New York (CNN Business)McDonald’s is offering you the chance to earn points for chicken sandwiches or vanilla cones. At Popeyes, you could get a special meal not available to anyone else. And at one point, Chipotle even dangled the possibility of winning a car.
That’s because restaurants are ramping up their rewards programs. For them, it’s a way to learn more about their customers and keep up the momentum in online orders that began during the pandemic.
McDonald’s announced in June that its rewards program will go national this summer. Around the same time, Popeyes unveiled one for the first time — months after its sister brand Burger King, also owned by Restaurant Brands International (QSR), started testing its own. Chipotle, which launched its own national rewards program in 2019, in June announced an update that lets customers earn more rewards, like Chipotle apparel. They can also use the points to support organizations Chipotle works with, like the National Young Farmers Coalition, a nonprofit that advocates for young farmers. To promote the update, Chipotle rolled out a game with a big prize for the winner: A Tesla (the game was only available for two days).
During the pandemic, when restaurants closed their doors and shifted their business to takeout, delivery and drive-thru, digital orders — those placed online or through a mobile app — went through the roof. Chipotle, for example, reported that digital sales grew about 174% in 2020, accounting for 46% of total sales. In the first quarter of this year, digital sales made up about half of sales at Chipotle.
At McDonald’s, “digital sales exceeded $10 billion, or nearly 20% of systemwide sales, in 2020 across our top six markets,” CEO Chris Kempczinski said during an analyst call in January.
Rewards programs, which are often limited to app users, can help restaurants continue and build on this growth, said Andrew Charles, a restaurant analyst at Cowen. After about a year-and-a-half of digital growth, loyalty programs “represent an evolution,” he said.
Access to customer data
Loyalty programs are important to restaurants because they help them learn more about their customers through data collection, he noted.
Restaurants don’t know much about people who place orders at a restaurant counter or using a drive-thru. But if they order through the restaurant’s app, restaurants “know when that customer comes in, what their ordering preferences are,” Charles said. “They’re going to get to know this person a lot better and so therefore they can market to this person a lot more effectively.”
A restaurant could, for example, encourage customers who tend to place orders on the weekend to come in more often by offering weekday deals, Charles said.
And as restaurants look to their competitors’ new or improved programs, they’ll want to make sure that they’re not falling behind, he noted. “The competitive ante is being raised,” he said.
For companies like Chipotle (CMG), which already had a loyalty program, a refresh can help keep customers interested.
“Rewards programs really can’t stay static,” said BTIG restaurant analyst Peter Saleh. “Most of them evolve and make some sort of change every 18 months or two years to attract new customers and retain the ones they have.” Starbucks (SBUX), which has had a rewards program for years, announced changes to its program last summer.
But for companies, there’s a risk to rewards if they don’t lead to more loyal customers who spend more. “Loyalty programs are not easy,” he said. They’re “essentially giving away food.”
McDonald’s (MCD), which tested its new rewards program in Phoenix and New England before announcing the national launch, said its pleased with the results so far. “Our loyalty customers are far more likely to return in the next 30 days compared to non-loyalty customers,” Joseph Erlinger, president of McDonald’s USA, said in April. He added that adoption of the program is also up.
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