March 11, 2024 • 26 mins
Restaurant chains are revamping loyalty programs this year because they aren’t working, Thanx CEO and Founder Zach Goldstein tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, Goldstein sits down with BI’s senior restaurant and foodservice analyst Michael Halen to explain what loyalty programs must accomplish to successfully drive traffic. He also comments on AI, dynamic pricing and the cycles of all-in-one tech.
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Episode Transcript
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Speaker 1 (00:21):
Welcome to Chopping It Up.
Speaker 2 (00:23):
I'm your host, Mike Hallon, the senior restaurant and food
service analyst at Bloomberg Intelligence. Today we're joined by Zach Goldstein,
CEO and founder of Thanks. Thanks for doing this, Zach.
Speaker 3 (00:34):
Yeah, I'm excited to Chop it Up.
Speaker 2 (00:36):
Yeah, man, listen, no pressure, but you participated in the
most watched webinar I ever had at Bloomberg, so I'm
expecting a banger today, hopefully to baby.
Speaker 1 (00:45):
Let you get some sleep this week.
Speaker 3 (00:47):
All right, let's do it.
Speaker 1 (00:49):
All right, good stuff?
Speaker 2 (00:50):
Why don't you tell the audience what Thanks does and
what inspired you to start the company?
Speaker 3 (00:56):
Thanks as a guest engagement platform for restaurants. We help
brands engage with consumers through digital so that's their app
and web ordering experience, through other marketing channels such as email,
push notifications, et cetera. And at the core of that
is our loyalty CERM platform. Loyalty is a hot topic
(01:17):
right now in the restaurant industry. I'm sure we'll spend
a lot of time talking about it, but it's gone,
in my opinion, from nice to have to must have,
and that's why we're seeing so much attention on restaurant loyalty.
Speaker 1 (01:28):
Yeah, and so why don't you talk a little bit
about that.
Speaker 2 (01:31):
Why are so many of the chains that we cover,
Why are so many of the private chains revamping loyalty
this year?
Speaker 3 (01:38):
Well, the revamping question is because their loyalty programs aren't working,
and that's not an option anymore. We actually ran an
assessment of a legacy loyalty program in the last month
where right there in the dashboard it showed loyalty members
spend five percent less than non loyalty members. And yet
this restaurant wasn't in a hurry to make a change.
(02:01):
That's not a way that you can survive in this
industry right now. You have to be identifying ways to
drive frequency. And it's mostly because we've taken check, we've
taken price across the industry. That's creating some same store
sales growth, but it's hiding very clear depression and frequency.
(02:22):
And so if you don't know who your guests are
and you don't have the tools to drive them back
in for a second, third, or tenth purchase, you're kind
of crossing your fingers and hoping your business will thrive.
And that's not generally a good strategy. So the loyalty
program is the answer to that. It's about knowing your guests,
personalizing your interaction, giving them reasons to come to you
(02:46):
as opposed to a third party or ultimately as opposed
to a competitor. And that's the last piece that we
could spend some time talking about, because if your loyalty
program looks exactly like your competitors, and it's not doing
you any good, So you need to be on brand
and really perionalize what loyalty means to compete in twenty
twenty four.
Speaker 2 (03:04):
And you mentioned to me when we spoke last week,
what was it, sixty or seventy percent of customers make
one transaction and that's it.
Speaker 3 (03:12):
Yeah. In fact, the industry wide, we see somewhere between
seventy and eighty five percent of revenue comes from just
twenty percent to customers. You better know who those people are.
You know. The two ways that loyalty most directly affects
frequency if it's working, is driving first time purchasers to
(03:33):
a third purchase because third purchasers are like ten times
greater lifetime value. Or identifying your true regulars and keeping
them locked in and preventing that fall off, and you
got to be doing one or both of those if
you expect frequency to stay flat or go up.
Speaker 2 (03:53):
Okay, cool, So who's doing it right and who's just
kind of putting lipstick on a pig.
