Restaurants Split on Best Use for Rewards Programs Amid Inflation

restaurants, reward programs, loyalty, inflation

As prices rise, restaurant chains are taking very different approaches to their rewards programs.

While some brands are pulling back their rewards to avoid further diminishing their margins on top of the price increases they are already forced to absorb to remain competitive, other brands have chosen to step them up to avoid further trade down to at-home food options.

Regarding the former, casual dining chain Red Robin announced Tuesday (Dec. 20) that it is making its birthday burger giveaway available for dine-in-only, removing the ability to redeem it via off-premise channels, and that it is instating a minimum purchase value ($4.99) to get the perk.

On the flip side, other brands see the need to get more generous with rewards right now to maintain consumers’ loyalty in the face of increased competition from the grocery sector. Research from the August edition of PYMNTS’ Consumer Inflation Sentiment study, “Consumer Inflation Sentiment: Inflation Slowly Ebbs, but Consumer Outlook Remains Gloomy,” revealed that, in response to inflation, 78% of consumers are eating at home more.

“With some of the macroeconomic trends ahead, I think it would make sense if rewards programs started to become more generous, and more restaurants are participating in them,” Or’el Anbar, director of analytics at fast-casual chain Just Salad, told PYMNTS in an interview.

“Because it’s easy to roll out to a lot of point-of-sale systems and use the technology restaurants already have in place to now offer rewards functionality, and customers are going to be looking for value,” he explained.

Some operators, on the same page as Anbar, are taking matters into their own hands. Major KFC franchisee KBP Brands, for one, announced last Wednesday (Dec. 14) that it is testing an SMS- and mobile-wallet-based loyalty program at 162 locations of the fried chicken chain.

“We wanted the ability to activate compelling messaging quickly based on our restaurants’ unique needs,” Tonya Mangels, vice president of marketing activation at KBP Brands, said in a statement. “The quick-service restaurant industry is highly competitive, and SMS marketing is a cost-effective tool that will help us both attract new customers and retain current customers.”

The news comes as KFC continues to not offer rewards despite competitors’ loyalty perks. On the fried chicken chain’s website’s FAQ page, the company addresses the demand for “perks or rewards for using Pickup or Delivery through or the KFC app,” stating that it does not offer any such benefits “yet” but advising consumers to “keep a lookout for future offers.”

Indeed, there is certainly demand for restaurant loyalty programs right now, with consumers seeking cost savings amid skyrocketing prices. Zaxby’s, one of the aforementioned KFC competitors with a rewards program, announced Tuesday that its program has seen a 317% increase in engagement (presumably year over year, though the brand did not specify).

“We’ve strategically retooled our mobile app and relaunched our loyalty program, and customers have responded with enthusiasm,” Patrick Schwing, Zaxby’s chief marketing and strategy officer, said in a statement. “Zax Rewardz registrations have more than doubled since last year, and new active users have nearly doubled in November alone.”

Loyalty programs can be essential to driving direct restaurant orders in the face of competition from third-party marketplaces. Research from the October edition of PYMNTS’ Restaurant Digital Divide report, “The 2022 Restaurant Digital Divide: Restaurant Apps And Websites In The Spotlight,” which draws from a census-balanced survey of nearly 2,000 U.S. consumers, finds that 45% of frequent first-party app and website users cite better access to discounts or rewards as an influential feature impacting their preferences for these first-party channels.

Moreover, data from the February/March edition of the study “Digital Divide: Restaurant Subscribers And Loyalty Programs,” based on responses from more than 2,000 U.S. adults who regularly purchase food from restaurants, found that 44% of consumers use loyalty programs at full-service restaurants (FSRs), and 38% do so at quick-service restaurants (QSRs).

Yet, it is not enough to simply have a loyalty program. For these initiatives to work, they must be easy to access, as Anthony Parker, franchise board member at casual dining chain Shoney’s and owner of seven locations, learned from experience.

“We’ve done a loyalty program in the past where we had an iPad up front, and guests would come in and punch their phone number in,” Parker recalled in an interview with PYMNTS. “And I was getting maybe 10 to 15% of my customers actually doing that, but it was kind of a hassle. There was a line, you had to wait.”