Paytronix CEO: McDonald’s Rewards Program May Not Be The Latecomer It Seems to Be

McDonald’s may seem like a latecomer to the digital loyalty game, but it may be a little more complicated than that. The company announced in late June that it will be rolling out its MyMcDonald’s Rewards loyalty program nationwide on Thursday (July 8). Many of the chains’ competitors’ rewards programs have been up and running for months or even years now, begging the question — what took so long?

It is certainly not for want of financial opportunity or demand for loyalty programs. PYMNTS data from the January edition of our Delivering on Restaurants Rewards report, created in collaboration with software-as-a-service (SaaS) customer experience management (CXM) services provider Paytronix, find that loyalty program users on average spend almost twice as much on takeout orders each month as their non-user counterparts, $200 versus $104.

Additionally, data from the most recent edition note that almost half of all restaurant customers — 47 percent — are now using at least one restaurant’s loyalty program, up from 43 percent last September. While it may seem like McDonald’s has been missing out on this huge opportunity, the company may in fact have just been waiting for the right moment.

“If you look back, they’ve been preparing the groundwork for this,” Paytronix CEO and Co-founder Andrew Robbins told Karen Webster in an interview, noting investments that McDonald’s has been making in its digital technologies to prepare for this rollout.

“I think now they’re saying we’re ready to open the floodgates and get lots and lots of people to sign up for the digital experiences, and they need a lure. There’s a reason that you’ll download and share information and that’s a loyalty program.”

He cited the company’s tech acquisitions in recent years — acquiring conversational commerce company Apprente and artificial intelligence (AI) powered personalization platform operator Dynamic Yield in 2019 — as well as the improvements McDonald’s has made to its drive-thru experience and its digital ordering channels, arguing that these have laid the foundation for a strong digital presence.

Attracting The Digital Holdout

While digital ordering has surged since the start of the pandemic, Robbins noted that the McDonald’s on-premises customer remains “the heart of their business.” In the most recent quarter, for instance, McDonald’s USA president Joseph Erlinger told analysts, digital channels accounted for $1.5 billion in sales, which represents a relatively small fraction of the company’s $5.1 billion in revenues for the quarter, especially given that other major restaurant chains are seeing digital channels soar to account for as much as half of all sales.

Robbins believes that bringing in the on-premises customer could grow the company’s digital users four-fold. He added that, if the program encourages someone who would order from McDonald’s five times each year to grow that frequency to six times, as he predicts it will, it would be a significant increase.

“That’s what we see across the board when we do loyalty — that we can get people to increase their visits and spending by 20 percent,” he explained.

Capturing The Drive-Thru Opportunity

One challenge for the chain is that drive-thru orders are not yet integrated with the most popular loyalty program ordering channels.  As the company’s U.S. Senior Vice President and Chief Restaurant Officer Mason Smoot told investors in November, around 70 percent of sales in the company’s top markets came through drive-thru.

“There’s no question getting the drive-thru would be super for them,” said Robbins.

He predicts that digital integrations in the physical drive-thru spaces could help the company take advantage of the opportunity that drive-thru presents, with additions such as loyalty enrollment kiosks, voice AI loyalty check-ins, QR codes, or even user recognition technology with computer vision.

He noted that the current program’s rewards structure, a bankable points program where rewards can be redeemed for a wide range of options, is not very drive-thru friendly, because it makes for longer conversations at the window.

However, he said, “They can always fix that in the future. We usually find that 80 percent of the people will pick the same reward, so when they learn that, maybe they’ll simplify the program in the future.”

Loyalty 2.4

Robbins believes that the company launching its loyalty app later than competitors may in part be because of the difficulty of training all of its franchisees to implement the technology, as well as the tension between the value that loyalty provides and the value that McDonald’s discount menus provide. However, this program will free the company up to drive higher-cost menu items.

“[Restaurants that] focus on offering value pricing sometimes don’t have a loyalty program because they’re competing on the lowest price,” he said. “This certainly should be a tool that would let McDonald’s shift away from just focusing on value, enabling them to use loyalty as a way to create subtler ways of handling price with different guests.”

However, he expects that McDonald’s will catch up with competitors quickly. The traditional lifecycle of a restaurant loyalty program, as he described it, is that the first version is just a way to start adding value for customers, while the second version is refined with data from how users have actually been interacting with the program.

For version 3.0, he said, “You’re really trying to move to one-to-one, a highly personalized set of messages, promotions and everything else.”

He believes that McDonald’s is already well on its way to this third version, given the extent to which the company has already been building toward this launch. Pointing to the investments in data analytics tools and the work that the company has done with early tests of the program, he predicts an accelerated course.

“I think McDonald’s is coming in at kind of a 2.4 in that progression and could be heading to loyalty 3.0 more quickly,” he reflected. “I think you’ll see them move very quickly to very personalized, relevant messaging and promotions.”