Transcript of Food & Restaurant Podcast – Does this Sandwich Offer Make Starbucks a QSR?

Transcript of Food & Restaurant Marketing Podcast – Episode: Does this Sandwich Offer Make Starbucks a QSR?
Starbucks, sandwich, LTO
The sandwich combo LTO that sparked this chat.

[00:00:06] Adam Pierno: Welcome back to another episode of Food and Restaurant Marketing. Once again, with me is Mr. Daniel T. Santy.

[00:00:18] Dan Santy: Hello.

[00:00:20] Adam: We have a fun topic today because we are experts in restaurant marketing, but we are also consumers of restaurant marketing. This topic came up pretty organically over the long weekend with some exchange of some texts and some kind of quippy humor, and also sparked from a conversation about a post that we published a couple weeks ago about a brand that you might have heard of. It’s a new upstart. What’s it called again, sir?

[00:00:48] Dan: I think it’s called Starbucks.

[00:00:51] Adam: That’s correct. That’s correct. Yes, Starbucks. I always get it mixed up. It is a fantastic brand and we will definitely link to the original post that relates to this, although is not 100% related to this conversation, but they’re loosely siblings to each other, I guess. It’s interesting because I got a text from Dan and we both kind of shared a chuckle. Go ahead and tell them what you sent me.

[00:01:19] Dan: I was in Instagram, my Instagram. That’s a social media platform.

[00:01:25] Adam: [laughs] I’ve read about it.

[00:01:29] Dan: That at an ad for Starbucks that has– what’s their small coffee called?

[00:01:36] Adam: Tall.

[00:01:37] Dan: Get a tall and a breakfast sandwich for guess what price point; five dollars, the famous QSR price point.

[00:01:45] Adam: The five-dollar-foot-long.

[00:01:46] Dan: Yes. It’s been around forever now.

[00:01:48] Adam: Yes, and I was pretty surprised too. The visual did not lead with the coffee. The coffee was background to the breakfast sandwich. If you changed the colors out, it could’ve looked like a McDonald’s ad.

[00:01:58] Dan: Right and they were pushing breakfast exactly as what the occasion that they were driving. So, I found it very interesting and then it wasn’t too much later that day that I was watching television and here comes a 30 on the same promotion. So, breakfast at Starbucks, five bucks, sandwich and a tall coffee.
I was so fascinated because the brand really hasn’t used television very extensively number one. Number two; when they have used it they’ve really promoted more their high-end brand or clover or different high-end beans and so forth, which makes sense because it’s on brand with who they are and who they’re continuing to want to be as a luxury brand. But to see them pushing a five dollar price point was fascinating, I thought what was equally fascinating is when I toured three stores only to discover that there is no POP in the stores; zero.

[00:03:01] Adam: We had some fun with the media that you saw on Sunday or Monday, but that was the big aha. I went into Starbucks today for another points challenge because I’m addicted to that game. I was looking around too knowing that you had seen all that media, which I haven’t seen anything, but when I opened up the app walking into the store, there was a promo for that same offer. In the store, though, I didn’t see any POP. The POP was still classic Starbucks, like high-end very brand–

[00:03:32] Dan: Yes, they were selling some latte [unintelligible 00:03:37]

[00:03:37] Adam: Yes, they have a new one that I can’t pronounce either [Editor’s note: It’s called Cascara]. I’m not even going to try.

[00:03:40] Dan: Right. [laughs]

[00:03:42] Adam: They always have a new latte that they’re pushing it seems like.

[00:03:46] Dan: I guess on the surface, I was startled because I thought, I wonder what’s happening from sales perspective. What’s the strategy behind this LTO if it’s indeed an LTO? Is this something they’re going to continuously push? But because they’re going head to head with McDonald’s obviously, and their huge push and huge success, I know Subway’s now doing breakfast. BK is doing breakfast.

[00:04:20] Adam: Taco Bell.

[00:04:20] Dan: Jack in the Box

[00:04:21] Adam: Everybody now is getting into the breakfast day part. [crosstalk]

[00:04:23] Dan: Yes. So, I guess you could argue based on that, that maybe all those brands were beginning to erode-

[00:04:31] Adam: Do you think? That’s my question.

[00:04:31] Dan: -traffic at Starbucks.

[00:04:33] Adam: It has to be a defensive move, right?

[00:04:36] Dan: Right.

[00:04:37] Adam: It has to be.

[00:04:37] Dan: Absolutely, yes.

[00:04:39] Adam: Because otherwise– that’s the day part they’ve been trying to build off of. They closed down their wine test that they were doing. They just shut that down kind of overnight. They gave up on that evening day part, which it was a noble effort. I wouldn’t have been surprised if they could’ve pulled it off, but maybe they’re just retrenching about on their craveable core like we’ve discussed in the past.

[00:05:02] Dan: Yes. I should’ve ordered it, to be honest with you.

[00:05:05] Adam: Just to see what the experience was?

[00:05:06] Dan: Yes, see what the experience was and to see if they even– to see whether the staff, the barista even knew about it.

[00:05:16] Adam: If they knew it was an offer or a special or something worth talking about, or if they just wrung it up and gave you a microwave sandwich.

[00:05:21] Dan: Yes. I also wouldn’t mind tasting it to see if it’s– to see what the quality is behind it, too, because I have a– excuse me, I have a high expectation for quality there. Food’s a risky business especially when you get it out of the package. I think they’ve done a good job with their packaged product that they have. You can pick up that snack box, obviously, the yogurts and some other things like that. But all over sudden when you’re doing prepared items that are getting microwaved, you just want to go–

[00:05:56] Adam: It’s not a good look. I don’t order the food there for that reason. I see them unwrapping it and I see them putting it in a microwave and it doesn’t feel like you’re saying. It doesn’t match my expectations of the high-end experience. I wonder how they’re planning to address that going forward or if they– I guess it doesn’t seem to bother them too much.

[00:06:17] Dan: Yes. It’ll be interesting to see what they do. Clearly, there must be a traffic issue.

[00:06:23] Adam: It’s got to be and to drive traffic to an item like food where they know there is a potential for a disconnect in the experience, that’s pretty interesting move, but it’s got to be a traffic and upsell move, right? Five-dollar combo?

