American Express Market Briefing

ing Market Briefing October 2011 October 2011 © 2011 American Express MarketBriefing a a Market Briefing Market Brief TT rr a c k i n g a nn dd i i nnt te er rp pr re e it n g g r er se t s a t ua r ua rn at n tt r e r e n d s t i n t n d s INSIDE MARKETBRIEFING Frequent Diner Programs: How Well Are They Working? Nutrition Disclosure Trend Barometer ...........................p. 2 A nyone who runs a business will tell you that generally speaking, his most profitable customers are his most frequent customers. Restaurants in particular cultivate their “regulars” who have an emotional connection to the brand. For chains and independents that have faced declines in traffic, loyalty programs Today’s Trends in Tipping ...........p. 5 can assist in holding on to a customer base that is dining out less frequently. Over the past few years, HEAVY RESTAURANT USAGE restaurant loyalty programs have proliferated, gone online and become more creative, and the idea is still TREND BAROMETER heating up. A few recent developments: • Chipotle plans to launch a loyalty program called Farm Team. Unlike other programs that offer The proportion of consumers who source rewards based on dining frequency, Chipotle’s program will reward participants based on their food from restaurants at least twice a week knowledge of its Food With Integrity operating model. has been rising this year—in both limited- • Red Robin Gourmet Burgers inaugurated a free Red Royalty loyalty-card program, an extension of service and full-service sectors. Almost three its e-club. Cardholders not only earn rewards based on dining frequency and receive e-mails with in 10 consumers (29%) polled in September special offers and promotions; they also get “Surprise & Delight” rewards throughout the year. said they had bought food from an LSR at • Panera Bread Co.’s MyPanera program, rolled out systemwide last December, allows cardholders least twice a week, compared to fewer than to earn rewards—including free menu items and invitations to tastings and events—based on two in 10 (17%) last March. The proportion how often they dine at a Panera. The program becomes more and more personalized the longer a of consumers who eat at FSRs at least member participates. twice a week is also rising, from 8% of all consumers in March to 13% in September. As bargain-hunting has become something of a national obsession over the last few years, participation Now that most consumers have concluded in many types of frequency rewards programs has risen, and membership in restaurant rewards programs that the economic slump is likely to continue has risen dramatically. Today, more than a third of consumers polled are members of restaurant loyalty indefinitely, more may be incorporating their programs, a slightly higher participation rate than for airline or hotel rewards programs. pre-recession dining habits into their “new normal” purchasing behaviors. Reward Program Participation Rates % of Consumers Enrolled, by Year Heavy Restaurant Usage Two times a week or more 35% 36% 32% 31% 26% 29% 24% 24% 19% 20% 17% 17% 17% 15% 13% 9% 8% Frequent Flyer Frequent Guest Frequent Diner Programs Programs Programs May 10 Sept. 10 Mar 11 Sept. 11 Aug 2007 Aug 2009 Sept 2011 LSR FSR Most consumers who participate in restaurant loyalty programs are members of only one or two such Editor’s note: Look for up-to-date programs. Participation in multiple programs rose during the Great Recession (2008–2009), but has metrics that shed light on key industry leveled out since then. trends in each month’s MarketBriefing. For comparison, you can find past Trend Barometer metrics online at: www.technomic.com/MB. MarketBriefing is produced by Technomic, Inc., the leading provider of consulting and consumer research to the restaurant industry. To find out about more American Express services to help you grow your business, go to www.americanexpress.com/restaurant. © 2011 American Express MarketBriefing 1 1

