It's no secret that the restaurant industry has been severely impacted by COVID, perhaps more than any other industry. There have been bright spots – the QSR sector, notably – and recent signs that a turnaround is underway, including Moody's upgrading its industry outlook to stable last month. But in general, restaurants have had to chart their own path to recovery.
That path lies in innovation and adaptation, both of which restaurants have demonstrated in spades. Full-service restaurants pivoted quickly to curbside pickup, takeout and delivery. They embraced third-party delivery services like Uber Eats as a lifeline to their customers, rushed to expand outdoor and street dining options to comply with distancing rules, and experimented with ghost kitchens to capitalize on customers' online migration.
Now, restaurants are turning to the subscription model as the latest step toward recovery.
The subscription economy is not new, of course, and the fact that subscriptions for all types of consumer products and services have boomed during the pandemic is neither surprising nor noteworthy. The size of that boom is staggering, though: subscriptions businesses have grown more than 400 percent over the last 8.5 years, including by 12% in Q2 2020, when every other economic indicator was contracting.
Last month, Pret A Manger became the latest restaurant chain to join the subscription economy, launching the YourPret Barista program that offers members up to five drinks per day in exchange for a monthly fee. It's the first barista coffee subscription service in the UK, but it follows the MyPanera+ Coffee subscription by Panera in the US, which has seen frequency jump by more than 200 percent for customers that subscribed.
These services are designed to supplement transactional purchases with recurring revenue of subscription loyalty programs, which is obviously critical in these uncertain times. 70 percent of subscription revenue on average comes from existing customers, boosting average customer lifetime value and providing a bulwark against future operational disruptions. For restaurants in particular, subscription programs can have a multiplier effect on check average – MyPanera+ Coffee members, for example, are adding high-margin goods like bagels, muffins and breakfast sandwiches to their coffee orders as well.
Subscription loyalty programs also have a positive impact on new customer acquisition, as they offer recognizable value for money, which is the number one reason consumers shop with a brand. Case in point: the Pret A Manger program costs $26.60 per month; for a daily latte drinker, the subscription pays for itself in a week. These easy-to-understand (and easy-to-market) savings help attract subscribers and has fueled the program's significant membership growth so far.
The real value of subscription loyalty programs like Pret A Manger's or Panera's is in the digital connection they create between the restaurants and their customers. By linking online interactions with in-store transactions through subscription loyalty programs, these brands can engage with customers on a one-to-one basis. That means personalized digital offers, recommendations and incentives – the same digital marketing tools that Amazon and other ecommerce giants have enjoyed for years.
Other restaurant subscription services have faltered through an inability to forge individual digital connections. The Burger King coffee subscription program – a service that presented an ultra-bargain value proposition to the consumer – has struggled since its inception. Launched in the early phases of the BK mobile app and with no loyalty program infrastructure to support it, the BK Café subscription can't deliver tailored offers or customized interactions. Smaller restaurant chains and independent restaurants may have more robust existing loyalty strategies, but lack the technology to implement a subscription loyalty program that integrates with in-store POS systems to recognize and reward customers at checkout.
A successful subscription model needs more than just a solid value prop. It also requires the ability to collect data from customer interactions both online and in-person, link those interactions and transactions through the program, and deploy promotions and marketing communications automatically, when and where they will have the most impact.
The digital connection to the customer at the checkout that Pret A Manger now has through YourPret Barista will pay dividends well beyond the recovery. It will facilitate initiatives that demonstrate value, convenience and personal service to their customers and drive more sustainable growth. For other restaurant chains searching for the next foothold on the path to recovery, the subscription approach might be their best step forward yet.