Speaker 3 (04:00):
So Chipotle famously years ago said we don't need a
loyalty program and fast forward and the Chipotle loyalty program
has been a big reason why they outperformed Food and
Beverage Index in Decease for the last couple of years.
That is because loyalty was not, by x get y,
(04:21):
a really boring program. Loyalty was about driving people to
digital channels, making that delightful guac mode exclusive access to
the case idea. They were innovating and they got the
results from it. Now there's a different side of the
Chipotle coin, which is that gap has closed some and
this is the challenge for restaurants considering whether to build
(04:44):
their own technology or not. It's a constantly evolving space
and to stay ahead and to keep getting the benefit,
you have to keep innovating, and that's expensive and it
requires specialization. And so we've seen some brands catch up
to Chipotle in their competitive of space. In some cases,
we're thanks to blame because we're helping brands catch up there.
(05:06):
But that's that's closing the gap. Some that said it's
they're a perfect proof point on when you do it right,
what kind of advantage you can get.
Speaker 2 (05:17):
Very cool, you know, and we talked kind of about
revamping the look and feel but versus you know, being
fundamentally different, you know. And I think you mentioned Duncan
was one. But because they were taking some risks there,
can you talk about Duncan a little bit?
Speaker 1 (05:36):
Yeah.
Speaker 3 (05:36):
I think there's two conclusions from Duncan and frankly from
Starbucks before. If you need to change your loyalty program
because it's not working or because the economics are not sustainable,
you need to do it, and you're gonna see pushback
from consumers if you've been locked into a program for
(05:57):
ten years. So I think most of the coverage there
actually drew the wrong conclusion, which is, Ooh, Duncan made
a change and it was bad. Duncan made a change
that they needed to make because their program was giving
away too many discounts, and I comend them for making
that change. The mistake happened years earlier when they launched
a program and then never evolved, it never changed it
(06:21):
For a decade, loyalty programs have often been set it
and forget it, and brands often spend a lot of
time worried about getting the first launch right. In my opinion,
the first launch is the starting point to collect data,
and you need to create a dynamic, constantly evolving loyalty program.
And if you do that, you train your guests that
(06:41):
your loyalty program is dynamic, which means they embrace change,
not fear it. And that's what modern loyalty programs are
doing today. Much more personalized, much more choice, and much
more dynamic.
Speaker 2 (06:56):
Yeah, Tim Hortons was a famous one because they came
out pretty early and were like, yeah, we're just given
discounts to people that were going to come anyway.
Speaker 3 (07:03):
Right.
Speaker 2 (07:05):
You mentioned a couple other names too. What about Sweet Green?
What are they doing with their loyalty program right now?
Speaker 3 (07:10):
So I think sweet Greens strategy is a plus from
a marketing standpoint. So one of the things that Sweet
Green's innovated on is a concept called challenges, which we've
now built into our platform as well. Identify a one
time a month customer and get them to come twice
and then give them the incentive. Identify a lunchtime customer
(07:33):
and get them to try the dinner day part and
then give them an incentive. That's the direction towards hyper personalization.
Now you look at the Sweet Green stock price and
you say, well, Zach, that's not paying off yet. I
don't think that's because of the strategy. I think that's
because iterating on that program when you've built all the
technology yourself is just is very difficult. It's very expensive,
(07:56):
and ultimately there's a lot of pressure on margins now,
so that's one more place where there's pressure and margins.
But whoever created that strategy, I believe you will see
it work, likely at Sweet Green at some point, but
you'll see it work elsewhere as well, because it's the
right direction for the future of loyalty.
Speaker 2 (08:17):
Okay, Cole and the eight hundred pound gorilla McDonald's, how
are they doing so?