[00:06:38] Dan: I guess, but think about this. Their margins on a latte are ridiculous, right? They’ve got to be.

[00:06:46] Adam: Right.

[00:06:46] Dan: So now all over sudden, your sending me to get a sandwich and we all know food and paper cost. Now, all of a sudden, you’ve got a whole another dynamic and food’s so much more expensive and the margin on food is difficult and you’re giving me a cup of coffee for five bucks. It’s a interesting play all the way around.

[00:07:06] Adam: Well, yes. It was a tall coffee. When was the last time you ordered a small coffee anywhere? I don’t think I’ve ever ordered a small coffee.

[00:07:15] Dan: Yes. No, I haven’t either.

[00:07:17] Adam: So, you’re upgrading that and contributing to the margin?

[00:07:20] Dan: You think maybe I’m getting that sandwich, but saying give me a Grande?

[00:07:24] Adam: Yes, or you’re turning that coffee– I think that’s a drip coffee. You’re turning that into a chai or something fancy.

[00:07:29] Dan: Maybe.

[00:07:30] Adam: You’re a fancy gentleman.

[00:07:31] Dan: I am very fancy.

[00:07:32] Adam: For sure.

[00:07:33] Dan: That’s interesting, Adam. I never even thought about that. I wonder how they would price that. We ought to test that. I want that five-dollar special, but I want a Grande.

[00:07:44] Adam: I bet you that’s what the baristas– if there’s any training, that’s what they’re trained to do. You sure you want a tall?

[00:07:48] Dan: Yes.

[00:07:49] Adam: You sure you don’t want a venti?

[00:07:50] Dan: Yes.

[00:07:51] Adam: Right? You sure you want a–?

[00:07:51] Dan: Or a Latte.

[00:07:52] Adam: Right, and just, “Cha-ching, cha-ching, cha-ching.” Because when you think about the original brand promise, when you were introduced to Starbucks, you weren’t introduced to it at a QSR level at all. It was this special experience. It was experience coffee.

[00:08:11] Dan: It’s experiential.

[00:08:12] Adam: The coffee house experience.

[00:08:14] Dan: Right. The whole concept was to come on in, relax, as you pointed out in your article, get yourself a cup of coffee, sit down, relax, visit with friends, use their free wi-fi–

[00:08:26] Adam: Spend time.

[00:08:27] Dan: Yes.

[00:08:27] Adam: Spend time, but now the question that I’m asking is with– you start out with this exclusive experience. You start out with this perceived luxury where I feel like I’m treating myself. Now, we’ve moved so far towards mass acceptance. I mean, there are honestly places where– who we were just talking to that was telling us there was a place in Portland where there were three Starbucks on a four-corner street?

[00:08:52] Dan: Yes, exactly.

[00:08:55] Adam: They’re so mass, it can’t still be luxury. So, now when I see QSR messaging, I really get curious about what they’re thinking about strategically inside there.

[00:09:06] Dan: Yes. I think that they’re probably– there’s got to be stress. There just has to be stress. The brands matured significantly. There’s so much competition especially from the independents. Let’s face it; the hipsters, the Millennials, they tend to really like to support local. There’s about a push for local. American Express does that at the holiday [crosstalk]

[00:09:35] Adam: Yes, Small Business Saturdays.

[00:09:37] Dan: Small business. So, all of a sudden, there’s a lot of push-back for a big massive chain like that and the ubiquity of it.

[00:09:46] Adam: Well, let’s take that fork in the road. Would you expect then because I’m thinking of places locally around here like Cartel or other places here in Arizona, there’s also Blue Bottle which is like a bigger chain. There’s a lot of places that are more–

[00:10:02] Dan: Dutch Bros.

[00:10:03] Adam: Yes. They have a more local, cult feel to them than Starbucks, which is your mass brand, your McDonald’s of the coffee industry. So, they have two choices; they can just say, “We’re the guerrilla. We are the McDonald’s of coffee, get on board. We’re everywhere. You can’t avoid us.” Or they could try to figure out how to make themselves seem smaller. They could camouflage themselves as a smaller brand, but it seems like this is a very QSRy [Editor’s note: QSRy is definitely not a word] offer.

[00:10:33] Dan: This is just saying, “We’re the gorilla and we’re going to keep going down this path and act that way.” They might be winning or surviving, or thriving because we don’t have their numbers, obviously, by sheer mass, by volume. Convenience is their big play today to your point about that Portland corner. Maria and I were in San Francisco and there was one directly across the street from the other.

[00:11:04] Adam: Right. Right, exactly.

[00:11:05] Dan: You see that a lot, especially in the major metros where there’s a lot of walking. But all of a sudden, it really becomes– it’s not a choice, it’s a convenience. It’s like when I set a meeting with somebody and they want to go have a cup of coffee, typically it’s like, “Well, let’s meet at that Starbucks at the corner of.” So, it’s just convenient.

[00:11:25] Adam: You almost could name any corner and there is actually a Starbucks there, whether you knew it or not.

[00:11:30] Dan: That’s exactly right.

[00:11:31] Adam: I think that’s true.

[00:11:32] Dan: That’s exactly right.

[00:11:32] Adam: Well, do you think that’s a negative? That it’s so ubiquitous, that I say, “No, no let’s go somewhere else. Let’s go somewhere special. Let’s go– meet me at this place. Meet me over here, or let’s do something else.”

[00:11:47] Dan: I know McDonald’s doesn’t exactly parallel this, however, McDonald’s is just now eking themselves out of a long-term traffic problem they were having. They were convenience play, right? Because think about the sheer number of stores that they have.

[00:12:05] Adam: And locations. They’re the A, A, A, real estate.

[00:12:08] Dan: Always, always.

[00:12:09] Adam: Easy on, easy off.

[00:12:10] Dan: They’re upgrading all those locations, too, to make it easier for drive thru. So, they’re really upping the convenience play there, but that’s what I mean is that McDonald’s got there, and now they’ve had to really reinvent themselves to win back customers. The breakfast day part was huge, a big play there. They’re obviously doing variety things, but I wonder if they’re not really damaging the brand with this strategy. It doesn’t seem to make sense to me.

