loyalty, personalization, and QSR
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Panera offers a two-tier loyalty program: 1) a free tier where return customers earn discounts and freebies and 2) a paid tier that also includes unlimited coffee and fountain drinks. The former is standard QSR fare, while the latter (the “Sip Club”) is an innovation that has commanded enough purchasing power to justify a 25% price hike earlier this year.
“Unlimited” works for coffee and beverages. Unlike unlimited shrimp (which Red Lobster figured out the hard way), restaurants can deliver beverages in high volumes without the risk of breaking the bank. And coffee is something of a commodity (sorry coffee snobs) consumed at multiple points throughout the day.
Kudos to Panera for finding an edge. That said, the unlimited thing only works in very specific instances, like coffee. And the race to the bottom of earn-points-for-free-food is wearing thin on consumers.
So what will be the next big wave of innovation in loyalty?
Enter personalization.
As emotional attachment to brands dips due to loyalty saturation, restaurant chains are turning to real-time consumer data and AI to provide more personalized perks that foster engagement.
Back to Panera. They were a pioneer in loyalty long before the Sip Club, launching one of the first rewards-based programs in QSR. This program, powered by a prominent QSR loyalty provider, has served the company well. But it’s petering out.
A Panera executive that Alium recently spoke with shared their desire to find a loyalty solution beyond their current one. A provider that offers “live interface(s) and (abilities to) make tweaks to the loyalty program, to the discounts, to the algorithm, adjust the scale of the algorithms to make them more rich or less rich.”
That sounds kind of like a personalization engine that HAPPENS to power loyalty.
Last year, Sweetgreen also jumped into personalization with a two-tiered loyalty program aimed at offering limited-edition merchandise in exchange for completing personalized challenges.
In a conversation that Alium conducted with one of Sweetgreen’s executives, they shared that they ”don't want loyalty to purely be a discount mechanism. (We) want to understand how customers are engaging with the brand, (how) all of those things are impacting decisions, (winning) share of wallet, and then ultimately (becoming) an advocate for your brand. And that goes beyond just like a (discount) program that you launch out to the world.”
Sweetgreen’s loyalty program is mostly homegrown after having moved off a third party provider a couple of years ago. They still use a third party for sending promos, but they’re none too pleased as “There’s no vanity promo codes, which is like a no-brainer in this day and age, right?”
Again, a shortfall when it comes to personalization in its simplest form.
At the end of the day, Panera’s Sip Club is table stakes in QSR’s loyalty long game. While it’s unlikely that we’ll see a subscription to Chipotle’s unlimited burrito club (although that should totally be a thing), tiered memberships for basic products aren’t going away. Even with brand loyalty fading in a saturated loyalty market, QSRs will implement many tactics in the hopes that you stay engaged.
The more interesting story is predicting how personalized experiences will unfold. Fast food chains are treasure troves of first-party data, and despite 40% of sales taking place online, they’re poised to take advantage of understanding their customers on a granular level. And to be clear, a free latte on my birthday is basic (wow that sounds entitled). Sending me a push notification because you know my son likes a 10-piece McNugget meal every Tuesday before his lacrosse game is winning.
Speaking of winners, I’m not in the business of picking them. But whoever combines loyalty and personalization into one cohesive solution will prevail.
Jon ✌️