Speaker 3 (08:22):
McDonald's is another one that said we don't need a
loyalty program, and here we are fastest growing, largest loyalty
program in the restaurant industry. I think the story of
the McDonald's loyalty program is more a story of embracing
digital than of loyalty specifically, though the two go very
squarely hand in hand. There was an assumption in QSR
(08:46):
that if you had great locations and an excellent drive
through experience, digital was less critical. I think we're seeing
very clear now it doesn't matter who you are. Digital
is critical and building that direct relationship with customers is
a must have. Why because millennials gen Z they value convenience,
(09:07):
and convenience drive through is convenient. It's less convenient at
the end of the day than ordering ahead and swooping
in and picking up your food and continuing on with
your day. And then the other benefit is that drive
through still anonymous. Most of the customers that go through
your drive through, you have no clue who they are,
So what do you do to get them back into
(09:28):
your drive through? A digital transaction has the ability for
you to understand that guest, target them, get them back in,
and make it easy for them to one click reorder.
That's what's driving the growth of the McDonald's loyalty program,
and that's why when brands look at, well, what do
we do at things? We're not just a loyalty program.
(09:50):
We actually help brands launch best in class mobile applications
digital ordering experiences, and that's because those are great channels
for personalization as well. When you open up an app,
you want to see your last order, and you can
only do that if it's connected to your loyalty program.
You want to see what rewards you have available to
(10:10):
use so that it changes your perusing of the menu.
If none of that's there or you don't see it
till you're at the very last step of the checkout process.
Because it's not a great experience, the brand's leaving money
on the table. And this is the stuff that we're
seeing McDonald's innovate on that others are catching up on.
Speaker 1 (10:30):
Yeah.
Speaker 2 (10:30):
Interesting, and it's so important right now because chains advertising
budgets are creeping back up, so this cheaper digital marketing
is definitely important.
Speaker 3 (10:41):
Well, there's an interesting concept of marketing budgets that were
just a fixed percent of revenue for a long time,
and some would say five and some would say two,
and that number was completely pulled out of thin air,
and that's not how other industries work. Your marketing budget
should scale based on the return you're getting from your
marketing budget, and if you can get a good return,
(11:02):
you should keep throwing money against it. We're starting to
see restaurants and they embrace that mentality. Wait a minute,
my marketing, my loyalty program can be a revenue driver. Okay,
then spending more money on the program is a good investment.
I think as an industry, we're stuck thinking about Hey,
the last time I spent a bunch of money and
(11:22):
I upgraded my point of sale, it didn't drive any
revenue lift. So I don't want to spend money. As
we look at revenue driving technology investments, it needs to
be evaluated differently based on ROI for sure.
Speaker 1 (11:38):
All right, I got one more for you, and then
we can move on. Dominos.
Speaker 2 (11:42):
They revamped their loyalty They pointed to it as helping
fourth quarter same source sales or trying to drive more
light users and carry out users to.
Speaker 1 (11:53):
Come more frequently. You know, any opinions on that one.
Speaker 3 (11:57):
Yeah, I think it's a testament to doing change well. Actually,
and you know, Dominos has said we're a technology company,
and they have they have a very targeted reason why
they've adjusted their loyalty program, and their early indicators show
that it's working. And so I'm hopeful that the industry
draws the opposite conclusion that that we drew when looking
(12:19):
at Duncan. Here's an example of change is good and
I think that's a better conclusion, as I mentioned before,
than being fearful to adapt.
Speaker 1 (12:28):
All right, good stuff, all right?
Speaker 2 (12:30):
So should restaurant chains be building their own loyalty and
their own restaurant tech or should they buy it?
Speaker 1 (12:36):
And you know?
Speaker 2 (12:37):
Or does the answer really hinge on the size and
the resources of the company.
Speaker 3 (12:43):
I don't think there's a one size fits all. That said,
I would speculate that you can count on two hands
the number of restaurants that could actually pull off being
a technology brand and being a food brand, and it
may be one hand if we're honest. It effectively comes
down to access to cheap cost of capital, because technology
(13:05):
is expensive and it requires an upfront investment in order
to get the long term return, and most restaurants don't
have access to cheap enough capital to be a technology company.
Then there's the second problem of you have access to
cheap capital, do you know what to do with it?