[00:12:42] Adam: Something’s weird with both of those because McDonald’s had great luck when they launched all day breakfast, but it’s cooled off now they have a traffic problem again. That’s kind of a relapse of a traffic problem, if you will.
As people adapted and said, “Okay, I’ve had an Egg McMuffin at 2:00PM. That’s not interesting anymore.” So, they’re sort of probably retreating back to pushing breakfast at breakfast time, and Starbucks is saying, “No, no, no. We’re going to– you gave up this spot, we’re going to try to hold it.”

[00:13:09] Dan: It’s not a defensible competitive advantage, breakfast offerings.

[00:13:14] Adam: It’s not.

[00:13:15] Dan: Everybody just followed suit.

[00:13:16] Adam: No, and you could go to–

[00:13:17] Dan: Boom, boom, boom.

[00:13:17] Adam: I can go to QuikTrip. I mean, you can get a pretty good breakfast almost anywhere. I mean, compared to a breakfast sandwich, it’s not hard. So, it’s–

[00:13:26] Dan: So, all of a sudden, they’ve got challenges that aren’t familiar to them.

[00:13:33] Adam: Yes, I think so. So, trying to get into that QSR space for Starbucks is not familiar to them at all. I don’t think it’s familiar to their core customer. I think their customer, in general, has obviously grown up seeing that stuff, but the customer that they covet, I don’t think is responding to that $5 offer.

[00:13:53] Dan: Right, because their core customer is that person who goes and gets that exact drink that they love, and get– you know, my ex-wife got the PITA, the pain in the– I called it the pain in the– yes.

[00:14:07] Adam: [laughs] Because you got that fancy drink and I need it shaken three times, and exactly 176 degrees.

[00:14:11] Dan: Exactly, and that’s their core. Think about the people that come in and just– they have their white cup with the green circle on it, and it’s the same thing they get every day, day in and day out. So, interesting play for sure.

[00:14:26] Adam: Well, they’ve been so successful at getting those people. With the way that they have leveraged that app to get people into, really into habitual visitation and going in and ordering that same thing. Now, it’s like, “I hit one button, it orders me yesterday’s order. I don’t even have to think about it.”

[00:14:44] Daniel: Is that right?

[00:14:44] Adam: Yes, it’s amazing. It’s fantastic.

[00:14:48] Dan: Yes, because you don’t have to talk to the barista, that’s why you like it. [laughs]

[00:14:50] Adam: I don’t have to talk to anybody. I’m not very social. If you’re listening, do not call me. You can leave me a voicemail, I guess.

[00:14:57] Dan: You know, one of the other things I want to talk about is related to this, just going back to the marketing. You know how much we hammer on the idea of craveable, right?

[00:15:08] Adam: Yes.

[00:15:09] Dan: That commercial, I didn’t go, “Oh my gosh. I got to get that.”

[00:15:14] Adam: I’m going to post the ad. I took a screenshot of it because actually I was a little bit put off. It looks like what you actually get, which is not how you do it. You’ve got to take some liberties when you’re talking about food and make it look craveable.

[00:15:28] Dan: Yes, where’s the cheese dripping off that thing or-

[00:15:30] Adam: Yes, it looks like it just came out of the microwave.

[00:15:31] Dan: -somebody consuming it, perhaps?

[00:15:34] Adam: Right. Maybe they’re easy on the eyes, as well. Male or female, I don’t care, but attractive to look at.

[00:15:40] Dan: It was none of that.

[00:15:42] Adam: Could it be a local offer that they’re just [crosstalk]-

[00:15:45] Dan: Testing in Phoenix?

[00:15:46] Adam: -10 zip codes?

[00:15:48] Dan: That’s a great point. I never thought about that, but maybe that’s why there’s no POP. Phoenix is a notorious test market for many, many brands, national brands.

[00:16:00] Adam: But we’ve seen it on TV. They’re too sophisticated. They wouldn’t miss that. It would be in the store if they wanted it in the store.

[00:16:08] Dan: They could be testing– maybe they’re just testing the offer, see if it has any measurable impact on traffic.

[00:16:20] Adam: Yes, that’s probably part of it. It’s definitely an interesting move. But now, it looks like they are in QSR mode. Let’s talk pricing. You brought up margins on coffee, and those margins used to be more ridiculous. Starbucks sort of hurt themselves by becoming so successful that the supply cost more money, so they cut their margins. I’m sure they do okay.

[00:16:44] Dan: I’m sure they do.

[00:16:46] Adam: But getting into that $5 game, and having like a meal offer, weird?

[00:16:52] Dan: Very, and dangerous. I think you said it. If the audiences tends to be a little more upscale and willing to spend that 3.50 to 5.50, whatever it costs to get their latte there, now all of a sudden you’re telling me I can have a coffee and a sandwich for less than my latte cost?

[00:17:12] Adam: Right, yes. What about the brand perception? Their value prop is not– the word value doesn’t belong anywhere near their value profits. You don’t go in there to save money.

[00:17:27] Dan: No.

[00:17:27] Adam: Right? Like Subway, a $5-footlong? Let’s go.

[00:17:28] Dan: You expect it. Right.

[00:17:31] Adam: Right? But I know what I’m getting into.

[00:17:33] Dan: You just put yourself on, I think, which is our point about this whole thing is you’re now putting yourself on par in a competitive space with QSR, which is a male 18 to 24-year-old [laughs] audience in spades.

[00:17:44] Adam: Yes, it’s not your audience.

[00:17:45] Dan: So, is that what you want? You want men 18 to 24 coming in the restaurant? I don’t think so.

[00:17:52] Adam: Well, let’s talk about the flip side of that because I hadn’t thought about it until you just said that audience, that demo. Are you going to compare favorably? If I go to McDonald’s and I get their coffee and whatever their breakfast sandwich is, and then I go to Starbucks the next day for five bucks, and I get their coffee which, in my opinion is better, and their sandwich, which probably isn’t all that much worse, does that $5 feel like a deal at that point? Does that change perception?

[00:18:21] Dan: Think about this.

[00:18:22] Adam: But it’s a small coffee versus a 20 ounce coffee at McDonald’s, probably.

[00:18:25] Dan: Right, there’s that, but then there’s the experience. So, QSR is known for, what? Being quick.

[00:18:33] Adam: It’s in the name.

