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    Why Winning the App War Matters for Restaurants

  • The on-demand economy calls for it.

    Starbucks
    Starbucks' Rewards has nearly 17 million members.

    Does it feel like restaurants will do anything for an app download these days? That’s not far from reality, and there’s good reason why. Worldwide, according to recent data from App Annie, consumers spent $101 billion on apps in 2018. There were 194 billion downloads and users clocked roughly three hours per day on mobile devices.

    But here’s an interesting figure that speaks to restaurants and the opportunity at hand: App Annie found 30 percent higher engagement in non-gaming apps for Gen Z versus older demographics. That suggests the purpose of apps is changing. Instead of entertainment, they’re playing an active role in consumer’s daily lives. They’re part of the mobile checkout journey to purchase, not just a means to waste time.

    For restaurants, this opens the door to a new era of loyalty and customer engagement. Getting a guest onboard is step one, of course (hence the crazy promotions), but keeping them involved could be one of the most effective paths to repeat visits. Unlike many other industries, restaurants can pulse incentives daily that spark routine. Customers need to eat. But do they need to access that 20 percent off code to get another sweater?

    This is why app engagement is such a fierce battlefield for quick-serves, especially those that thrive with occasions. Starbucks is perhaps the most vivid example. Not only does the java giant have 16.8 million people in its Rewards program—those members account for 41 percent of U.S. sales. It’s an enormous figure for a chain that hit global revenues of $6.3 billion in the first quarter of fiscal 2019.

    Unlike some past sales levers, like mail-in coupons, this one isn’t sliding backward. “We’ve seen [quick-service restaurants] such as Starbucks, Dunkin’, Burger King, and McDonalds leverage mobile strategically to reach and engage their customers through the device they always have on them: their smartphone,” says Lexi Sydow, senior market insights manager at App Annie. “Ultimately, shoppers are on mobile—Americans spent 140 percent more time in food and drink apps in 2018 than two years prior.”

    That’s a pretty critical metric. Part of that growth, of course, is related to the rise of mobile technology. There’s simply far more restaurant apps than before. But sheer volume doesn’t guarantee more engagement. That comes down to a changing consumer who is asking for this capability from restaurants.

    “They are turning to mobile for the ease, simplicity and on-the-go benefits for both having more pleasant, relevant and customizable in-store and online experiences, and to be the bridge between their physical and digital worlds,” Sydow says.

    Mobile ordering and loyalty programs are critical features in quick-serve apps that provide value for customers, she adds. It’s today’s version of the assembly line food design but without the operational bottleneck. Customers can customize food and take their time doing so (nobody behind you in line, glaring). Pick-up allows for greater convenience and most customers can appreciate skipping a line. Toss rewards into the equation and it’s a customer-experience dynamic ideally suited for the next generation of guests. In some ways, it’s a mobile version of what the drive thru was—a disruptor to the notion of fast food, served with ultimate convenience. Only this time there’s big data involved and the ability to segment customer information to create personalized marketing programs that lower spend and raise ROI. Customer segmentation and guest-centric communications. There’s a reason deep discounting has declined industry-wide. Restaurants can reach loyal guests without mass marketing.

    “Loyalty programs are an excellent way of driving stickiness with users, and mobile is perfectly suited to serve as the primary access point, given our smartphones are nearly always within arm’s reach,” Sydow says. “Having a first-class mobile strategy is a necessity for [quick-serves] in 2019, or they face being relics of the past.

    Dunkin’ Donuts
    Dunkin' is testing a multi-tender option for its DD Perks program.

    The top

    Starbucks’ rewards changes recently have been met with mixed results from consumers. In some ways, the complaints were a decent sign. What’s the worst reaction to a major initiative? No reaction. Kickback showed the depths of Starbucks’ loyalty base. Here are some more details on the changes. The key thing to note is that Starbucks wanted to improve choice and flexibility. And it wanted customers to access rewards sooner, which would, in theory, inspire more downloads. Starbucks has 15.3 million “digitally registered guests” who have not taken the final step to rewards. Getting them through the funnel will be a huge directive moving forward.

    Not surprisingly, Starbucks ranked as the No. 1 quick-service app in the U.S. last year based on average smartphone monthly active users, per App Annie. The chart below shows the top 5 in a few countries.

    App Annie

    In the U.S., the total amount of money spent on meals away from home increased 50 percent from 2007–2014. It now accounts for 54 percent of total food expenditures. On the other side, money spent on food at home lifted only 30 percent during the same time frame—decreasing by 4 percentage points in share to 46 percent. If you factor in the 140 percent Sydow mentioned before, it explains why quick-serves are investing so heavy in restaurant and delivery apps. Each session is an opportunity to purchase and could represent a potential mobile order. Not to mention a loyal guest.

    “In the US, downloads of the top 5 food delivery apps grew 175 percent in 2018 from two years prior, indicating a strong level of demand,” Sydow says. “For restaurants, food delivery apps offer an expanded channel for distribution and widen their potential reach. Not to mention, food delivery apps cater to consumer behavior trends we’ve seen in the market.”

    Growth from growth

    To gain customer loyalty through this channel, restaurants must rely heavily on efficiency and accessibility. Dunkin’, for instance, is testing a multi-tender payment option in its DD Perks program at 1,000 restaurants that allows customers to earn rewards regardless of how they pay. The reason: Dunkin’ found that the single greatest barrier to broader participation in its Perks program was a construct that required pre-loading a credit card in order to participate and use on-the-go mobile.

    Domino’s is another example. The pizza chain recently spun its loyalty program with a “For the Love of Pizza” campaign that rewarded customers for eating any pizza, including competitors. Customers had to enroll in Domino’s Piece of the Pie program and then upload pizza photos to earn points toward a Domino’s pie. Did it work? On Super Bowl Sunday, the U.S. app hit No. 88 for daily iPhone downloads of overall apps in the U.S., App Annie said. That’s 158 spots better than the prior week. In the 30 days following, Domino’s maintained the lift, averaging a daily iPhone download rank of 127 for overall apps compared to 185 in the 30 days prior. Essentially, Domino’s used rewards points as marketing currency.

    App Annie

    The way guests dine

    Globally, downloads of the top 4 food delivery apps grew 115 percent in 2018 versus 2016. These platforms cater to an on-demand economy. Aggregators have become very adept at inspiring repeat users and loyalty, which is both a threat and boon for restaurants. It helps drive incremental sales but it also muddies the brand value concept.

    App Annie

    Are guests loyal to GrubHub or KFC? Depending on which restaurant we’re talking about, it might not matter. That’s something that differs by chain and internal goals.

    Regardless, one thing is certain: As the volume of quick-service restaurants and food delivery services expand, mobile will play a key role with customer engagement.

    “Consumers are shifting to an on-demand economy, whether watching our favorite shows or having our favorite food delivered, we can do this from the comfort of our homes and the ease of our mobile devices,” Sydow says.