The onset of the recession in the United States in December 2007 brought about a time of immense struggle for most in the restaurant industry, from QSR’s to fine dining establishments. Between 1990 and 2006, prior to the United States’ economic nosedive, the restaurant industry became increasingly saturated. During this period, the population grew by 22.6% while full service restaurants grew by 66.1%.[i] This combination hit an industry that operates on notoriously tight margins especially hard. Technomic, a restaurant consultancy, estimates that in 2009 alone the fine dining industry saw a 12-15% drop in sales.[ii] Casual Dining chains closed about 1,200 of their 18,000 nationwide locations during the recession. [iii]
What did the restaurant industry do to fight back?
In a report released in August 2010 by the National Restaurant Association, 77% of its responding members reported loyalty programs helped drive business to their restaurants during the recession. Along with driving business, 90% of the respondents said loyalty programs created a competitive advantage for their brand.[iv] While diners were paring down dining occasions during the recession, loyalty marketing programs provided incentives that drove repeat business and improved customer retention. While there was no complete saving grace from the wrath of the recession, loyalty marketing programs have proven their value and helped many restaurants survive, quickly regain diners and increase market share as the economy rebounded.
Restaurants across the service level spectrum have the opportunity to profit from loyalty marketing programs. The days of restaurant loyalty programs solely consisting of a punch card are long gone. Some have opted for paid enrollment programs. With over seventy restaurants and a myriad of brands, Lettuce Entertain You Enterprises has embraced an element of exclusivity with its frequent diner program by requiring a one-time $25 fee upon signing up. After a diner’s first visit to a Lettuce Entertain You restaurant their Rewards Card will be credited $10 and additional $10 on their second and third visits. Lettuce Entertain You offers its members a wide variety of rewards in the form of free meals, spa days and even all expenses paid vacations to Las Vegas. Other restaurant groups, like the Palm Restaurant, have adopted similar approaches.
Instead of discounting, some restaurant loyalty programs are focusing on non-financial incentives for their members as a way to provide differentiated rewards while maintaining their margins. Have you ever walked into a restaurant and the wait is just too long? T.G.I. Friday’s now offers members of its Earn Your Stripes rewards program a “Jump the Line” perk upon enrollment. While this approach has been adopted by some restaurants with loyalty programs, the majority still focus predominantly on financial based incentives. As the restaurant industry continues to invest and improve their loyalty marketing programs, we expect a hybrid approach to become the norm, especially in the fine dining segment.
Loyalty marketing has long held a strong foothold in the airline, grocery and hotel industries because of its proven impact on customer behavior and the incremental profits it generates. Industries that have seen the biggest impact from loyalty marketing are those that are defined by strong competition, high frequency patronage and high levels of competitive switching. Faced with similar challenges, the restaurant industry is poised to benefit from loyalty marketing as other industries have. However, the restaurant industry has been slower to adopt this form of marketing.
So why haven’t more restaurants adopted loyalty marketing programs?
Despite the potentially high returns loyalty marketing programs offer, there can be a substantial upfront investment associated with creating one. At a time when every dollar spent is scrutinized, new investments are not always met with enthusiasm and therefore can be difficult to implement even if there are both short and long term gains.
One of the most overlooked benefits of a loyalty marketing program is wealth of information that it provides a business with about their customers. The quantity and quality of data collected is superior to any other source as it represents actually customer behavior over time. Every business can benefit from data based customer insights and restaurants are no exception. Loyalty marketing programs collect data that provide insights on customer behavior, trends, marketing performance and demographic information, all of which enable restaurants to better target, reach and motivate current and prospective diners. With the restaurant industry slowly embracing loyalty marketing, it has created opportunities for adopters to create strong competitive positions and increase sales. Despite an upfront investment, loyalty marketing programs have proven their value. Restaurants with the foresight to incorporate a loyalty program into their marketing efforts before or during the recession weathered the storm better than their competitors and have found themselves in stronger financial positions. With restaurants looking for competitive advantages, it is only a matter of time before more restaurant brands incorporate loyalty programs into their marketing initiatives.
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[i] Martin, Andrew. “Empty Tables Threaten Some Restaurant Chains .” New York Times. 3 Apr. 2009: http://www.nytimes.com/2009/04/04/business/ 04restaurant.html?_r=2&pagewanted=1&em
[ii] Mclaughlin, Katy. “Recipe for Success.” Wall Street Journal. 23 Apr. 2009. http://online.wsj.com/article/SB124025031068735801.html
[iii] Martin, Andrew. “Empty Tables Threaten Some Restaurant Chains .” New York Times. 3 Apr. 2009: http://www.nytimes.com/2009/04/04/business/04restaurant.html?ref=applebeesinternationalinc
[iv] Stensson, Annika, comp. “New Research Finds that Customer Loyalty Programs Help Restaurants Weather the Economy, Gain Competitive Edge .” National Restaurant Association. 10 Aug. 2010. http://restaurant.org/pressroom/pressrelease/?ID=1988
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