[00:18:33] Dan: You could–
It’s in the name. I’ll give you three guesses. You can find yourself in a Starbucks and it’s not quick, because depending on what time of day it is, if you’re being driven in there for breakfast, it’s going to be morning rush hour.

[00:18:50] Adam: I mean, prepare yourself to stand there and wait with this rush of online orders.

[00:18:54] Dan: Really? That’s going to be an experience downfall for them-

[00:19:02] Adam: Great point.

[00:19:02] Dan: -if they drive traffic. So, if they do successfully drive a QSR– if they steal a QSR occasion, which appears they’re trying to do, then that QSR customer is going to go, “What is this? This isn’t–?”

[00:19:19] Adam: Right. I’m standing here waiting for 10 minutes for this thing to come out of the microwave. At least McDonald’s has the courtesy to hide the microwave behind the–
There’s nothing wrong with microwave breakfast sandwiches. We love them. It’s delicious. Well yes, but I think that offer in particular tells me they’re looking at the QSR model. The pricing tells me that. TV, as a medium, mass market, QSR model, I mean we’re just talking about-

[00:19:50] Dan: A hundred percent.

[00:19:51] Adam: -Burger King, it’s the number one driver for craveability, now they’re on TV. What did the TV spot look like?

[00:19:58] Dan: You know, it felt a lot like that Instagram post. It was like a voiceover with–

[00:20:06] Adam: Solid green.

[00:20:07] Dan: Yes, the camera moved towards the sandwich and the coffee and five bucks.

[00:20:14] Adam: I’ll find it on YouTube and try to post it with this, so people can see it and see what we’re talking about here but–

[00:20:22] Dan: Obviously, the production quality was fine, but there was not a lot of thought put into how to position that sandwich.

[00:20:33] Adam: The food styling.

[00:20:34] Dan: You’re right, and all of that. The audio wasn’t something about the ingredients and–

[00:20:42] Adam: Was it just a straight up? Come in and get a five dollar–?

[00:20:46] Dan: What I remember. Keep in mind, I’d be careful because I did just see it one time and I probably [crosstalk]
But again, it wasn’t– I think about what Carl’s Jr. does with that burger and all the QSRs. They show off that food we call the food porn. There was no food porn going on here.

[00:21:10] Adam: Yes. They aren’t trying to make it look like, “Just come in and get this deal. We have got to get rid of these sandwiches. They’re going to go bad.”

[00:21:15] Dan: [laughs] We got to get rid of these sandwiches.

[00:21:17] Adam: But what do you think of TV? You said earlier and I agree that when they’ve been on TV it’s been more lofty. It’s either been their packaged product or CPG kind of angle on Starbucks or brand. They’ve done holiday themed or like Frappuccino branding but they haven’t done, “Here’s your offer LTO stuff.” That’s it. They have the pricing. They have the offer and they have their on TV, the number one driver of craving, where are they going from here? Give me some prognostication.

[00:21:49] Dan: I think it’s going to fail, and the reason is what I was just talking about earlier. We know that television is a highly effective medium. So, if TV proves out in this scenario and does drive that occasion, I think the experience is going to not live up to expectations in terms of wait time to get the product and so forth and how I have to order and the environment I’m in, too. I think it’s flawed.

[00:22:25] Adam: So, if they get those people that they are trying to get–

[00:22:28] Dan: I don’t think you’re going to get it. I don’t think you’ll get the second occasion out of them.

[00:22:31] Adam: No, but I don’t think you’re going to win the Taco Bell audience that just defected from McDonalds and back again, and now back again, it’s not going to Starbucks to try.

[00:22:42] Dan: No way.

[00:22:43] Adam: They have to deep fry the sandwich in I don’t know, Frappuccino. I don’t even know what kind of gimmickry they would have to do to get that audience.

[00:22:50] Dan: Yes. They’d have to wrap it in some kind of chicken fried goo or something like that [laughs].

[00:22:55] Adam: Well, so much of this stuff– chicken, yes that sandwich. So much of this seems about novelty and there’s nothing novel about this, but it’s also not sophisticated. It doesn’t have the Starbucks like polish. Everything they do is really freaking polished.

[00:23:11] Dan: Everything.

[00:23:12] Adam: But this doesn’t.

[00:23:13] Dan: Again, I couldn’t pronounce the name of that latte because I went to three different stores and every store had that POP up promoting that new latte.

[00:23:22] Adam: Yes, you walk in and it hits your right there.

[00:23:23] Dan: Yes, it was on the door then it was right up above [crosstalk]

[00:23:26] Adam: It looks pretty good.

[00:23:27] Dan: It does.

[00:23:28] Adam: The appetite appeal on that is really well done.

[00:23:30] Dan: Right, right. But that’s their core, right? That’s what they do. That’s what they do well. It looked high-end to me. I looked at it and said, “That’s probably five bucks for one of those bad boys.” More power to them if they sell those because five bucks for that probably has a hell of a lot more margin than five bucks for a tall and a sandwich.

[00:23:50] Adam: Yes. I’m not kidding. I just was at Sunoco filling up my car and they had an ad, an A-frame in the parking lot that said “Our New Breakfast Sandwich,” and it looked better.

[00:24:03] Dan: Seriously?

[00:24:04] Adam: It looked better and I’m sure–

[00:24:04] Dan: Sunoco’s got a better–? [laughs]

[00:24:05] Adam: It’s like a roller dog. You know what I mean? It’s an AMPM, it’s not Sunoco, so I stand corrected. Still, though, the photography looked better. Not comparing the sandwich, the food product and the food product, or the experience. But just that food photo, I was like, “Hey, maybe I should go into AMPM and get the roller dog action here.” But I didn’t. I didn’t look at it and think it looked terrible. Starbucks going– it just doesn’t look like their brand.

[00:24:32] Dan: No. Again, it’s very fascinating. It will be interesting to watch. Probably we’ll be doing a follow up podcast on this.

[00:24:41] Adam: Yes, the stock price will be triple and it will be like, “Starbucks booming breakfast sandwich business.” It could have been predicted.

[00:24:47] Dan: Stealing shares from all QSRs.