Market Briefing October 2011 NUTRITION DISCLOSURE How many frequent diner programs do you participate in? TREND BAROMETER 3% 10% 11% 9% Ever since the summer of 2010, about 9% 13% two-thirds of consumers who have 32% noticed postings of calories and other 38% 37% nutrition information in restaurants have been reporting that disclosure 55% has impacted their food choices there 42% 41% “somewhat” or “a great deal.” That’s up from about half who said so in the 2007 2009 2011 summer of 2009. One Two Three Four or more Base: 131 (2007), 85 (2009) and 213 (2011) consumers who are members of at least one frequent diner program As more chains have been displaying nutritional information, the proportion ofHOW MUCH LOYALTY? consumers seeing it has increased as well.Loyalty to a particular brand is the point of loyalty programs. Most consumers report that these programshave only a moderate influence on their decision of where to eat, with half saying that a loyalty program Impact of Nutritional Disclosureinfluences their dining decision “sometimes.” However, three out of 10 consumers will choose a restaurant on Consumers’ Orders % of Consumers Reporting “Greatfor which they have a loyalty card “always” or “most of the time.” Consumers are more likely to be swayed Impact” or “Somewhat of an Impact”“most of the time” when they’re considering a dinner occasion rather than a lunch spot, perhaps becausedinner is typically more expensive, and therefore a discount or deal seems more enticing—or simply because 67% 68% 64%these consumers tend to gravitate to favorite places. 50% When you go out for lunch or dinner at a restaurant, how often do you consider the restaurant(s) in whose frequent diner programs you participate? 241* 317* 300* 343* Lunch 11% 16% 51% 17% 4% Aug 09 Jul 10 Sep 10 Sep11 Dinner 10% 20% 50% 16% 4% *Number of consumers who have visited restaurants that have calorie counts/nutrition data posted Always Most of the time Some of the time Rarely Never Base: 213 consumers who belong to frequent diner programsRestaurants that do not offer loyalty programs but are considering them may be encouraged to know that seven out of 10 consumers say theywould visit a favorite restaurant more often if it offered a loyalty rewards program. That proportion is down a bit from 2007—when suchprograms were more of a novelty—but up from 2009. How likely would you be to increase the number of visits you make to one of your favorite restaurants if you could participate in a reward program there for frequent diners? Total 2011 27% 44% 71% 2009 24% 43% 67% 2007 28% 47% 75% Extremely likely Somewhat likelyWHAT INCENTIVES WORK BEST?Prompting customers to proactively sign up for a restaurant’s rewards program is the first hurdle. The enticement that generates the mostinterest is a quantified, versatile, near-term reward: a $10 gift card for the customer’s next visit, which nine out of 10 would find appealing. Free © 2011 American Express MarketBriefing 2

ing Market Briefing October 2011 points—a more abstract, less immediate reward—are the least effective, but nevertheless would tempt two-thirds of consumers to consider signing up. Interestingly, all specific signup rewards are more appealing to women than to men, except for an across-the-board 10% discount for each future visit—something both groups appreciate equally. How likely are the following incentives to influence you to join a frequent diner program at a restaurant you enjoy visiting? % selecting very or somewhat likely, by gender % Overall $10 gift card for next visit, 83% 88% upon joining 92% 10% discount on each visit 85% 85% 85% Free entrée (with purchase 73% of another) on birthday 85% 79% Emails with special 69% 75% discounts 80% Free appetizer/dessert upon 65% joining 74% 70% Free appetizer/dessert on 65% 69% birthday 73% Free points upon joining 62% 66% 69% Male Female PET PEEVES OF MEMBERS AND NON-MEMBERS We asked respondents who already participate in one or more restaurant rewards programs what they don’t like about the programs. By far the biggest peeve: more than six out of 10 said they worry that the restaurant may be sharing their personal information with other companies. More than half object to having to pay a fee to join a rewards program. Close to half believe that signing up was more hassle than it was worth, and about the same proportion say they’re frustrated by programs that only reward dine-in occasions. About four out of 10 find it a burden to always bring their card to the restaurant to receive a reward, and about the same proportion remember the signup process as being confusing. All of these frustrations were reported by larger proportions of women than of men. Careful, detail-oriented consumers, women may be more critical of the very tools they use to save money. How much do the following factors bother you about the restaurant loyalty program(s) in which you currently participate? % bothered a lot or somewhat, by gender % Overall Personal info shared with 54% 62% other companies 69% 45% Fee to join program 52% 58% Value from joining less than 38% hassle to join 51% 46% Program good only for 35% dine-in business 52% 45% 38% Have to bring card 42% 45% 36% Confusing process to sign up 41% 45% Male Female Base: 213 consumers who are members of restaurant loyalty programs © 2011 American Express MarketBriefing 3

