. But it has accomplished the chain’s main goal, which was to increase signups: Since making the switch, enrollment has spiked by 6x and participation has doubled.
“That participation rate number is something that normally you get incremental upward or downward movement, but it’s not something that typically moves fast,” Porter said. “So to see it double overnight was a huge win for us and exactly what we hoped for.”
“Really the people that you want to incent to change their behavior aren’t people already walking in the door three times a month.” —Adam Porter, Cheba Hut
While more flexible and engaging programs may be better at drawing in customers, the added features can also serve another purpose: to help brands disguise structural changes to the programs that customers might not like.
Lopategui said that for many brands that are revamping their loyalty programs, the underlying goal has been to reduce the level of discount they are giving out.
Restaurant loyalty programs, she said, tend to be far more generous than those in other industries. While airline, hotel and retail rewards programs typically give customers back 1% of what they spend, restaurants’ may return as much as 10% or more.
While that’s great for customers, it’s an uncomfortable figure for restaurants that are working furiously to lower expenses as operating costs continue to rise.
“For virtually everybody that we work with, we help them transition, sometimes gradually, sometimes in one shot, from 10-ish percent down to 4, 5, 6%,” Lopategui said.
One of the best ways to do this is to introduce smaller, entry-level rewards that allow customers to spend points faster, but lower the cost of the program overall.
“What we are recommending, for the first reward, in order to get to it as fast as possible, maybe give them points to get almost all the way to the first reward as soon as they sign up,” she said.
Another sneaky update that is often embedded in the fine print of new loyalty programs is a change to how long it takes for points to expire.
Points that have a long expiration date or don’t expire at all are an accounting liability because they represent freebies that the restaurant has yet to fulfill. On the other hand, expiring points are a great way to motivate customers to visit.
“There needs to be a reasonable expiration, but more than that, for smart brands, it has to be used as a carrot for the next transaction,” Lopategui said.
Many customers won’t even notice these changes, but savvy ones will, and this can create headaches for brands. Both Starbucks and Dunkin have faced backlash in recent years after making it harder for members to earn certain rewards.
“When you devalue your program, there is a pretty predictable arc, where there can be some uproar from customers,” Goldstein said. But, “customers quickly adjust to the new normal. The truly loyal customers adapt.”
Both Toppers and Cheba Hut said they got pushback from certain customers when they changed their programs, but that was to be expected. The brands worked to make it right where possible, offering frustrated customers a gift card or some other reward.
“Our goal with the transition is just kind of kill people with kindness and make them happy, because at the end of the day they’re our loyal guests,” Porter said.
“[Loyalty] always is going to need to evolve in some way, shape or form over time.” —Mac Malchow, Toppers Pizza
While there is still no single, tried-and-true loyalty strategy for restaurants, one thing seems clear: Any program will need to continue to evolve to stay successful and relevant.
“I am hopeful that this is actually the beginning not of a multi-year period that we return to three years from now and we say, ‘Wow, they’re refreshing again,’ but rather a move towards a more dynamic form of loyalty that’s constantly changing,” Goldstein said.
Malchow said he would be surprised if Toppers’ loyalty system did not change again over the next few years.
“I view loyalty programs as table stakes today rather than a competitive advantage in a lot of ways,” he said. “Just that alone tells me our competitors are going to change their programs. They’re going to learn something, make an adjustment, and customers are gonna leak in that direction and we’ll probably end up continuing to study and make changes ourselves. … It always is going to need to evolve in some way, shape or form over time.”