And recruiting top notch talent even if you've got the
(13:26):
money to pay them. If you're a restaurant. In machine learning,
data analytics. Some can pull it off, but it's hard.
It's hard for technology to companies to compete with each
other because that's the second piece. As I mentioned with Chipotle,
it's not about launch an innovative technology and yay, we're
ahead and we'll reap the benefits. You have to launch
(13:47):
the technology, and then you have to keep iterating and
staying ahead because the pace is just constantly evolving. So
most restaurants can't and shouldn't be That's why SAW where
as a service has taken over other industries where you
focus on your core and you buy software as a
service solutions, and frankly we do that as a technology company.
(14:11):
There are a lot of things that we should be
best in class at, and then there are things A
lot of our back end data infrastructure we don't need
to run servers. We should not be building data pipelines.
There are there are technologies that do that better. We
spend a lot of money on Snowflake. Our restaurants probably
(14:33):
don't appreciate how much of a cost that is for us,
but that's because if we were to replicate all that stuff,
our solution would be way less innovative. We'd move much
more slowly and frankly, we'd likely have to charge more.
Speaker 2 (14:47):
That's interesting, and yeah, Wingstop should be an interesting test
for that.
Speaker 1 (14:52):
Yes, the billdo versus buy it? Right?
Speaker 3 (14:55):
That's right. I think that is a big, bold bet.
They've publicly ported fifty million or something already sunk into
their technology. That's a lot. But I think the bigger
question is they're gonna sink another one hundred if they're
going to really pull this off, and they may be
(15:15):
able to get the return on that, but that's a
high bar.
Speaker 2 (15:18):
Okay, there's a lot of pressure on some of these
public tech companies to expand their wallets share with the customers.
Speaker 1 (15:23):
Right. Can you speak to the cycles of all in
one tech?
Speaker 3 (15:27):
Yeah, all of this goes in cycles. But yeah, you're
seeing Toasts and OLO talk about average revenue per location
as a big metric for them, and it makes sense.
Restaurants on the surface want fewer technologies that they have
to buy and integrate because that's easier. On the flip side,
(15:50):
restaurants are increasingly under pressure to drive comps up and
traffic in particular, and when it comes to things that
can impact traffic, they need best in class solutions and
so we're going to see that tension play out.
Speaker 1 (16:08):
For sure.
Speaker 3 (16:09):
There's also risk. There's risk in consolidating, and so we've
seen some indication that brands want to go with all
in one, but we've also seen some indication of brands
actually separating because they don't want their loyalty program tied
to their point of sale vendor, or they don't want
their ordering tied to their payments. And it's going to
(16:35):
be at this stage in the cycle, we're going to
see brands go both directions. But ultimately, I think that
if it's an all in one, you're optimizing for cost
and efficiency and you're willing to sacrifice on the long
term results, but you're getting a much more efficient buy
of software. If it's specialized, you're probably going to spend
(16:56):
more money, but you're probably able to get more result
if you use it well. And that's going to be
a brand by brand calculation.
Speaker 2 (17:05):
Yeah, it's interesting, and you mentioned to me too that
it kind of concentrates the risk for the technology company.
Speaker 3 (17:10):
For sure, and I think we're seeing that with some
of these public comps. As you lose a big brand,
a subway, a wingstop, it's pretty painful in the public markets,
and that's probably fair. Those are big brands. On the
flip side, this is a trillion dollar category. Now. Losing
(17:33):
one customer does not make or break any of these
software vendors.
Speaker 1 (17:38):
Cool.
Speaker 2 (17:40):
When these fourth quarter earnings call, new CEO Kirk Tanner
spoke about testing dynamic pricing next year and people went berserk.
So you know, the restaurant industry doesn't have the same
supply constraints that impact hotels and airlines. Will restaurant customers
ever accept dynamic pricing?
Speaker 3 (18:00):
Strung customers have been accepting dynamic pricing for eternity. This
was a messaging problem. What do you do with effective marketing?