Market Briefing October 2011We next asked consumers who are not members of a restaurant loyalty program why they have resisted signing up. An initial fee was by far thebiggest roadblock, with 54% saying they objected to having to pay upfront. But only a quarter of these non-members raised the issue of theirpersonal information being shared. For some, a loyalty program just didn’t fit their lifestyle: a quarter said there were no restaurants nearby thatoffered such programs, and a quarter said they didn’t go to any particular restaurant frequently enough to make a rewards program worthwhile.Two out of five were wary of being inundated with emails from the restaurant.Objections to loyalty programs from non-members did not show the same stark gender differences that we saw in members’ objections, exceptfor the potential for too many emails—a stumbling block for 25% of females but just 16% of males. Top Reasons Why Some Do Not Join Frequent Diner Programs* Dont want to pay a fee to join 54% Dont want personal info 25% to be shared Restaurants nearby 24% dont offer programs Dont go to any one place often 23% enough to make it worthwhile Dont want to get a ton of emails 20% from restaurant Base: 289 consumers who are not enrolled in restaurant loyalty programs *Respondents selected up to three responsesBottom Line: In today’s cost-conscious environment, consumers are highly interested in restaurant rewards programs, but they are turnedoff by programs that may violate their privacy, come front-loaded with a signup cost, or create more hassles than rewards. Consumers wantsimplicity in the signup process and reward structure, and they want to be assured that their private information is respected and guarded.BUSINESS-BUILDING IMPLICATIONS: • Loyalty clubs are increasingly migrating to online and mobile media. Is your rewards program keeping up? Customers of Menchie’s Frozen Yogurt can sign up for its new mySmileage reward program at menchies.com, through Facebook or Twitter, or in-store with a mobile phone number, then pick up a mySmileage wallet and keychain cards in-store. Members earn one “Smile” for every dollar spent at Menchie’s; with 50 “Smiles,” Menchie’s automatically loads $5 in “Menchie’s money” onto the mySmileage card to be presented at point of purchase. • If you’ve offered a loyalty program for several years, switch things up every once in a while to keep it interesting and meet changing consumer needs. For instance, T.G.I. Friday’s recently updated its well-known “Give Me More Stripes“ program (which offers VIP perks and rewards including a “jump the line” pass upon signup) to give members more rewards and more flexibility to accrue points. • Make sure you’re making full use of your frequent diner program to collect demographic data about your best customers—their ages, incomes, professions, and so on—without being unduly intrusive. Members of online loyalty programs can also be surveyed on their opinions of upcoming or proposed menu changes or other operational changes, strengthening their link to your brand. • A good deal of the excitement in consumers’ hunt for restaurant bargains has switched from loyalty programs to third-party couponing websites like Groupon or LivingSocial—which encourage trial of new restaurants, not loyalty to favorite spots. But couponing sites can also be used creatively as a new avenue for loyalty programs. Giving a new twist to the venerable punch card offering a freebie after repeat purchases, Quiznos recently offered a Groupon deal: a punch card for eight sandwiches or salads, worth about $50, for $25. • A complicated and confusing signup process is one of the biggest barriers to greater consumer participation in restaurant rewards programs, so streamlining signup should be a top priority. A two-part process, in which a code given to a customer in a store must be entered online, can be a significant barrier to entry. It may be better to offer an enrollment process that’s either entirely in-restaurant or entirely online. • Your loyal customers are skittish about their privacy. Make it clear to members and potential members of your loyalty program that you guard their personal information and will not sell it or share it with anyone outside your company. • Fear of email clutter is another barrier to signing up for a frequency program. During the signup process, let potential members know how often they will receive emails and what types of deals will be offered, so they can decide whether the program is worthwhile for them. © 2011 American Express MarketBriefing 4

