A restaurant’s rewards program is a critical tool for attracting and retaining loyal guests – even more so since the pandemic has changed how the public buys food from restaurants. Now, the uncertainty in the economy has encouraged restaurant brands to not only get more creative about the rewards they offer, but also to overhaul their programs altogether. In some cases, the changes may be designed to appeal to guests in new ways, while in others they may simply be an unavoidable reflection of the challenges restaurants are experiencing. Starbucks, for one, will soon be changing its loyalty program for the first time in two years. The brand is reducing the number of thresholds at which guests can redeem rewards, while lowering the reward cost of several menu items. The consumer response to the change has been largely negative, which may serve as a warning sign for other brands. If you’re contemplating scaling back your rewards program out of necessity, consider how you might still send the message that you’re providing value. That may have to happen in ways that don’t stretch your budget – perhaps some exclusive menu items for rewards program members, or an experiential benefit for your best guests.
While the economy is still struggling, it doesn’t seem to be putting a significant dent in consumer spending in restaurants. According to Paul Westra, managing director of restaurant investment research at Capital One, consumers are only dining out 10 percent less than they were in 2019. He predicts that any recessionary impact on consumer spending is more likely to occur in the second half of this year – so in the meantime, restaurants have an opportunity to maximize profitability and build up a cushion ahead of a possible slowdown. Dynamic pricing may help operators make the most from busy periods and drive traffic during slower periods. In fact, Restaurant Dive includes dynamic pricing among its predicted trends for 2023, saying the ability to adjust pricing based on factors such as weather, time of day, or local events may help protect restaurants’ bottom lines. Just tread lightly on changes. While consumers tend to understand the need for restaurants to inflate prices to compensate for supply shortages, inflation and overall operating costs right now, they may be more cynical about seemingly random shifts in price. Be prepared to answer questions from guests, particularly if they have noticed your business elevating costs for premium ingredients or the costs of taking care of staff.
Your business has likely been taking a range of actions to manage inflation and lower costs, from revamping the menu to working with a smaller staff. But according to the latest edition of PYMNTS’ Digital Divide Study, which surveyed over 2,300 restaurant customers in the U.S., the biggest change that consumers noticed restaurants making right now was reducing their hours or closing their dining rooms (49 percent). This figure was well above the percentage of guests who noticed longer order processing times, lower-quality service or lower-quality food in restaurants. While closing dining rooms and reducing hours may be unavoidable for many operators in the midst of a labor crunch and high inflation, the fact that such a large percentage of consumers are noticing this change indicates that restaurants could be missing sales opportunities and likely turning off potential guests who seek them out only to find they’re not open. If you’re open less frequently right now or have closed your dining room, regularly ask for guests’ feedback about what they like and when they eat your food – and mine your tech for this data – to ensure that you’re making the most of the more limited service you’re offering. That could call for changing up your menu to ensure it includes only your most profitable items, or, if you have a loyal following who used to visit your dining room regularly, offering promotions or other experience-boosters to entice them to pick up carryout from you. At the very least, make sure your restaurant’s hours and available service are up to date on your website, social media and search engine listings so guests aren’t chasing you down only to be disappointed you’re not open.
It may seem like the world has moved beyond Covid-19, but the virus continues to make the restaurant landscape feel different than it once did. Where, when and how people consume food from restaurants has changed. The numbers prove it: As a recent Washington Post report indicates, restaurants are serving 16 percent fewer people in their dining rooms as compared to before the pandemic. Meanwhile, off-premises dining has picked up the slack. While carry-out business is down 3 percent, delivery is up more than 5 percent and drive-through business is up 13 percent. The National Restaurant Association’s Hudson Riehle says a commanding 39 percent of all restaurant traffic is coming through the drive-through lane. This has divided restaurants into a couple of categories – those that provide fast, convenient, quality service for people on the go, and others that focus more on providing a memorable dining experience that’s worth lingering over. If you’re among the large and growing number of restaurants in the first category, consider how you might iron out any kinks in your mobile ordering, pickup and delivery processes. If you don’t provide drive-through service, how can you incentivize people to collect carry-out from you? Could your technology empower your staff to track orders with greater precision and bring them out promptly to waiting guests? Consider how you might infuse your service model with some flexibility and show guests that dining with you – whether off-premises or on – is a convenient and worthwhile option for them in this new environment.
Restaurant spending: Behind the numbers
On the surface, recent economic data from the National Restaurant Association and the U.S. Census Bureau was encouraging: November marked the 23rd consecutive month of employment growth for restaurants, and as of October (the latest month research was available), sales at eating and drinking establishments were continuing their gradual climb. Sales had increased 1.6 percent over the previous month, marking the third consecutive month of sales gains and continuing a general upward trend evident for many months prior to that.
But adjusting for menu price increases revealed that sales had actually remained flat between April and October of this year. This reflects what more recent research from the National Restaurant Association uncovered about consumer spending behavior at the moment: 37 percent of consumers are very concerned about the economy and are significantly holding off on spending as a result, while 47 percent are taking a wait-and-see approach and holding back somewhat on spending until they feel more confident about where the economy is headed.
Consumers are spending at restaurants; just expect them to continue to prioritize value in the coming year. Price increases are an inevitable part of doing business right now, but you can help guests see them as justified: Double down on personalized loyalty promotions, creative experiences, and combo offers that leave guests with the impression that their dollar will stretch farther with you.
