Customers attracted by savings of money and time
We are undoubtedly in a subscription economy. While streaming services like Netflix, Hulu and Spotify are the masters of it, you can also subscribe to dog food, wine, gyms, razors and car washes. And restaurants, of course, have long sought a way into this now $64 billion space. Experimentation in subscription a few years ago by Burger King, Olive Garden and even Dunkin’ ended soon after they launched, but COVID has changed the subscription landscape. Tech-savvy customers, bored with stay-at-home doldrums and eager to save money, are now more likely to sign up for subscriptions, whether it be for tacos at Taco Bell or unlimited coffee at Panera. In fact, roughly 55 percent of New Yorkers said they would be interested in signing up for a restaurant subscription, according to a survey by PropertyNest.
Subscriptions are seen by restaurant goers as a way to support struggling restaurants and reduce some of the nightly hassle of deciding what to cook or order. And for restaurants? Subscriptions are a definite win-win. Juniper Research analyst James Moar says, “Subscriptions are a more dependable form of revenue than conventional customs. They allow businesses to plan ahead to a greater degree than if they depend on ad hoc purchases. Even if those are habitual, they can be disrupted, while subscriptions are not immediately disturbed.”
And subscriptions can also drive up purchases of non-subscription goods, Moar adds. “If a customer has a coffee every morning on subscription, they’re more inclined to buy a muffin or other breakfast snack, as they’re already in the store. This can help bolster the company’s bottom line, beyond the subscription revenue itself.”
Juniper Research estimates the consumer subscription market for physical goods such as restaurant food is expected to grow to more than $263 billion in 2025. And another report by Zuora/Deloitte finds saving money (72%), getting a good deal (69%) and saving time (51%) are the top three qualities of a good subscription for consumers.
Of course, implementing or operating subscription programs will have its own set of challenges.
“Companies need to keep their customers engaged, to make them feel that the subscription is worthwhile,” Moar says. This means that increased marketing needs to keep the products fresh.
"This is particularly the case for subscriptions that are discretionary but fairly similar—there is a challenge here in that QSR products are not necessities, but also aren’t necessarily varied. Keeping things fresh for subscribers at a product level may be particularly challenging.”
For Panera, $8.99 a month buys a subscriber one free cup of hot coffee, tea, or iced coffee every two hours, including free refills. Coffee can be ordered online or in person. At Pret A Manger, $19.99 a month buys a subscriber unlimited coffee or tea and extra add-on such as flavor syrup. It’s easy as scanning a QR code and subscribers don’t need to pay anything for the first month.
Intrigued by the rapid growth of subscriptions, Babson College professor of economics Lidija Polutnik teamed up with Shikha Jain, a partner in the consumer goods practice at the consulting firm Simon-Kucher & Partners. They surveyed 140 decision-makers at consumer goods companies to learn about best practices when offering subscriptions and found that subscriptions require a lot of effort to be done right. “Companies need to understand subscriptions are a business model,” Polutnik says. “This is not just a payment model.” And once a company signs up customers for its subscription service, it then has to do the hard work of holding onto them. “The burden is to continue to deliver value,” Polutnik says. “Customer engagement across many channels is key.”
But aren’t subscriptions just another asset for restaurants to manage? During the pandemic, third-party subscription platform services such as Table 22 and Third Place were launched to help restaurants start subscription programs. These new subscription services charge partner businesses around 7 to 10% fee on orders, far less than the 20 to 30% fees charged by most delivery apps. Table 22 founder Sam Bernstein said in a blogpost for Tribeca Venture Partners Insights that his vision for a new model of consumer hospitality patronage through subscription began with the basic question, “How can consumers play a role in ensuring the viability, stability, sustainability of their favorite restaurants?”
Most experts agree that restaurant subscriptions will survive even when restaurants rebound.
“They’ll certainly be refined and reduced. Many up-and-coming concepts will likely introduce additional subscription models that will, for the most part, fail to be sustainable. Because, with the exception of perhaps coffee, none of the other products should be consumed often enough to make the subscription model cheap, efficient, and desirable,” said Evan M. Goldman, an attorney, partner and chair of the franchise and hospitality group at A.Y. Strauss in
So, subscriptions for coffee? Now that makes cents, pun intended.
Fast food loyalty programs
This was the year for fast food loyalty programs. McDonald’s, Chipotle, Taco Bell and Wendy’s started or relaunched programs against the COVID backdrop. By July, McDonald's already had more than 12 million enrolled in its new loyalty program. Dunkin’, by comparison, now boasts more than 16 million perks members. For consumers, perks programs are attractive because they provide discounts, special privileges and convenience. For franchisees, the digital data collected through loyalty programs provides insight into guest behavior, which leads to more targeted – and “smarter” – marketing decisions. Some of the face-to-face contact lost during COVID has been replaced by push notifications, online menu updates and social media engagement.
A recent report from Bluedot credits loyalty platforms with bringing customers back to a restaurant. The study also showed that loyalty members’ checks were 6 percent larger on average than those of non-loyalty members over the course of the year. And in 2020, despite the pandemic, brands specializing in ice cream or coffee had a banner year, with average increases of 7 percent in visits and 26.5 percent in spend. Now that’s a perk indeed.