ing Market Briefing October 2011 Today’s Trends in Tipping A s Americans worry more about incomes—their own and that of others, including those who serve them—the issue of tipping in restaurants has become more fraught. Tip jars are appearing on the counters of more and more limited-service restaurants, and consumers may be wondering what’s now expected of them, or may resent implicitly being asked to pay more at the counter than what they always have. Most consumers say their tipping habits when dining at restaurants have not changed over the past two or three years, but of those who have altered their patterns, more report increasing their tips than decreasing them. The increase is most notable for upscale casual-dining restaurants such as The Cheesecake Factory or P.F. Chang’s China Bistro. This sub-sector of casual dining is fairly new and still developing, and consumers may be differentiating the service they receive at such places from that offered by middle-tier casual-dining concepts such as Applebee’s or Chili’s. Is the percentage you are tipping now when you dine at restaurants more, less or about the same as what you tipped 2-3 years ago, before the recession? 69% 71% 68% 68% 65% 26% 18% 17% 18% 14% 18% 14% 9% 13% 12% Upscale casual- Casual-dining Family-style Fast-casual Cafeteria/buffet dining More Less About the same Base: 256 (upscale casual-dining), 400 (casual-dining), 343 (family-style), 209 (fast-casual) and 165 (cafeteria/buffet) consumers who dine in and tip at the particular restaurant segment WHERE DINERS TIP AND HOW MUCH Diners overwhelmingly believe that they are expected to tip at full-service restaurants of all types, with 80% or more saying a tip is customary. But about a quarter also feel that they are expected to tip at a buffet/cafeteria (27%) or at a fast-casual restaurant (23%). Both of these LSR sub- categories offer more service than a typical fast-food eatery. At a cafeteria or buffet, runners may bring beverages, offer refills and help diners to their tables. Fast-casual eateries may offer “made for me” meals that staff members assemble behind the counter in full view of customers, or meals brought to the table by runners after customers’ orders have been prepared. At which of the following types of restaurants do you feel that you are “supposed” to tip? Upscale casual-dining 85% Casual-dining 84% Famly-style 80% Buffet/cafeteria 27% Fast-casual 23% Those consumers who give tips in limited-service concepts do, however, tend to tip less than they would in a full-service restaurant. About half of the guests who tip at a cafeteria/buffet tip no more than 15%, and half of that group tips less than 10%. At fast-casual restaurants, about four out of 10 tip 15% or less. At upscale-casual and mainstream casual-dining restaurants, the most common tip is in the 16%-20% range. Despite the 15% “norm,” the tip at family-dining concepts is most likely to be in the 11%-15% range. © 2011 American Express MarketBriefing 5

