Food has become a captivating fandom topic, with over 508 million worldwide Instagram posts using the #food hashtag. Consumers seek communities around their passions, and loyalty programmes catalyse fandoms and brand connections. By aligning with customer needs, they unite audiences in shared brand enthusiasm. Brands are transitioning to reciprocal relationships, tailoring responses to individual preferences. Loyalty programmes play a crucial role in fostering these bonds, connecting brands with consumers through personalised rewards, enhancing satisfaction, and building loyalty.
Understanding drivers and challenges for foodservice loyalty programmes
With more than 85% of the population being connected to mobile internet in 2023, foodservice operators are rethinking the traditional face-to-face interaction with customers through next-gen loyalty programmes. These programmes can offer unique insights into understanding customers individually or as a whole, unfolding opportunities to make strategic and marketing decisions. Brands can elevate their customer relationships from merely transactional to long-term and experiential, increasing audiences, making customers want to come back for more and ultimately driving sales.
Despite global inflation rates easing from 8.8% in 2022 to a projected 6.9% in 2023, the higher costs of living and price-sensitive consumers challenge the foodservice industry
Source: Euromonitor International
With the rising cost of living and pressure on disposable incomes, the foodservice industry is not predicted to return to 2019 value sales levels in constant terms until 2025.
Consumers seek value for money in all their purchases, and brand incentives in loyalty schemes play an important role when choosing where to eat. For foodservice, this point is crucial as the industry contains high fragmentation and competition, making consumers less loyal to brands. With a vast sea of options, formats, and prices to choose from, who would want to dine at the same restaurant three times a week?
Competition has now extended to mobile loyalty apps
Limited-service restaurants hold significant market share, with approximately 40% of global foodservice transactions attributed to this foodservice channel in 2023. With a high density of chains compared to other foodservice channels, limited-service restaurants has emerged as consumers' leading choice, intensifying industry competition and purchase frequency.
To captivate customers, chains have begun piloting user-friendly loyalty apps. Pivoting away from a point-based programme, KFC UK recently launched KFC Rewards Arcade. This allows customers who spend a certain threshold in the app or site to play mini games while waiting for their food and win instant prizes, including complimentary menu items.
Foodservice loyalty programmes are heavily point-based; however, success lies in the art of combining different elements or customisation to align with the brand's unique identity and customer preferences. Chipotle's point system offers the opportunity to redeem rewards extending beyond a transactional approach. Alongside menu items, customers can use points to acquire sustainable clothing and contribute to non-profit organisations. This approach aligns with a customer’s values and beliefs, fostering a long-term relationship built on shared principles and a genuine connection.
While brands initiate loyalty programmes with the intention of fostering customer allegiance, the landscape of competition has shifted to the mobile realm, where businesses vie for coveted app space. The vast array of available apps has led to a dispersion of loyalty efforts, making it challenging for customers to consolidate rewards efficiently. Obtaining a reward often becomes a long-term pursuit, potentially diluting its perceived value in the eyes of consumers.
23% of digital consumers have 3-5 apps to order directly from a restaurant, and only 5% have more than five apps
Source: Euromonitor International Digital Consumer Survey 2023
App space becomes constrained, particularly with the inclusion of third party delivery platforms that intensify the online competition.
Mastering the balance between loyalty incentives and profitability
Chains are at the forefront of spearheading loyalty programmes, leveraging advantages over independents in resources and efficiency to streamline processes. The correct use of data analytics allows them to optimise engagement and quickly identify and adapt to trends. While striving to offer attractive benefits to entice customers, scaling up the programme may lead to reduced profits. Making the programme too challenging for customers to earn rewards can discourage its usage and negatively impact trust. Striking a balance between enticing incentives and sustainable profitability is crucial for success, particularly for independents. An alternative approach for independent operators to offer loyalty programmes of their own is through third party loyalty programmes which offer restaurants a range of options, such as branded apps, effective marketing strategies and payment solutions.
Leveraging the customer relationship
Generation Z, millennials and Generation X exhibit a strong inclination for continuous brand engagement. According to Euromonitor International’s Voice of the Consumer: Lifestyles Survey 2023, almost 50% of millennials are eager to stay connected with brands. This presents an immediate opportunity for restaurants to capitalise on loyalty programmes that communicate with their customers’ demands. Beyond offering perks, Taco Bell is actively seeking feedback from its loyalty programme members to aid in the redesign of its sauce packets. Leveraging a symbiotic relationship between consumers and brands will lead to a stronger affinity, resulting in increased long-term customer retention and brand advocates.
Read our most recent briefing Building Brand Loyalty in Latin America for analysis on drivers of loyalty programmes in Latin America OR Download our briefing, Next-Generation Customer Loyalty, for in-depth trend descriptions and strategic recommendations.