What if every restaurant customer could feel like a regular?
It could be the next billion-dollar question for restaurant technology.
Big tech vendors such as Toast, Olo and DoorDash are making moves aimed at using customer data to enable more personalized service, both in the dining room and online. It gives them another product to offer restaurants, for one, but the strategy also promises to increase sales and traffic, which many operators badly need.
Toast is just the latest example. Last week, the POS supplier announced that it is partnering with American Express (the owner of Resy and Tock) to use reservations data to put more customer information into the hands of hosts and servers.
Employees will be able to see whether a customer has allergies, if it’s their birthday, and what dishes or drinks they like. The thinking is that those customers will appreciate the personal touch, and will come back to the restaurant more often.
“Empowering the staff, the host and server, with that data is really valuable in creating personalized experiences,” Toast CEO Aman Narang said during a call with analysts last week.
Online ordering provider Olo has long beaten the drum for using digital order data to shape marketing. And DoorDash forced its way into the conversation this spring with the acquisition of SevenRooms, a reservations and marketing platform. They’re far from the only tech providers preaching this philosophy, though they are among the very biggest.
Restaurants, meanwhile, are increasingly adopting data-driven marketing strategies as they look to drive more predictable and profitable traffic. If you listen to restaurant earnings calls, "one-to-one marketing" should definitely be on your bingo card.
It’s the next logical step for an industry that has spent the past five or so years digitizing orders and collecting reams of customer info from those orders. Instead of treating every customer the same, the story goes, restaurants can use that data to adapt their service and marketing to peoples' personal tastes and preferences.
The question is, and has always been, will it work?
How much do customers truly value being treated like a “regular,” compared to other forms of recognition?
According to Technomic data on restaurant loyalty programs, not all that much. When asked which type of loyalty perks they prefer, 30% of consumers said free items or meals (obviously) after a certain number of purchases, while 18% said points-based rewards. Just 3% said personalized offers based on past purchases.
Of course, customers will always value free food over pretty much anything else. And what customers say is not always what they do.
Data from other industries makes a strong case for a personalized approach. According to a 2021 McKinsey study, companies that invested in personalized marketing saw faster revenue growth and were more likely to have new customers return and existing customers spend more.
At Starbucks, there's a concerted effort underway to shift its loyalty marketing from broad-based freebies to a more tailored experience. Rather than make customers more loyal, the previous "one-size-fits-all" program became a “discounting mechanism,” which hurt sales, CEO Brian Niccol told analysts last month.
The new program will give away fewer freebies, and will instead focus on growing “loyalty, brand love and engagement,” he said. This will be a change worth watching, as Starbucks Rewards is one of the largest restaurant loyalty programs in the world.
Elsewhere in the field, there are other signs that this sort of approach is working.
Yum Brands, the owner of Taco Bell, KFC and Pizza Hut, has been using AI to power personalized marketing for customers who order online in some markets. Executives said last week that Yum is seeing “significantly higher return on targeted communications,” and noted that its total digital sales mix rose 7 points year over year, to 57%.
The Cheesecake Factory has been slowly rolling out its first loyalty program with one-to-one marketing in mind. This year, it transitioned from a broad-based approach where every member received the same offers to a more targeted strategy based on customers’ ordering patterns. It has seen redemptions increase 3 points, to 4%, since making the change.
There is less evidence available when it comes to using data to improve service for customers dining in the restaurant, as Toast and others are setting out to do. For now, this part of the equation may continue to be a combination of art and science.
At First Watch, data-driven personalization is one part of a multi-pronged marketing strategy. But the breakfast chain has also encouraged a more intuitive form of customer loyalty, empowering its employees to brighten customers’ days by giving away the occasional free item; a special mug for first responders; or onesies for customers with newborn babies.
CEO Chris Tomasso acknowledged that the impact of some of those efforts is difficult to measure. But First Watch is OK with that.
“If it’s the right thing to do, and we’re able to do it, then we lean into it,” he said. “I can tell you anecdotally, or qualitatively, the feedback has been tremendous, both from our team and from our customers.”
The lesson there is that data is not always needed to provide great hospitality.
And ultimately, the impact of all of these personalization efforts is probably going to be marginal for a while. While restaurants have come a long way in terms of digitization, the vast majority (around 80%) of transactions are still non-digital, and therefore largely invisible to operators from a data perspective.
As Yum CEO Chris Turner pointed out, the best way to grow that pie is to make online ordering easier.
“The bigger driver of top line growth through digital is just making an easier experience for consumers, allowing them more easily to customize their orders and more easily to expand check sizes,” he said during an earnings call last week. “Everywhere we increase digital mix, we see higher check sizes and higher frequency from our consumers. Of course, consumer insights and loyalty will be a big part of that as well.”