[00:24:51] Adam: You can almost put it in writing. It’s going to happen. All right, well, I think we’ve covered this one. Thank you all for joining us. If you disagree, you’re wrong, but if you want to try to debate and have some fun with this topic, we would definitely love to hear from you. You can find us on Twitter @F&RM or you can email us Dan@foodandrestaurantmarketing or adam@foodandrestaurantmarketing. Thanks for listening.

[00:25:16] Dan: As always, eat well.

Transcriptions by Go Transcript.

sandwich, Starbucks, experience, brand, LTO, daypart

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Transcript of Food & Restaurant Marketing Podcast – Episode: The Ups and Downs of Restaurant Loyalty Programs

Transcript of Food & Restaurant Marketing Podcast – Episode: The Ups and Downs of Restaurant Loyalty Programs

[00:00:03] Adam Pierno: All right, welcome back to another episode of Food and Restaurant Marketing. I never get tired of saying that.

[00:00:11] Dan Santy: Right.

[00:00:13] Adam: So again I am Adam Pierno and I’m here again with Mr Dan Santy.
[00:00:18] Dan: Good afternoon.
[00:00:20] Adam: Today we are going to talk about something near and dear to our hearts, loyalty programs for restaurant brands.
[00:00:27] Dan: Well may be near, but not dear. We’ll see what I have to say about that later.
[00:00:34] Adam: Yeah well we’re, I think, unique educates, because we’re neither advocates or enemies of loyalty programs, we definitely are pragmatic about it.
[00:00:44] Dan: Absolutely.
[00:00:46] Adam: The key is: really when does it make sense for the brand, what stage of life the brand is in, how are sales, how are your customers, what does loyalty look like?
[00:00:53] Dan: What’s the strategic initiative that loyalty programs are designed around, but we’ll get into all that here now in a minute.
[00:01:00] Adam: Yes, we can we can jump in, so let’s talk about some of the reasons that we’ve seen brands launch loyalty programs. You know essentially what are you trying to do when you’re when you’re launching a program like that.
[00:01:13] Dan: That’s the number one problem with loyalty programs, I’m glad we’re kind of getting at that thing that irritates me the most about watching brands that jump into this field because I think a lot of times it’s a strategy that people will employ due to a short-term problem, and because it’s a short term problem they think they’re solving, they jump into it and they go and, forgive me Fishbowl but I’m gonna pick on you here. They call a service like Fishbowl and they pay them the fee and thirty days later, whatever the case may be, they’ve got a lot to program up and running, but they’ve not really thought through any of the mechanics of the program, do they really think it’s going to work, if so how and what’s the phase one, phase two, phase three of a loyalty program.
[00:02:04] Adam: Right, what’s the end game besides the short term problem.
[00:02:08] Dan: Exactly.
[00:02:09] Adam: So for everybody listening we know that you are keeping track on a daily or hourly basis of stats like traffic, sales and counts, looking at average ticket, looking at repeat traffic, so how often are people coming back and how are people kind of peeling off and losing interest in the brand. Those are the metrics that usually, that we’ve seen trigger panic from operators where they say well we better do something to create some loyalty here.
[00:02:41] Dan: Right and free — listen, I’m a big fan, I’ve got a friend of mine back east, he’s in the finance game and he says that people — number one, they like free sh*t, forgive me for saying it. And number two, they like cheap S-H-*-T, so it makes sense, right? Like OK well we’re going to reward them for coming back, but are are we really rewarding them for coming back or are we just getting the least amount out of them and then rewarding them based on whatever formula we’ve created.
[00:03:15] Adam: Yes, and that’s something that we always debate, we’re going to talk about that when we get a little further into this, but you know at the top if your goal is to solve a traffic problem, if traffic is down then what we always say when we’re — when we look at these programs, make sure you’re engineering a program that has traffic as a defining metric. I get loyalty from making multiple visits, if it’s sales then reward me for paying more or buying more things.
[00:03:43] Dan: Exactly.
[00:03:43] Adam: A lot of times Dan referenced Fishbowl, there’s a lot of “out of the box” programs-which I like turnkey-but turnkey often means one size fits all and we know that, no it doesn’t.
[00:03:56] Dan: Absolutely not.
[00:03:57] Adam: It fits awkwardly.
[00:03:59] Dan: At best. That’s right and having discipline to be strategic is hard in today’s world, I get it. You’ve got pressure from either the C-suite, depending on who you’re reporting to, if you are the C suite you’ve got pressure from private equity or the markets, whatever the case may be, so I get that. However, when you implement a program like this you’ve got to look across the entire spectrum of your marketing effort and say “Where is this going to fit in, how does it fit in and the why?”.
You referenced earlier, Adam, all the data that’s available to our clients, they have so much information as a matter of fact, a lot of the articles that (I’m going to digress here from), a lot of the articles you’re seeing lately is big data, great almost like it’s too much data now, now we’re overwhelmed by it and in some respects when we’re overwhelmed we don’t pay attention to any of it and we resort to anecdotal commentary.
So you’ve got to look at the data and say “Where are my real core problems, what’s really happened to the brand” look over a longer period of time, don’t look at the quarter, heck don’t even look at the last year, look at over a two-three year period, because you have that kind of data and say “When were things good and why, when did things start to suffer and why and how do we get that back?” That requires discipline to look at the data and be very analytical about that data and number two is, then make conclusions you’ve got to draw conclusions and make recommendations, which is risk oriented and I know everybody’s a little risk averse and they’re just looking for a solution orientation or tactical and we implement things that ultimately fail.
[00:05:52] Adam: If you just jump to a conclusion, it’s not good. There are some brands that are doing it very well so we want to talk about those and look at what we can learn from those brands so one brand that does it exceedingly well is Starbucks, they’re not exactly a restaurant, definitely atypical in everything that they do, but their loyalty program is really great-
[00:06:16] Dan: And you discovered, this was your revelation or your insight, really, about a year ago, maybe a year and a half now, when we did a study of what’s happening in the restaurant industry and we came up with this idea about — Adam came up with this idea about friction and when you create friction in any program, any marketing program and specifically, specially in loyalty, you’re reducing its opportunity to be successful. When something becomes frictionless, which is what you talk about a great deal to our consulting clients is exactly what Starbucks has done, they’ve eliminated any of the friction, it’s just really peerless in how they execute this. Now they have an enormous brand loyalty about them they have a high frequency level-