You drive customers to do things that you don't think
they would have done otherwise, often with discounts. That's dynamic pricing.
(18:22):
At the end of the day, when you know that
you are slow on Wednesday, when you know that you
are slow at the dinner day part because you're thought
of as a lunch brand, you create incentives, often through
your loyalty program, to get consumers to think of you
in a different way, and then you hope that behavior
sticks without a dependency on the incentive. That is dynamic pricing.
(18:46):
I think the mistake here is thinking about it, and frankly,
Wendy's got caught up in a rough pr cycle that
I'm not sure they did anything wrong. But when you
think about it as surge pricing, because as you said,
this is not an industry where there's really a supply
and demand need for surge pricing, but dynamic pricing that
goes the other direction whatever. The opposite word of surge
(19:08):
is where it goes down when traffic is low to
create value. That is a smarter way to apply a
value menu. That's a way loyalty programs have been succeeding
for a long time, and this new industry of dynamic
pricing is about applying machine learning to do that type
of iteration way more quickly. But it's not, at any
(19:30):
end of the day, some thing that consumers should be
scared of. In fact, I expect consumers would embrace it
and have been embracing it for years.
Speaker 2 (19:40):
Yeah, look a happy hour, Right, you're leverage in the
box at a time where people may not be using it, right,
That's right. Yeah, that's it's interesting, and that's an interesting take.
Speaker 1 (19:52):
Talk to me.
Speaker 2 (19:53):
Everybody talks about it, but you know, I think you
have some interesting insights about it. Can you talk to
me a little bit about AI and the restaurant business
right now and what you think is going to work
and what is maybe just hype?
Speaker 3 (20:05):
Yeah, public restaurant leaders don't want to say it, so
I'll say it. Which is the most obvious application of
AI is on cost savings back of house and it's
about combating labor costs. And we're going to see more
and more of that absolutely, whether it's voice ordering so
that a human doesn't have to take that order, it's kiosks,
(20:29):
it's reducing rote prep time of things in the kitchen.
We're going to see robotics in AI in those places
and it's directly for cost savings and opportunities. People will
dance around it. We can redeploy labor, et cetera. But
we know what they're actually focused on, and it makes sense.
Labor costs are rising rapidly. Where I think it's a
(20:52):
lot less proven is what does it do for front
of house? You know, consumer facing tech today. You know
the big moment we're in an AI is driven by
open AIS hype cycle right now, and it's all about
generative AI. I mean, you can write three sentences and
get a sixty second video that is mind blowing that
has no value to restaurants. Any restaurant that believes that
(21:14):
they can then use that forgets that at the end
of the day, they're a marketing business. You produce good food,
but your brand is key in your a marketing business,
and great creed formacy of young is on our board,
and he reminds us constantly that that's our job is
to help restaurants be great marketers because that's core to
what they do. So I don't think generative AI is
(21:36):
the breakthrough there that said five eight years ago marketing
and restaurants will send the same email to every single
one of your consumers, pat yourself on the back when
you get a good open rate, no clue whether it
drove revenue, and spray and pray marketing Today, with technology
like Thanks, brands are doing much more personalization out of
(21:58):
the box. Thanks has about a hund undred pre built
segments that divide your customers into. But still that's not
one to one personalization. And I think machine learning will
give the opportunity to really build hyper segmentation in marketing
that doesn't require the manual effort or insight of your
(22:19):
marketing team. We're working on doing more and more of
that right now, and I do think that's an opportunity
and it's going to be a reason why brands want
to use a SaaS solution like thanks as opposed to
build it themselves, because the ability to train a machine
learning model across brands and then to the benefit of
(22:40):
each individual brand, it's just much easier than trying to
train on just one brand's data, where you might draw
the wrong conclusion about your customer.
Speaker 1 (22:49):
Yeah, that's very cool, man.
