Q3/Q4 earnings results are in for most of the leading publicly traded restaurant brands in the US. While some brands, such as Starbucks, Dunkin, and Chipotle reported strong sales and earnings growth, others such as McDonald’s, Darden, and Yum (the parent brand of Taco Bell, KFC, Pizza Hut, and WingStreet) missed the mark. What has separated the winners from the losers?
The brands that have performed well attribute their growth, in part, to the following:
- Digital Relationships: Brands are encouraging customers to place orders on their website or mobile app. It’s convenient for the customer, efficient for the restaurant, and generates a ton of data for customer insight/activation.
- Meal Delivery: Brands are partnering with platforms such as Grubhub, Uber Eats, and DoorDash to access the almost $10BN a year that customers spend on these platforms. Chipotle alone has attributed 7% of its sales to its DoorDash partnership.
- Loyalty Programs: Brands continue to enhance program features and benefits, and encourage adoption of mostly established loyalty programs that for many brands still account for well less than 50% of their customer base.
Leading restaurant brands are in the middle of a technology arms race to try and build salience, convenience, and ultimately customer loyalty. This is clearly illustrated with the acquisitions that McDonald’s has made over the last 12 months of Dynamic Yield and, more recently, Apprente. We wrote about the Dynamic Yield acquisition previously.
Despite all the investment and progress made over the last few years, the restaurant industry is still in the early innings of this technology arms race, and just starting to scratch the surface of the impact that it will have on customer loyalty and brand sales. Some of the big opportunities on the horizon include:
- Engage the un-engaged: Digital relationships and loyalty programs can work for engaged customers that can be motivated to visit more frequently and spend more per trip. However, these capabilities have struggled to have the same effect on less engaged customers who represent most of the signed-up customer base.
- Build the skills for acquisition: Most brands, including those with the largest and longest-running loyalty programs and digital channels, still drive less than 50% of their sales through them. Customer acquisition requires a different skillset focused on building deeper, local relationships and improving through-channel marketing.
- VIP treatment for all: While many brands focus on delivering individualized experiences to their loyalty program members via push and owned channels, few are taking steps to treat non-loyalty member customers with the same level of precision and personalization (even though they have the data to do it).
The restaurant industry’s technology arms race has just begun. Brands that invest in the people, technology, and processes to hit the mark on convenience, personalization, and experience can drive significant business growth over
the next several years.
