Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
It is often said that 80% of a restaurant’s sales come from just 20% of their most loyal customers.
This (questionable) stat is frequently used to highlight the importance of loyalty programs. The people who sign up for those programs, the wisdom holds, are likely to drive most of your business.
But it turns out that the other 80% of customers matter an awful lot, too.
During a year in which restaurant after restaurant has launched, re-launched or updated its loyalty program in an effort to jumpstart sluggish traffic, a parallel theme has emerged: Non-loyalty members who are not being reached by those marketing efforts are taking their business elsewhere.
This dynamic has been most prominent at Starbucks. Its Starbucks Rewards program boasts nearly 34 million members and is widely viewed as the gold standard for restaurant loyalty programs. But the coffee giant has been in the midst of a monumental traffic slump, in part because it has been paying so much attention to loyalty members and generally ignoring everyone else. One of the first priorities for new CEO Brian Niccol is to broaden the chain’s marketing strategy.
“We’ve been focusing on Starbucks Rewards customers rather than talking to all our customers,” Niccol said in a video published last month. “And we’re changing that quickly, as you likely have already seen. We’re prioritizing our brand, highlighting the handcrafted products customers expect, and showcasing the coffee innovation that sets Starbucks apart.”
You may have noticed, for instance, that Starbucks has been running TV commericals that focus on the quality of the chain’s coffee and the experience of its cafes. Mobile phones are conspicuously absent, and there’s no parting nudge to sign up or download anything.
Starbucks is not the only brand making this shift. At McDonald’s, where customers typically have to download the app to get discounts, the chain has taken a more populist approach with a $5 meal deal available to everyone. That deal, of course, helped spark a flurry of low-priced bundles across the industry—no loyalty account necessary.
“It’s not that loyalty programs are wrong. It’s just that they’re necessary but not sufficient,” said Noah Glass, CEO of online ordering provider Olo, in a recent interview. “You can’t just do loyalty. It needs to be couched in a guest engagement strategy that can be a net that captures all the guests.”
That could mean broad, brand-focused messaging like we’ve seen from Starbucks. It could also mean the opposite: One-to-one marketing that uses technology to tailor messages for specific customers, whether they are loyalty members or not.
Breakfast-and-lunch chain First Watch is one of the companies taking the latter approach. First Watch does not have a traditional loyalty program. Instead, it’s using data gathered from digital orders to appeal to individual customers in hopes of boosting traffic. Executives said they saw a small increase in average check last quarter as a result of their tests, though traffic was still down more than 4% compared to last year.
This isn’t to say that loyalty programs aren’t necessary or even that they aren’t effective. Red Robin, for instance, has celebrated the early returns from its revamped Red Robin Royalty club, and tests of a program at The Cheesecake Factory are exceeding the company's expectations.
But the programs, aimed as they are at such a small, hyper-engaged slice of a restaurant's audience, can be distracting at a time when operations should be working to attract as many people as possible.
Whether those people come back will depend on the food, the service, the experience. If those things aren’t on point, a loyalty program won’t matter, as Starbucks has learned.
“That rewards program is a valuable tool,” Niccol told analysts on an earnings call last month. “It's not the only tool, but it's a valuable tool that I think we could make work harder for us if we put it in concert with marketing that has more broad reach.”