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November 2017

Franchise Growth Through Benchmarking and Scoring Mobile Order, Payment and Loyalty Programs

By | Franchise Growth

online_order_benchmarking“We delivered record shattering Mobile Order & Pay performance metrics in Q1. Rapidly accelerating customer adoption of MOP, particularly over the last three months contributed to a growing number of stores being challenged to keep up with the increased volume demands and introduced an operational challenge that Kevin will speak to in his remarks. We are now laser focused on fixing this problem, but the nature of it, too much demand, is an operational challenge we have solved before, and I can assure you we will solve again.” Howard S. Schultz, Executive Chairman, Starbucks Corp., January 2017 Investor Relations Conference Call.

Starbucks was challenged in 2016 with the quick adoption of the mobile ordering and payment solutions which are tied to their loyalty program. This new option created too much demand at peak hours and the result was a bottleneck in meeting order volume. The end result was a loss in business and a threat to their brand. As an early adopter of technology solutions and loyalty to drive additional revenue, they have experienced operational challenges in the past and have found solutions to the challenges of being earlier adopter of ordering, payment and loyalty solutions.

Over the past 10 years, both digital ordering and loyalty programs have matured in terms of digital technology, integration and sophistication. Over this time, digital ordering, payment and loyalty programs have also proven effective in providing a lift in dining frequency, check size and customer conversion. Restaurant are using these programs to differentiate their offering and to improve operational performance.

Franchisors are also taking advantage of these programs with mixed results. Solutions such as benchmarking and associated scorecards can aggregate and present performance metrics which provide insights into factors that may be influencing digital order, sales and loyalty purchases. The franchisor may discover through these reports that their online revenue versus total sales may vary by 20% with a median of 5%.

To understand these variances, benchmarking and scorecards provide the franchisor and franchisee with areas of focus for their operational analysis and discussions. They can quickly explore the operational reasons for the gap in performance and find possible solutions. Reasons for these gaps may include demographics such as locations that serve predominantly the 18-34 years old age group or geographic such as rural areas. They may also discover through their franchise coaches that it is a question of reluctance to adopt the solutions or a lack of training.

How Has Mobile Ordering Grown?

Mobile and online ordering now lead some restaurants revenues including Starbucks and Domino’s. According to The NDP Group, “[t]he use of mobile apps, text messages, and the internet to order food from a restaurant or other foodservice outlets grew by 18 percent last year and now accounts for 1.9 billion foodservice visits.”

How Have Loyalty Programs Matured?

The number of restaurant loyalty members has grown significantly over the past 10 years. According to the biannual Colloquy Loyalty Census, a jump in restaurant memberships occurred between 2008 and 2010. During this time, loyalty programs matured with companies such as Starbucks consolidating its two existing programs into My Starbucks Rewards in December of 2009. Currently, Starbucks reports a lift in revenue of as little as 20% for its high-spending customers to 70% for its low-spending customers. More information about Starbuck’s use of digital ordering, payment and loyalty follows.

According to Colloquy, restaurant loyalty members outpaced the average for all industries who averaged a 15% growth in 2016. Overall, restaurant membership grew from 6.7 million in 2006 to:

  • 8.4 million in 2008, an increase of 25%
  • 9.7 million in 2010, an increase of 15%
  • 26.5 million in 2012, an increase of 173%%
  • 54.8 million in 2014, an increase of 107%
  • 125.6 million in 2016, an increase of 129%

How Are Restaurants Using Mobile Ordering, Payment and Loyalty Programs?

Panera

Panera launched Panera 2.0 as they believe “technology is a differentiator in the restaurant business.” This program includes digital ordering, line busting and operational improvements. What this has produced 17% of system-wide e-commerce sales and 23% of Panera 2.0 cafes sales. This equates to 125 – 130 thousand daily e-commerce orders and $600 million in system-wide ecommerce sales.

Panera is also taking advantage of loyalty programs. At the end of 2016, 25 million customers were enrolled in their loyalty program and 51% of their transactions were associated with the MyPanera loyalty program card. They have used membership data from the program to evaluate customer preferences, adjusting their marketing message and menu design.

Dunkin’ Donuts

In 2016, Dunkin’ Donuts surpassed 6 million loyalty members (DD Perks members). In their fourth quarter of 2016, 10 percent of transactions were by loyalty members. In all, their loyalty program produced almost $1 billion in system-wide sales with more than half generated through a mobile device. This is a growth rate of nearly 70 percent year over year. The company also launched On-the-Go for DD Perks members as a line busting solution which enables members to order ahead and speed past the line in-store. “On-the-Go gives us the power to drive customer loyalty and the power to drive efficiency and speed of service in our restaurants.”