Speaker 2 (22:50):
I'm sure a lot of restaurant chains and looking forward
to getting to that day, you know, because loyalty has
been such a you know, important topic business for a while,
right and the first cycle was I don't know, twenty seventeen,
twenty eighteen, and as you mentioned, a lot of them,
you know, have been unsuccessful in you know, getting to
(23:12):
that one to one marketing spot and they're given another
shot right now. So it's going to be really interesting
to watch.
Speaker 3 (23:21):
I agree, and I think it's because brands assume changing
your loyalty program is scary. As we've talked about the
actual structure, they also assume changing that technology is scary,
and it's because as an industry, we're so impacted by
how turbulent the point of sale experience has always been.
(23:44):
Every restaurant has changed their point of sale, and it
never goes as well as they're told it's going to go.
It never goes as quickly, and so I think restaurants
are programmed to think, wait a minute, changing other technologies hard.
We did a loyalty reef, we did a lot to
refresh yesterday. We did a loyalty refresh the day before
transitioning from legacy solutions. The consumers woke up their app refreshed.
(24:07):
All their loyalty print points were still there, all their
rewards were still there, but the underlying technology had changed.
It's not as scary as brands make it out to me.
Speaker 1 (24:16):
That's great.
Speaker 2 (24:17):
Yeah, POS which stands for something else, and then ERP
solutions too. I think give give a lot of tech
technology a bad name.
Speaker 1 (24:28):
Zach, thanks for this.
Speaker 2 (24:29):
I don't get a lot of color into some of
these loyalty programs, So I really appreciate you. I appreciate
the work you're doing at Thanks, and I look forward
to continuing.
Speaker 1 (24:39):
To follow your story. And I wish you nothing but
good luck man.
Speaker 3 (24:43):
I enjoy this. I think the more that we talk
about the actual data that's driving, that's driving frequency, and
that's ultimately leading to, you know, the same store sales
growth that the industry relies on, the better off will
be as a category. And your questions and your coverage
help with that a lot. That's what's going to drive
(25:04):
brands to be smarter in their loyalty structure, in their
use of data because they're getting questions from you about
whether it's working. So I share the appreciation.
Speaker 1 (25:15):
Yeah, thanks man.
Speaker 2 (25:17):
Yeah, they need all the help they can get right
now in terms of driving traffic, that's for sure. Where
can the audience go to find more out about Thanks.
Speaker 3 (25:25):
Thanks is Tha n X dot com. I regularly talk
on LinkedIn about this, trying to bring educational resources to
the industry, so you can find me Zach Goldstein on
LinkedIn And I appreciate the time, Mike, good stuff.
Speaker 2 (25:41):
I will also want to thank the audience for tuning in.
If you liked the episode, please share it with your
friends and colleagues. Check back in a couple of weeks
for a discussion with Brandon Guthrie, general partner and co
founder of CHTRNGE Capital Partner
Welcome to Chopping It Up.
Speaker 2 (00:23):
I'm your host, Mike Hallon, the senior restaurant and food
service analyst at Bloomberg Intelligence. Today we're joined by Zach Goldstein,
CEO and founder of Thanks. Thanks for doing this, Zach.
Speaker 3 (00:34):
Yeah, I'm excited to Chop it Up.
Speaker 2 (00:36):
Yeah, man, listen, no pressure, but you participated in the
most watched webinar I ever had at Bloomberg, so I'm
expecting a banger today, hopefully to baby.
Speaker 1 (00:45):
Let you get some sleep this week.
Speaker 3 (00:47):
All right, let's do it.
Speaker 1 (00:49):
All right, good stuff?
Speaker 2 (00:50):
Why don't you tell the audience what Thanks does and
what inspired you to start the company?
Speaker 3 (00:56):
Thanks as a guest engagement platform for restaurants. We help
brands engage with consumers through digital so that's their app
and web ordering experience, through other marketing channels such as email,
push notifications, et cetera. And at the core of that
is our loyalty CERM platform. Loyalty is a hot topic
(01:17):
right now in the restaurant industry. I'm sure we'll spend
a lot of time talking about it, but it's gone,
in my opinion, from nice to have to must have,
and that's why we're seeing so much attention on restaurant loyalty.