To be sure, restaurants are still feeling the pain of inflation -- even more so than other sectors of the economy. In the last quarter of 2022, some operators scaled down their hiring plans, even over the busy holiday season, according to a report from Alignable. But a recent report from CNBC indicates that inflation impacts large, national or international brands differently than it impacts smaller independent brands -- and surviving this period of high inflation is about all of these businesses leaning on the different advantages they possess. For instance, powerful brands like Starbucks or Domino's can use their size and buying power to leverage better prices on ingredients -- but being nimble enough to make quick menu changes can be far more difficult for them. On the flip side, while independent brands may lack the resources and buying power of larger brands, their reputation for authenticity can benefit from public goodwill. Consumers tend to want to support small businesses in tough economic times. With that in mind, restaurants can lean into their unique advantages -- large brands can play up the value they can offer right now, while smaller ones may have more leeway on price if they can promote the authenticity of their brand and the people behind it.
Winter weather can make it that much more difficult to entice people out of the house and into your dining room. But takeout and delivery could be an easier sell – if you make it worth their while. Is your menu up to the task? Your restaurant might take some cues from the surprise success of Rick Bayless’s Tortas Frontera restaurants at O’Hare Airport. While airports aren’t necessarily known as great destinations for a quality meal, Bayless has managed to make his restaurants such a draw that, according to a recent article in the Washington Post, business travelers are known to purposely schedule connections and layovers at O’Hare just so they can pick up a meal at Tortas Frontera. It gives new meaning to motivating guests to go out of their way to come to your restaurant. The Post article shares how Bayless has ensured his restaurant delivers the kind of quality that keeps guests coming back – and thinking about his restaurant even if they live across the country from it: He knew that his guests would likely be picking up their food, then boarding their plane, then waiting for takeoff and the beverage cart, before digging into their food – a process that would likely take about an hour. So when testing his menu, Bayless placed finished dishes in to-go boxes and let them sit at room temperature for an hour before tasting them, then adjusted the recipe as needed. It’s a formula that restaurant operators looking to grow their delivery business could use too. Taking the time to understand the typical journey of a takeout meal, the habits of those eating it, and how long it generally takes between a meal’s preparation and consumption – can help you make the incremental adjustments a recipe needs to turn casual customers into loyal guests.
Loyalty has become coveted currency for restaurants angling for guests – and at a time when loyalty programs have become so widespread, restaurants are testing creative strategies to entice new sign-ups. McDonald’s, for one, is raising the stakes in a way that is likely to be imitated by other restaurants and even other businesses, such as supermarkets, that compete with restaurants. During the month of December, the brand launched its Gold Card Promotion, whereby it gave away three gold cards (along with three additional gold cards for each winner that can be given to friends and family). Holders of the gold cards are entitled to free McDonald’s meals, worth up to $10 per meal, twice per week for 50 years. All a person had to do to enter to win a gold card was download the McDonald’s app, enroll in the rewards program and make one purchase during the gold card promotion period from Dec. 5 through Christmas. As a recent Forbes report implied, the promotion hinted of the gold-ticket fever on display in Charlie and the Chocolate Factory – and that’s probably the idea. Expect companies to raise the stakes in the coming months when it comes to loyalty by taking more extreme, newsworthy steps to attract attention and change the lives of just a few people – in exchange for collecting a whole lot of valuable data about a much larger segment of the population.
For restaurants trying to generate some income stability in less-than-stable times, subscription services can provide important benefits for restaurant and guest alike. They can offer restaurants some guaranteed income when guest traffic can be down, as well as appeal to guests who are looking for a good value, a little help with weekday meals, or simply a pick-me-up to look forward to at the start of the year. (And while subscriptions aren’t necessarily designed to be offered for purchase and left unused, we all have those subscriptions we sign up for and forget – and the business reaps some extra benefit as a result. Why not restaurants?) Is there room on your menu for some new subscription offers in 2023? If your weekday lunch business has been down, help your guests enjoy a weekly lunch entrée at home or at the office. Offer a warming winter soup and fresh bread combo, an easy-prep meal kit for busy weeknights, or a specialty cocktail or coffee subscription. Your subscriptions need not be for just people dining off-premises, either. You can offer a dine-in subscription that allows guests to plan ahead and look forward to a regular night out, or a monthly event for guests interested in trying the chef’s newest experimental dishes. Finally, at a time when customization is king, take the opportunity to make each subscription more personal – by tapping into your data to account for food preferences or allergies in each order, or by simply including a hand-written note of thanks.
Restaurant operators have had to embrace doing more with less – but that doesn’t just have to be about providing a smaller menu with a smaller staff and making it all work. Hybrid ghost kitchens have been on the rise in recent months – and they have the potential to help restaurants use their equipment, staff and ingredients to reach a wider audience. While ghost kitchens, or dark kitchens, were initially known for keeping their operations behind the scenes, these up-and-coming hybrid models are more transparent. They might openly operate a side brand out of the same kitchen that services the restaurant or collaborate with complementary restaurant brands to benefit from economies of scale. We’re at a point where consumers simply value good food – whether it comes from a restaurant kitchen, home kitchen or the kitchen of a collection of multiple brands. This year, how can you tap into your tech to ensure you’re making the most of the resources you have available?