Domino’s

Domino’s reported in its 2016 Annual Report and 2017 Investor Day presentations:

● Over 60% of U.S. sales were through digital channels in 2016 compared to 50% in 2015 with 25% growth year over year

● Estimated $5.6 billion in annual global digital sales in 2016 compared to $4.7 billion in 2015

● In late 2015, they launched Piece of the Pie Rewards, a digital loyalty program

● They expanded their AnyWare digital ordering platform which now includes: Samsung Smart TV®, Twitter, and text message using a pizza emoji as well as Apple Watch, Facebook Messenger, Zero-Click ordering via mobile, “Alexa” on Amazon Echo and the Google Home platform

Starbucks

Starbucks has been an early adopter of mobile order and pay options (MOP). These options are part of the company’s Digital Flywheel Program. MOP was originally designed to be a line busting technology but created too much demand as highlighted at the beginning and originally reported in January 2017 by the Howard S. Schultz, Executive Chairman, Starbucks Corp. and explained further by Kevin R. Johnson, chief executive officer, Starbucks Corp.

[T]he success of Mobile Order & Pay has also created a new operational challenge that has been building in lock step with volume growth, and it’s most pronounced in our highest volume stores at peak, significant congestion at the handoff plane. This congestion resulted in some number of customers who either entered the store or considered visiting a Starbucks store and then did not complete a transaction. Adam Brotman is already driving action in our top 1,000 highest volume Mobile Order & Pay stores to address this issue, including introducing new in-store procedures and tools, adding new roles and resources to specifically support Mobile Order & Pay, and the testing of new digital enhancements, including text message notifications when a mobile order is ready for pickup.”

 

To test how to solve this problem, Reuters reported in March 2017 that Starbucks will open a Mobile ordering and payment-only store at its Seattle headquarter which only serves employees. This location is one of its top three store in the United States for mobile ordering. The headquarter houses two stores that serve over 5,000 employees. The store will offer with a large pick-up window to try an offer the same in-store experience which includes the ability to view the order preparation by baristas. If the tests lead to more of the new format, this would create member-only stores or Starbucks will have to rethink its program.

Some mobile ordering and payments statistics are highlighted in the Goldman Sachs Global Retailing Conference presentation by Scott Maw, CFO, Starbucks in September 2016. The velocity of MOP adoption and bottleneck issues were already becoming clear:

  • Mobile Payments represented 25% of U.S. transactions, 30% at the end of Q3 2017
  • Mobile Order and Payment represented 5% of all U.S. transactions, 9% at the end of Q3 2017
  • 10% of all transactions at peak times in 2,700+ stores
  • 20% of all transactions at peak times in several hundred stores

Overall success of Starbucks’ mobile order, payment and loyalty programs are reported in the presentation by Matt Ryan, EVP, Global Chief Strategy Officer and Gerri Martin-Flickinger, Chief Technology Officer, Starbucks growth of rewards + mobile order and payment technology for 2016 compared to 2013 , the company’s 2017 Annual Meeting of Shareholders presentation and the company’s Q3 2017 financial press release:

  • Rewards members grew from 5 million to 12 million (FY 16 vs FY 13), 13.3 million at the end of Q3 2017
  • Rewards members equaled 1/6 of all Starbucks customers (Oct 2016)
  • Starbucks Rewards represented 36% of U.S. company-operated sales (Q3 2017)
  • Mobile Pay grew from 10% to approximately 25% (FY 16 vs FY 13), 30% of U.S. company-operated sales at the end of Q3 2017
  • Mobile Pay member equaled 8 million, 66% of rewards members (Oct 2016)
  • Mobile Order and Pay members 2.5 Million, 33% mobile paying customers (Oct 2016)
  • Mobile Order and Pay 0% to approximately 5% (FY 16 vs FY 13), and to 9% of transaction at the end of Q3 2017
  • Mobile Order and Pay member grew to 0 to 2.5 million of loyalty members ((FY 16 vs FY 13)
  • Spend Lift After Joining Rewards (Oct 2016)
    • High-spending customers increased their spend by 20%
    • Medium-spend customers increased their spend by 30%
    • Lower-spend customers increased their spend by 70%

Regardless of the stage of mobile ordering, payment or loyalty program maturity, a franchise system will face challenges in franchisee adoption and reporting. This is compounded as the amount of revenue and top-line growth in revenue is attributed to these options and programs. Franchisors can address these issues by implementing, calibrating and analyzing their unit performance with benchmarking and scoring.



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