The digital revolution is leading to tremendous changes in the restaurant industry, and one of the hottest areas of innovation is loyalty programs. Consumers—especially younger generations—demand technology-enabled speed and convenience in everything they do, including ordering and paying for restaurant meals. Beyond that, they have a hunger to belong. They want to align themselves with brands that reflect their lifestyles and values—and they want to be rewarded for doing so.

Today, 44% of consumers participate in loyalty/rewards programs at limited-service restaurants; half of them report affiliation with one such program, while the other half are registered in programs with multiple brands. The most frequently mentioned brands are Domino’s Pizza, Dunkin’ Donuts, Panera, Starbucks and Subway.

In addition, one-third of diners have signed up for a loyalty program with at least one full-service restaurant. These respondents were most likely to have signed up at Applebee’s, Chili’s, Olive Garden and/or TGI Friday’s.

Not quite half of consumers (47%) report that they participate in more restaurant rewards programs than they did two years ago, while just 12% have cut back. However, affluent consumers are far more likely than others to say they’ve signed up for more loyalty programs over the past two years, in line with their heavier usage of restaurants in general.

LOYALTY PROGRAMS: THE MECHANICS

Even in 2014, only three out of 10 loyalty-program participants are linked to one or more restaurant rewards programs via their smartphone. More than six out of 10 have a plastic loyalty card or cards that can be swiped at the point of purchase. Three out of 10 carry at least one old-fashioned paper punch card that offers a free or discounted item after a certain number of purchases. Other respondents volunteered that they are registered with a rewards program with a keychain fob, via their phone number (which can be entered at point of purchase) or through an online ordering system that recognizes them. Obviously, many consumers are involved in various restaurant rewards programs via multiple methods.

One of the major enhancements to loyalty programs we’ve seen in the past two years is the proliferation of rewards linked to payment methods—such as via a smartphone app linked to the user’s credit or debit card, or a plastic loyalty card that’s also a declining-value card usable for purchases in that restaurant. Not quite four out of 10 consumers report that they are participants in at least one payment-linked program. These linked loyalty programs are likely the wave of the future, given that fully 92% of those who participate say that the payment link makes the rewards program more useful to them.


 

DO LOYALTY PROGRAMS REALLY LEAD TO LOYALTY?

Eight out of 10 participants in restaurant rewards programs affirm that they’re more likely to frequent a restaurant where they’re recognized as a loyal patron. And regardless of whether they currently participate in any loyalty programs, nine out of 10 consumers say they’d be likely to sign up for a new program inaugurated by a restaurant that was already a favorite of theirs. Of these enthusiasts, 94% say that after joining the new rewards club, they would likely patronize that restaurant even more often going forward.

THE DOWNSIDE OF REWARDS PROGRAMS

While these results show that diner enthusiasm for rewards programs is widespread, it’s far from universal. Two-thirds of consumers say they’d likely turn down the chance to join a restaurant loyalty program if there were a joining fee, and almost half would take a pass if they felt the rewards weren’t worth the hassle of signing up. Others say they might bypass a loyalty program because of concerns that their data might be hacked (43%), shared with other businesses (37%) or acquired by a government agency (33%). Some fret about too many emails (33%) or too many apps on their smartphone (27%).

Bottom line: Loyalty programs are an increasingly powerful tool for restaurants to build frequency and check size. What’s more, consumers are coming to expect that the restaurants they patronize offer a rewards system. Restaurants that delay implementation of a loyalty program are leaving money on the table.

About MarketBriefing Through MarketBriefing, American Express provides restaurants with research-based analysis of key industry developments. Data is collected and analyzed by Technomic, Inc. To subscribe or find past issues of MarketBriefing go to: www.technomic.com/MB. This issue of MarketBriefing was written by Rita Negrete in conjunction with Kimberly Perman. If you have questions, comments or topic suggestions, please contact Kimberly Perman at kperman@technomic.com or directly at (312) 506-3831.

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