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Inflation: Restaurant loyalty programs key 'lever' amid uncertainty, says analyst

·Senior Reporter
·4 min read
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Amid rampant inflation, more restaurants are leaning on loyalty and reward programs.

"Without question, restaurant organizations that invest in loyalty see greater sales, higher retention of customers, and, we believe, higher margins long-term," Savneet Singh, CEO of restaurant management platform PAR Technology, told Yahoo Finance.

According to Singh, reward programs lead to greater customer loyalty, which, in turn, drives frequency, spend, check averages, and engagement — especially during tough economic times.

PAR, the parent company of loyalty app Punchh, whose client list includes top brands like Taco Bell, Pizza Hut, KFC, and Arby's, among others, helps brands improve operations to better capture the long-term value of a customer.

"When you build a loyal following, that following comes back to your restaurant. You don't need to re-market to them, but more importantly, you have more data on them," Singh said.

He added, "Loyalty programs are an incredible way to build a bond with that customer so they stay with you for the long run."

Taco Bell's 'Taco Lover's Pass' cultivates brand loyalty amid inflation (CTSY: Taco Bell)
Taco Bell's 'Taco Lover's Pass' cultivates brand loyalty amid inflation (CTSY: Taco Bell)

Recent data proves the benefits of these types of offerings with Chipotle (CMG) announcing just last week that it has expanded its loyalty program to Canada.

"The thing that's most attractive to us is we can have a more personalized one-to-one relationship with [these customers]," Chipotle CFO Jack Hartung told Yahoo Finance in a new interview, revealing that the Mexican chain's loyalty program boasts 28 million members and counting.

"Those who join loyalty come to Chipotle more often, and they spend more when they come," the executive continued.

Similarly, Taco Bell (YUM) revealed earlier this year that members of its subscription service, the Taco Lover’s Pass, were three times more likely to visit a Taco Bell restaurant per month.

The company added that the program boosted new reward members by 20% and generated a 35% increase in overall spending from active members.

In the U.S. alone, nearly one in three restaurant customers use loyalty programs each month, according to the latest edition of PYMNTS' Digital Divide series.

A separate study found that 43% of diners said they would be more inclined to purchase from restaurants that offer loyalty rewards.

Rewards and digital go hand-in-hand...Peter Saleh, BTIG Analyst

Peter Saleh, managing director and restaurant analyst at BTIG, told Yahoo Finance that "almost everybody has a rewards program."

He described it as a necessary "lever" to drive growth, emphasizing that most companies will need to eventually utilize their own digital-first programs as they mature.

But the analyst noted that the most powerful factor of a rewards program is "you get to learn a lot about your customer."

"Restaurants that have loyalty programs know when a customer ordered, what they ordered, how much they spent, what location they visited, their age — all types of data that allows these restaurants [to make better decisions]," he explained.

Singh added that technology has also created a more sophisticated way of tracking loyalty programs by utilizing that real-time data to better drive long-term customer value.

"Rewards and digital go hand-in-hand," Saleh agreed. "The most powerful thing is all the data that these companies capture over the course of time."

'The needs of the brand'

As brands grow and mature, their reward programs might change, too, with more companies offering perks beyond just promotions and discounts.

"The best [companies] are adjusting their loyalty programs to fit the needs of their brand, rather than just adopting a one-size-fits-all approach," Singh revealed.

He explained that loyalty programs can serve a variety of purposes, with some brands opting to drive business during off-peak hours while others would rather focus on collecting customer data.

Then there are the loyalty programs that focus on cultivating just that — loyalty — by providing members with early access to special products.

Fast food giants like Papa John's and Taco Bell have recently capitalized on the up-and-coming trend, offering early access to menu items like the Epic Pepperoni-Stuffed Crust Pizza and Mexican Pizza, respectively.

"It's a way to reward loyalty customers, and also prove why they should keep that app on their phone," Singh said, adding that the new offering is an "incredible way for restaurants to build a connection."

"I think as we get into potential economic uncertainty, you'll see more and more of those because the value of being close to your customer is significantly higher," he predicted.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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