Speaker 1 (01:28):
Yeah, and so why don't you talk a little bit
about that.
Speaker 2 (01:31):
Why are so many of the chains that we cover,
Why are so many of the private chains revamping loyalty
this year?
Speaker 3 (01:38):
Well, the revamping question is because their loyalty programs aren't working,
and that's not an option anymore. We actually ran an
assessment of a legacy loyalty program in the last month
where right there in the dashboard it showed loyalty members
spend five percent less than non loyalty members. And yet
this restaurant wasn't in a hurry to make a change.
(02:01):
That's not a way that you can survive in this
industry right now. You have to be identifying ways to
drive frequency. And it's mostly because we've taken check, we've
taken price across the industry. That's creating some same store
sales growth, but it's hiding very clear depression and frequency.
(02:22):
And so if you don't know who your guests are
and you don't have the tools to drive them back
in for a second, third, or tenth purchase, you're kind
of crossing your fingers and hoping your business will thrive.
And that's not generally a good strategy. So the loyalty
program is the answer to that. It's about knowing your guests,
personalizing your interaction, giving them reasons to come to you
(02:46):
as opposed to a third party or ultimately as opposed
to a competitor. And that's the last piece that we
could spend some time talking about, because if your loyalty
program looks exactly like your competitors, and it's not doing
you any good, So you need to be on brand
and really perionalize what loyalty means to compete in twenty
twenty four.
Speaker 2 (03:04):
And you mentioned to me when we spoke last week,
what was it, sixty or seventy percent of customers make
one transaction and that's it.
Speaker 3 (03:12):
Yeah. In fact, the industry wide, we see somewhere between
seventy and eighty five percent of revenue comes from just
twenty percent to customers. You better know who those people are.
You know. The two ways that loyalty most directly affects
frequency if it's working, is driving first time purchasers to
(03:33):
a third purchase because third purchasers are like ten times
greater lifetime value. Or identifying your true regulars and keeping
them locked in and preventing that fall off, and you
got to be doing one or both of those if
you expect frequency to stay flat or go up.
Speaker 2 (03:53):
Okay, cool, So who's doing it right and who's just
kind of putting lipstick on a pig.
Speaker 3 (04:00):
So Chipotle famously years ago said we don't need a
loyalty program and fast forward and the Chipotle loyalty program
has been a big reason why they outperformed Food and
Beverage Index in Decease for the last couple of years.
That is because loyalty was not, by x get y,
(04:21):
a really boring program. Loyalty was about driving people to
digital channels, making that delightful guac mode exclusive access to
the case idea. They were innovating and they got the
results from it. Now there's a different side of the
Chipotle coin, which is that gap has closed some and
this is the challenge for restaurants considering whether to build
(04:44):
their own technology or not. It's a constantly evolving space
and to stay ahead and to keep getting the benefit,
you have to keep innovating, and that's expensive and it
requires specialization. And so we've seen some brands catch up
to Chipotle in their competitive of space. In some cases,
we're thanks to blame because we're helping brands catch up there.
(05:06):
But that's that's closing the gap. Some that said it's
they're a perfect proof point on when you do it right,
what kind of advantage you can get.
Speaker 2 (05:17):
Very cool, you know, and we talked kind of about
revamping the look and feel but versus you know, being
fundamentally different, you know. And I think you mentioned Duncan
was one. But because they were taking some risks there,
can you talk about Duncan a little bit?
Speaker 1 (05:36):
Yeah.
Speaker 3 (05:36):
I think there's two conclusions from Duncan and frankly from
Starbucks before. If you need to change your loyalty program
because it's not working or because the economics are not sustainable,
you need to do it, and you're gonna see pushback
from consumers if you've been locked into a program for
(05:57):
ten years. So I think most of the coverage there
actually drew the wrong conclusion, which is, Ooh, Duncan made
a change and it was bad. Duncan made a change
that they needed to make because their program was giving
away too many discounts, and I comend them for making
that change. The mistake happened years earlier when they launched
a program and then never evolved, it never changed it
(06:21):
For a decade, loyalty programs have often been set it
and forget it, and brands often spend a lot of
time worried about getting the first launch right. In my opinion,
the first launch is the starting point to collect data,
and you need to create a dynamic, constantly evolving loyalty program.