[00:07:08] Adam: and they have an advantage in their product mixes, it’s just a lot different, they have a lot more flexibility, so if they’ve got me down I figured it out this morning in preparation for this I get about one cup free for every five I buy.
[00:07:22] Dan: Interesting.
[00:07:23] Adam: And that’s the metric. I sort of watch the points they offer me and they’re very opportunistic, the way they offer me programs, I compared notes with other people here and I say “Hey, I got this thing so you get two hundred points, did you get it?” “No I didn’t get that one.” “But I was in there last week.” “Oh, I hadn’t been there in a month.” A lot of times we talk about customization of these programs, we talk about digging into the metrics and everybody talks about all the data. I can tell that Starbucks is actually using the data to provide better experience and unique offers to people based on behavior, they’re triggered by actions or they’re triggered by absence of actions and they’re unique to each person. Standing ovation for that and it actually is effective on me and I’m pretty cynical about these types of programs.
[00:08:09] Dan: Here’s the important thing to understand about — what Adam’s talking about, the number one thing they’re doing is leveraging technology, leveraging data and algorithm to understand his behavior in order to then optimize how they’re going to reward him. That’s a whole another level, you know. I’ll go — again, forgive me Fishbowl, you guys are perfectly fine people, I’m sure, but like Adam said, that’s just this basic “out of the box” solution-
[00:08:40] Adam: One size fits all.
[00:08:41] Dan: One size fits all and it’s not going to do — it’s not going to get anywhere near doing what what he’s talking about, now we’re also saying that some mid-sized brands, even smaller brands, don’t have the resources to use that technology or employ that technology. But again, back to my “phase one, phase two, phase three” comment I made earlier, think this through. Say “phase one, let’s get something launched, let’s launch it on this level with the plan”, test and optimize, that’s what we always say. Test it out, optimize it and continue to make it better, which I believe is another thing that Starbucks has done over the years is continuously improve on their program.
[00:09:26] Adam: We did a survey here to get to some brands that people really like their loyalty program, Red Robin showed up a lot and that’s a brand we just talked about in our last podcast on brand extensions. I guess the thing people like about it — and this is something Dan and I talked — we debate this endlessly, is that the biggest comment, the most common comment that came back about Red Robin was “I feel like I’m always getting a reward. Every time I go I’m getting a reward.” And the follow up questions are “Were you already loyal to the brand?” “Well, yes.”
[00:10:00] Adam: So you’re already loyal, you already like it, you’re already a regular and now we’re giving you something for free every single time you come in. Dan, do you think that’s smart?
[00:10:07] Dan: That falls under one of my favorite things. What Red Robin is doing whether it’s deliberate or not, in my opinion, is — they’re surprising and delighting you every time. If that frequency of which I’m getting rewarded is high, I’m going to not be as critical of what the reward is. If it’s an order of fries, a fat-free soda or whatever the case may be, I’m just like “Wow, great, thank you. You just gave me a reward last time” versus “I got five more visits before I get a nickel.” Surprise and delight is another — quite frankly, it could be its own loyalty program if implemented correctly. That’s a whole another subject really falls under the restaurant experience.
[00:10:55] Adam: No, and it’s interesting because they are — it’s very dissimilar to the Starbucks program. There’s no app, you just use your phone number, and it is a kind of a surprise and delight. The offers are different every time. There is a wide variety of things, sometimes it’s a free sandwich or a free soda or free dessert. It’s varied and it is surprising whereas the Starbucks one is always these points that you are going to redeem and choose. They work for different reasons and obviously two different types of customer. So I love that they’re different.
I’d be surprised if those two operators have the same program, both really good programs. The last one that came up was Chili’s. People just really like that program. They just felt like one of the most common things about it was, it was referred to as “under the radar”, pretty common, or no pressure to join which came up a lot that it’s almost got that speakeasy effect. They’re not pushing it on you and saying “Download this app today” every ten seconds, just pretty easy to get rewards and there’s not a lot of pressure around it. I think we know a thing or two about people and how much they like being sold.
[00:12:00] Dan: Oh my gosh, that example about Chili’s is the number one thing that drive me crazy about a lot of casual dining places. You can tell — now again, I’m in the consulting industry but I hate when I get my check at the end and there’s this postcard, and then the waiter puts the pitch in or the waitress, and says-
[00:12:25] Adam: “You guys are members of the app yet?”
[00:12:27] Dan: “Sign up here.”
[Crosstalk] [laughter]
[00:12:25] Dan: And you know damn well that these-
[00:12:28] Adam: Well, I like that they — when they employ training, but I don’t like when they get there.
[00:12:32] Dan: I do to, yes. I have to give him credit because I’m sure there’s some level of advocacy to it but it’s so blatant and so obvious. Then three months later I come in and they’re no longer doing it. You know it was a promotional period and they were spiffing kids to — the guy who got the most sign ups in the day got a free ice-cream cone or something like that, I don’t know. But I guess, to your point, people don’t like to be sold. As you pointed out, we’ve learned that a long time ago.
[00:13:03] Adam: Yes, we know that for sure. When we compare and contrast these three brands that they do it really well, and there will be a blog to follow up on this with a little more detail. One of the common elements of all three is there’s no pressure to join. All three of them are very hands off, their signage was POP. You go to their websites, you can see it. Especially on mobile for Starbucks, where there’s a downloadable — download button. They don’t really hit you over the head with it at any of those locations. The Red Robin one is almost hard to find.
[00:13:33] Dan: Yes, interesting. Adam, correct me if I’m wrong. McDonald’s have a loyalty program?
[00:13:40] Adam: No, sir. Even during their darkest time they did not roll out a loyalty program. {Editor’s note: Reports in the link above to Forbes suggest they are investigating a loyalty program or app}