Market Briefing October 2011At upscale-casual restaurants, about two out of 10 customers are extremely generous tippers, offering more than 20% of the bill. But less-expensive family-dining restaurants seem to get more of these big tippers than do mainstream casual-dining concepts—they represent 13% ofguests at family-dining restaurants and 11% of diners at casual-dining spots. Consumers’ Typical Tipping Rates Dine-In Service Only Upscale Cafeteria/ casual-dining Casual-dining Family-Style Fast-casual buffet Less than 10% 11% 10% 10% 16% 24% 11-15% 26 36 39 22 24 16-20% 41 40 32 15 10 21-25% 12 9 9 5 4 Greater than 25% 7 2 4 3 4 Carryout only at this 2 1 2 5 6 restaurant type Don’t tip at this type -- 2 4 34 28 of restaurant Base: 262 (upscale casual-dining), 411 (casual-dining), 364 (family-style), 345 (fast-casual) and 250 (cafeteria/buffet) consumers who dine at respective restaurant type at least once every 2-3 monthsTIPPING FOR TAKEOUTAlthough it’s often asserted that full-service takeout has proliferated in part because consumers don’t feel obligated to leave a tip for carryoutmeals, a large proportion of diners say they do tip when they pick up carryout meals from full-service restaurants. (Delivery orders werespecifically excluded from this question.)Takeout tipping is more generous at full-service restaurants—but not by much. About half of those who get takeout at full-service restaurantsreport that they leave behind a tip: 52% of carryout customers at upscale restaurants, 47% at casual-dining restaurants and 48% at family-dining restaurants leave something extra. Carryout customers of cafeteria/buffets and fast-casual restaurants are also generous: 37% of thosewho pick up takeout at either type of restaurant report that they leave behind a tip. Consumers’ Typical Tipping Rates Carryout Service Only Upscale Cafeteria/ casual-dining Casual-dining Family-Style Fast-casual buffet Less than 10% 15% 16% 15% 11% 14% 11-15% 17 18 15 12 14 16-20% 11 8 10 8 3 21-25% 5 4 4 3 2 Greater than 25% 4 1 4 3 4 Dine in only at this 17 17 14 8 14 restaurant type Don’t tip at this type 30 36 38 57 48 of restaurant Base: 262 (upscale casual-dining), 411 (casual-dining), 364 (family-style), 345 (fast-casual) and 250 (cafeteria/buffet) consumers who dine at respective restaurant type at least once every 2-3 months © 2011 American Express MarketBriefing 6

ing Market Briefing October 2011 Tipping for takeout isn’t a new phenomenon. About six out of 10 consumers say they’ve been tipping for carryout at the same rate over the past two or three years. Carryout customers who’ve changed their tipping habits are slightly more likely to be leaving bigger tips at upscale-casual, family- dining and fast-casual restaurants, and smaller tips at casual-dining restaurants and cafeteria/buffets. Is the percentage you are tipping now when you order carryout from restaurants more, less or about the same as what you tipped 2-3 years ago, before the recession? 59% 65% 65% 62% 61% 21% 20% 20% 21% 23% 16% 19% 15% 17% 16% Upscale casual- Casual-dining Family-style Fast-casual Cafeteria/buffet dining More Less About the same Base: 256 (upscale casual-dining), 400 (casual -dining), 343 (family-style), 209 (fast-casual) and 165 (cafeteria/buffet) consumers who tip at a particular restaurnat segment when ordering food for carryout THE QUESTION OF TIP JARS In recent years, some limited-service restaurants—particularly coffee and beverage concepts—have placed tip jars on counters to prompt customers to drop their change as a gratuity. This bid for tips seems to be working with about half of consumers; 51% say they would be very or somewhat likely to leave a tip at a beverage concept if they saw a countertop tip jar. Consumers’ Likeliness to Tip When a Tip Jar is Provided* Not likely at all Very likely 12% 21% Not very likely 21% 51% Somewhat likely 30% Neither likely nor unlikely 16% *At a coffee/beverage concept, e.g. Starbucks, Jamba Juice, etc. Base: 301 consumers who visit a coffee/beverage shop at least once every 2-3 months What’s more, most consumers see their tip-jar tip as a true reward for good service, not something they’ve been guilted into. Only 21% say a countertop jar makes them feel obligated to leave a tip. Two-thirds say they drop money into the tip jar for friendly service; half for fast service; and four out of 10 for an accurate order. Two out of 10 say they’d leave a tip as a quid pro quo for a free item. Not all countertop collection jars are going directly to staff tips; 28% say they drop a tip at a beverage concept when the money is going to a cause that they support. And some consumers see the tip jar not just as a way to give something, but as a way to rid themselves of something—24% say it’s a convenient receptacle for their loose change. © 2011 American Express MarketBriefing 7

