Restaurants rely on customer loyalty programs to drive traffic

Alexandra Canal of Yahoo Finance joins the live show to discuss how businesses use loyalty programs to drive traffic and retain customers.

Video transcript

[MUSIC PLAYING]

BRIAN CHUNG: Well, any way for restaurants to deal with inflation? Benefits and reward programs. Here to discuss the role of customer loyalty in this economy? In this economy?

ALEXANDER CHANNEL: I was waiting for you to do this. In this economy? Please.

BRIAN CHUNG: Yahoo Finance’s Alexandra Channel. Look, I activated my Dunkin’ app.

ALEXANDER CHANNEL: To like.

BRIAN CHUNG: I think I’m ready for a free drink very soon. How important are rewards programs like this to keep customers coming back to the store at a time when things are getting expensive?

ALEXANDER CHANNEL: It’s true, things are expensive. Consumer spending is slowing. So those levers, right, loyalty programs, customer rewards, those can be different levers that businesses can pull in order to not only attract new customers, but also retain existing ones. So I spoke to a few loyalty experts in this field, and they basically explained to me that there is a ripple effect when it comes to loyalty. There is more traffic. There are higher expenses, higher check averages, commitment.

In fact, Chipotle’s CFO was yesterday on Yahoo Finance, talking about all the benefits of loyalty programs as the company expands its own program in Canada. Here’s a little more of what he had to say.

JACK HARTUNG: In the US, we’ve had our loyalty plan for just over three years now. We have 28 million members. And what attracts us the most is that we can have a more personalized relationship with these 28 million customers. And what we find when we look at our customers who join loyalty versus those who don’t join loyalty, those who join loyalty, after they join, they come to Chipotle more often, and they spend more when they come .

ALEXANDER CHANNEL: So really reiterate those benefits there. There are also reports that 30% of adult US consumers use rewards programs every month, with 43% saying they are more likely to eat out if they have a perks or loyalty program. So really interesting stuff. I know you use Dunkin’. I use the Starbucks app and constantly collect stars. So I see how this can be beneficial for restaurants.

BRIAN CHUNG: Well, the other thing, however, is that not all loyalty programs are created equal. I mean, your Starbucks rewards stars are a little different from Dunkin’ Donuts point system. Is there some sort of winning formula, if you will, for the kinds of loyalty programs that tend to keep people coming back?

ALEXANDER CHANNEL: Thus, the best brands will adjust their loyalty programs according to their needs. Thus, some companies want to generate traffic during off-peak hours. Other companies just want to get as much data as possible about their customer to determine that long-term value. Data, by the way, is one of the most important crucial elements of loyalty programs. The fact that you can tell what people order, when they order, how much they order is so, so important.

But there is one emerging trend, and that is early access to special products. So we’ve seen Papa John’s do that with their epic pepperoni stuffed crust pizza. We’ve also seen Taco Bell do this with their Mexican pizza, offering it early to consumers who are part of these loyalty programs. And I think as inflation continues, if we continue to be in this difficult economic environment, I think those kinds of rewards are only going to increase because it’s kind of a mutually beneficial relationship to this stage.

BRIAN CHUNG: What is your Starbucks star strategy? Do you like saving them for a greater reward? Or are you going out, like, slowly–

ALEXANDER CHANNEL: Yes.

BRIAN CHUNG: –leak the stars–

ALEXANDER CHANNEL: I save them. And sometimes I get mad at myself because I use them on, like, an iced coffee, when I should have saved it for, like, a double mocha latte…

BRIAN CHUNG: With all the fantasy–

ALEXANDER CHANNEL: –cappuccino. Yeah.

BRIAN CHUNG: Yeah.

ALEXANDER CHANNEL: And I think to myself, my God, why did I use my stars for this? So I do strategies for the stars.

BRIAN CHUNG: There’s like Reddit– I feel like there’s Reddit forums where it’s, like, people, like, figuring out what the max output is–

ALEXANDER CHANNEL: Are there? Should I track them down?

BRIAN CHUNG: I will send you a link. But there is a way…

ALEXANDER CHANNEL: Thanks.

BRIAN CHUNG: –that you can max out those stars, I’m sure.

ALEXANDER CHANNEL: Mm-hmm, it’s all about strategy, man. All about strategy.

BRIAN CHUNG: Yahoo Finance Alexandra Canal, thank you very much.

Joseph P. Harris