[00:13:47] Dan: I think there’s a lot to be said about that.
[00:13:49] Adam: Why do you think that is?
[00:13:50] Dan: It’s a it’s a great question. I think they understand that they have a frequency level from their customer, and they have a price point, a value play that they’ve got going, that I don’t think they’ve got a lot of room to buy ten burgers and get a 11th one free.
[00:14:07] Adam: You think it would impact margin.
[00:14:10] Dan: I think so. When I look at Starbucks and Red Robin and Chili’s and I don’t know all their margins but you have a general idea based on our experience what the ranges are, their margins are reasonable. Starbucks is ridiculous, giving away a cup of coffee to me for buying five cups.
[00:14:27] Adam: That are marked up 500%.
[00:14:34] Dan: Yes exactly. That’s one theory I have about McDonald’s.
[00:14:38] Adam: No, that actually makes a lot of sense.
[00:14:40] Dan: The other is that it’s a frequency play, that QSR. They’re getting the most visits.
[00:14:50] Adam: McDonald’s is a good — you brought up McDonald’s but now that I’m thinking about it, there’s not a lot of QSRs is in general, true QSRs, fast food hamburgers that have a — none of them have a loyalty program.
[00:15:03] Dan: Burger King I don’t believe has one. I don’t know if Subway does or not, I probably could have done that homework. Anyway I just find it interesting that the- {Editor’s note: BK and Subway do in fact have underpublicized programs (linked above)}
[00:15:09] Adam: They have promotional periods but they do not have ongoing sub program.
[00:15:13] Dan: Which we’re going to be talking about that discounting on another podcast later.
[00:15:19] Adam: But yeah, we just brought up the punch card. I think people hate the punch card. It seems like although Dutch Brothers came up and they are the only one that does have a punch card that people really like. People don’t want to carry it around, they don’t want to remember it, they want to kind of put the onus on the brand. And I think brands would be wise to heed that advice. The more you make me work and the more friction that you add, as Dan referenced earlier, the less of a response you’re going to get. You jump through the hoops, not me.
[00:15:48] Dan: Exactly I was at CVS the other night, completely different category. My wife had already signed up for whatever their program is, and I don’t have to do anything I just give them her telephone number.
[00:15:57] Adam: Right.
[00:15:59] Dan: And her name comes up. And they’re not rigid, they don’t go “Well, who are you? You’re obviously not Liza.” [laughter] “No, I’m not. Not yet.” But man, talk about easy. Then I get this printout that says “You just earned ten bucks.” And I’m like “Oh, what the heck, ten bucks.” There’s that frictionless thing again that we are talking about-
[00:16:29] Adam: They just basically hand it to you as a coupon. That’s the way to do it. What people forget and we laugh about this, we talk a lot about hospitality on the food side and we sort of leave hospitality off at almost everything else we do in a restaurant. This is a hospitality play, even the loyalty club or the loyalty program, you have to make it easy and be a good host and say “Okay I’m going to roll this program out to build loyalty, I’m going to make it really easy for you to use it, as a good host. I’m not going to build it and put up all these gates around it and put an alarm on it, make you climb a ladder and ring a bell. I am going to make a very low barrier to entry, because I want you to do it. I want you to really feel like you’re getting something for nothing.” It’s not easy to do but it’s worth it.
[00:17:17] Dan: I couldn’t agree more. Take a page from your local bartender. You go and you take care of them night after night. Every so often, a couple of those cocktails aren’t going to be charged to you. Talk about frictionless loyalty program.
[00:17:34] Adam: Yes, and I think the other thing all three of these do in dovetailing right off that, is they make it pretty easy to rack up a reward. It can be something really small, an app or a free drink or something, but Starbucks, Red Robin and Chili’s all make it pretty easy. Although from the research we’ve done, Dunkin‘ brands — people are saying they get almost a free coffee a week from that program. I have not used that program but they say it’s very easy to get free cups.
[00:18:04] Dan: They’re finally getting some — they’re getting enough locations out here in the West. Actually, we can start becoming Dunkin’ customers again, Adam being from — both of us actually being from back East there’s a there’s a Dunkin’ on every corner.
[00:18:19] Adam: We were just down and count here a little bit but hopefully they’ll start adding more. What are some of the typical flaws with these loyalty programs? Not the three we were just talking about, but in general.
[00:18:33] Dan: Well I go back to what I was saying earlier and that is not thinking through the strategy. They get fundamentally flawed because you haven’t spent the time to say “What do I want to reward? What behavior am I trying to change or effect?” It’s the strategic side of it, it’s so easy to become tactical around loyalty that, you just go “Well, let’s do this, for every five you get one”, or whatever the formula is. That’s just some random formula that somebody came up with versus saying “Hey, here’s the behavior we need, what is going to change that behavior? What loyalty effort should we put in to get that behavior to shift?”
[00:19:18] Adam: That’s right and you’re speaking of strategy, we always relate strategy to finding the ideal customer and understanding how we want to move that customer and how to make them have a great experience. If in that “buy five, get one” model — really what you’re doing is you’re bringing in a coupon customer that’s looking for 20% off. They’re looking for one-fifth free. If you have a traffic problem, is that the solution long term to a traffic problem to bring in a thousand new guests that are all discount hunters and only come in when there’s a coupon or a program in play to give them something free?
[00:19:43] Dan: Right.
[00:19:44] Adam: Your sales are not going to increase even though your traffic is going to.
[00:19:59] Dan: The thing that you don’t know is, would I have come in five times anyway, without the sixth incentive. All you’ve done is giving it away and I would argue that I have not necessarily walked out feeling great, going “Woohoo, look at me” because what I’m thinking about is what I had to do in order to get the free.
[00:20:07] Adam: Right.
[00:20:00] Dan: You didn’t have to do anything and I was coming here anyway. Again, that’s that piece of saying is it really — are you creating loyalty, is it a true reward? When I look back on it, my experience with it is that if I had to do all the work to get the reward, I’m not giving you very much credit for it as a consumer.
[00:20:30] Adam: Right, absolutely. One thing we’ve always looked at, are we conditioning people to come in and just expect the reward. Is that smart? What we try to do in our consulting business is really understand the best customers and know these people. Are they going to come no matter what, they’re loyalist. You have this core, or you have a broken audience. Let’s do something to spiff some people and get them in the door to try it, and we think once they try it, they like it.