Market Briefing October 2011 Why Some Consumers Place Tips in Tip Jars… Friendly service 67% Quick service 52% Got order right 42% Support cause listed on tip jar 28% Get rid of loose change 24% Feel obligated 21% Server gave something for free 19% Base: 151 consumers who are very or somewhat likely to tip at coffee/beverage shops Respondents selected all responses that applyNevertheless, there is also significant customer resistance to the spread of tipping at beverage concepts. Of those who don’t contribute to thesetip jars, half argue that a tip should not be expected for limited service, and four out of 10 object to being asked to pay a tip to someone simplydoing the job expected. More than a quarter say food and beverage items at these concepts are already expensive enough. ... and Why Some Consumers Do Not No table service, no tip 50% No need to pay extra for what is part of the job 38% No particular reason 28% Drinks/snacks already expensive enough 27% Staff already gets minimum wage 18% Service not good enough 16% Too many jars at too many places 16% Dont have the money 15% *At a coffee/beverage concept, e.g. Starbucks, Jamba Juice, etc. Base: 101 consumers who visit a coffee/beverage shop at least once every 2-3 months and are unlikely to tipBottom Line: The link between tipping and superior service has not been lost; consumers tip the most at restaurants with the most lavish service,but will cheerfully tip even at the coffee counter for service that goes “above and beyond.” On the other hand, widespread tipping for takeout—with little service offered in exchange—may indicate that many consumers have come to see the tip as just an expected part of their bill.BUSINESS-BUILDING IMPLICATIONS • Math is hard, and leaving a tip that’s smaller or larger than the diner intended is all too easy. Make it simple for your customers to calculate their intended tip by noting at the bottom of the check the dollar equivalents of before-tax 15% and 20% gratuities. Since many consumers routinely tip for carryout, there’s no need to remove the suggestion from checks for to-go orders. • In both full service (where tipping is routine) and limited service (where it’s sporadic), tips improve when service improves. The responsibility for creating topnotch service is shared between servers and managers, who must hire the right people and then nurture them. It takes initial and ongoing training, combined with mentoring from managers and peers, to create knowledgeable, capable, friendly servers who can score the best tips. • Limited-service operators who are thinking of placing a tip jar on the counter should proceed with caution; a jar can garner enough cash to make life a little better for staff members, but it can also cause a backlash from consumers irritated about being “nickeled and dimed” when they make a purchase. Survey customers before instituting a tip jar. Or begin by placing “tipping” and “no tipping” jars on the counter, with proceeds donated to charity; that way, your customers can “vote” with their spare change.Editor’s note: Except where otherwise noted, source of data is a periodic overnight survey of 500 consumers representative of the U.S. population,conducted via the Internet by Technomic, Inc. in September 2011. Margin of error ± 4.4%.About MarketBriefing Through MarketBriefing, American Express provides restaurants with research-based analysis of key industry developments. Data is collectedand analyzed by Technomic, Inc. To subscribe or find past issues of MarketBriefing go to: www.technomic.com/MB. This issue of MarketBriefing was written by RitaNegrete based on research conducted and interpreted by Kimberly Perman. If you have questions, comments or topic suggestions, please contact Kimberly Perman atkperman@technomic.com or directly at (312) 506-3831. © 2011 American Express MarketBriefing 8

ing Market Briefing October 2011 Restaurant Neighbor Recognizing RestauRateuRs foR outstanding community involvement Doing good work in your community? Share your story and enter to win $5,000 Four national winners receive $5,000 each to support their community efforts as well as an all-expense-paid trip to Washington, DC to receive their award during a gala awards dinner held in April 2012. DEADLINE TO APPLY IS DECEMBER 5, 2011 For more information on the award or to apply online go to www.restaurant.org/awards © 2011 American Express MarketBriefing 9

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American Express Market Briefing

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American Express Market Briefing — Document Transcript