[00:20:59] Dan: Exactly.
[00:21:00] Adam: It’s where is your concept from an evolution standpoint. How much help do you need, what kind of guests you have, and how much can you rally those people.
[00:21:09] Dan: I would say that the question is, what’s flawed about some of these programs, “Have you looked at your competition?” People are probably getting really annoyed with me right now, because they’re like, “Jesus Christ, how much work do I have to do to put this loyalty program back,” but-
[00:21:24] Adam: Jeez, a lot.
[00:21:26] Dan: You should do a lot, because you’re giving up profit, you’re giving away a product. Make sure it’s intelligent. You got to look at your competitor and say, “What are they doing? Can we do it better? Do even need to do it at all?”
[00:21:43] Adam: Right, yes. “Are we sure this is the right answer?” The other thing about when you create a loyalty program, you’re building discounting in, you’re building in cut margins overall, over the whole product category of everything you got. Profit at that point relies heavily on upselling, training your staff to really provide a great experience so that, for someone like me that goes in, and I’m ordering just the basic thing to get the reward, I’m upsold, also adding an appetizer or a side, or extra large, or a combo. That’s got to be trained in too. When you’re rolling out the loyalty program, making sure your staff knows. The way we’re going to make money on this is by blank.
[00:22:29] Dan: Right.
[00:22:30] Adam: Right?
[00:22:30] Dan: Yes.
[00:22:30] Adam: Making sure that operations is rolling that out at the same time.
[00:22:33] Dan: It’s so, so critical. The better programs do exactly that, gets in it for that pizza, I’m just making that up, “Won’t you upgrade that pizza for a dollar more, I can give it to you”, this way or the side, as you pointed out, the drink or whatever case may be. I think they managed that customer that’s going to be, as you pointed out earlier, that coupon customer who is very rigid, and really like “No, this is what I’m getting-”
[00:23:01] Adam: “I’m spending 3.99 for my six inch sub and not a penny more.”
[00:23:04] Dan: Yes. And that’s fine. We know that that consumer’s out there, and we love them too, but if you don’t have the training in place to at least be asking, you’re not going to get the weakling like me, who goes, “Oh, I’m not spending as much money this time. Why don’t I get that side”, or whatever the case may be.
[00:23:28] Adam: Yes, and you feel like you’re getting a deal, so you don’t mind that little splurge. I think the key is to not punish people for participating. The key is to make it easy for them, to give them something so they feel like they’re getting a deal, even if they do uptake the upsell, and then really make it feel like a reward, and not feel like a punishment.
[00:23:48] Dan: I love this next topic, it’s part of this whole discussion around loyalty and you asking what have been some troubled programs. I got to tell you, I couldn’t agree more with your commentary earlier to me, before we started the podcast, about Chipotle. They roll this thing out, they make a big deal out of it, and then all of sudden, you never hear another word about it. It was a short lived thing.
[00:24:14] Adam: It was a weird LTO loyalty program, that was-
[00:24:17] Dan: Yes, it was-
[00:24:18] Adam: Confusing.
[00:24:19] Dan: Yes, it was confusing, it was weird, it felt desperate to me. I just find it so interesting that this brand that had such a shine on it for so many years is just struggling to really get back. They really are.
[00:24:38] Adam: Let’s talk about that. Obviously, the loyalty program was conceived to fight that. Traffic is down, sales are down, stock is down. The founders getting chased out of there by activists-
[00:24:50] Dan: [laughs]
[00:24:49] Adam: It’s all, nothing good’s happening. Obviously, this was a promotion they created to try to get people back in, try to reset. It was designed very deliberately with frequency in mind. You could see how they plotted it out if you have spent any time researching it. We will have a link in the show notes of the program. Obviously, it didn’t take. I think the people who used it were people that were already one foot back in, and they used it like a coupon.
[00:25:18] Dan: Exactly.
[00:25:19] Adam: Now, they’re not back.
[00:25:21] Fan: Right. Again, there’s probably strict strategy error that may have been made. We’re not inside the Chipotle, so we don’t know. We wish someone would call us and yell at us from Chipotle, we would love that.
[00:25:32] Adam: Yes, we will help, yes.
[00:25:35] Dan: I do believe if trial or retrial, in other words lapsed customer was the true strategy, is that really the answer? I just read that they’re testing television. You know me and television.
[00:25:53] Adam: You love television.
[00:25:53] Dan: Television and I are going to our grave together.
[00:25:56] Adam: [laughs]
[00:25:56] Dan: It might actually be a potential savior for them, depending on how they do the commercial. I’ll be commenting on that in another podcast, I’m sure. But again, I think your point is well taken. Why did you do that loyalty program? What you really thought that — I’m a lapsed guy from them. Now I’m a low frequency Chipotle guy. You’re probably above average to me-
[00:26:27] Adam: Even now, I’ve started going back.
[00:26:29] Dan: You went back.
[00:26:30] Adam: I ate there today.
[00:26:31] Dan: You did?
[00:26:32] Adam: There was zero- [crosstalk]
[00:26:32] Dan: You don’t look green or- [crosstalk]
[00:26:34] Adam: There was no wait. There was no line. It’s part of my favorite thing.
[00:26:37] Dan: No.
[00:26:37] Adam: The food is back to normal, and the lines are not. When there’s a wait, I probably- [crosstalk]
[00:26:42] Dan: See, that could be a reason I might go in, because there’s no lines. [laughs]
[00:26:46] Adam: Yes. You know I have seven minutes for lunch. I just go out running and get it- [crosstalk]
[00:26:50] Dan: Who allowed that much time for lunch around here?
[00:26:52] Adam: [laughs]
[00:26:53] Dan: That’s what I want to know. I feel like they did some research, and they asked the customer, “If we did this, would you come back,” and they said, “Yes, probably.” [laughs]
[00:27:06] Adam: Well, it’s that researcher, it’s that top two box at 60% in 10. It’s like “that doesn’t mean anything, you idiots.”
[00:27:13] Dan: [laughs] Yes, exactly.
[00:27:14] Adam: Of course, it’s easy for me to say, I’m fine.
[00:27:16] Dan: Okay. They’ve been a good punching bag, maybe we should-
[00:27:20] Adam: Yes, they don’t need to- [crosstalk]
[00:27:21] Dan: -move on to Dutch Brothers and their punch card.
[00:27:23] Adam: Yes, we’ve talked a little bit about the punch card, but people in our little poll that we did, which was far from scientific, people just bashed it. The comment we got was, “Love the brand, love that they have a program, but hate-

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