And if you do that, you train your guests that
(06:41):
your loyalty program is dynamic, which means they embrace change,
not fear it. And that's what modern loyalty programs are
doing today. Much more personalized, much more choice, and much
more dynamic.
Speaker 2 (06:56):
Yeah, Tim Hortons was a famous one because they came
out pretty early and were like, yeah, we're just given
discounts to people that were going to come anyway.
Speaker 3 (07:03):
Right.
Speaker 2 (07:05):
You mentioned a couple other names too. What about Sweet Green?
What are they doing with their loyalty program right now?
Speaker 3 (07:10):
So I think sweet Greens strategy is a plus from
a marketing standpoint. So one of the things that Sweet
Green's innovated on is a concept called challenges, which we've
now built into our platform as well. Identify a one
time a month customer and get them to come twice
and then give them the incentive. Identify a lunchtime customer
(07:33):
and get them to try the dinner day part and
then give them an incentive. That's the direction towards hyper personalization.
Now you look at the Sweet Green stock price and
you say, well, Zach, that's not paying off yet. I
don't think that's because of the strategy. I think that's
because iterating on that program when you've built all the
technology yourself is just is very difficult. It's very expensive,
(07:56):
and ultimately there's a lot of pressure on margins now,
so that's one more place where there's pressure and margins.
But whoever created that strategy, I believe you will see
it work, likely at Sweet Green at some point, but
you'll see it work elsewhere as well, because it's the
right direction for the future of loyalty.
Speaker 2 (08:17):
Okay, Cole and the eight hundred pound gorilla McDonald's, how
are they doing so?
Speaker 3 (08:22):
McDonald's is another one that said we don't need a
loyalty program, and here we are fastest growing, largest loyalty
program in the restaurant industry. I think the story of
the McDonald's loyalty program is more a story of embracing
digital than of loyalty specifically, though the two go very
squarely hand in hand. There was an assumption in QSR
(08:46):
that if you had great locations and an excellent drive
through experience, digital was less critical. I think we're seeing
very clear now it doesn't matter who you are. Digital
is critical and building that direct relationship with customers is
a must have. Why because millennials gen Z they value convenience,
(09:07):
and convenience drive through is convenient. It's less convenient at
the end of the day than ordering ahead and swooping
in and picking up your food and continuing on with
your day. And then the other benefit is that drive
through still anonymous. Most of the customers that go through
your drive through, you have no clue who they are,
So what do you do to get them back into
(09:28):
your drive through? A digital transaction has the ability for
you to understand that guest, target them, get them back in,
and make it easy for them to one click reorder.
That's what's driving the growth of the McDonald's loyalty program,
and that's why when brands look at, well, what do
we do at things? We're not just a loyalty program.
(09:50):
We actually help brands launch best in class mobile applications
digital ordering experiences, and that's because those are great channels
for personalization as well. When you open up an app,
you want to see your last order, and you can
only do that if it's connected to your loyalty program.
You want to see what rewards you have available to
(10:10):
use so that it changes your perusing of the menu.
If none of that's there or you don't see it
till you're at the very last step of the checkout process.
Because it's not a great experience, the brand's leaving money
on the table. And this is the stuff that we're
seeing McDonald's innovate on that others are catching up on.
Speaker 1 (10:30):
Yeah.
Speaker 2 (10:30):
Interesting, and it's so important right now because chains advertising
budgets are creeping back up, so this cheaper digital marketing
is definitely important.
Speaker 3 (10:41):
Well, there's an interesting concept of marketing budgets that were
just a fixed percent of revenue for a long time,
and some would say five and some would say two,
and that number was completely pulled out of thin air,
and that's not how other industries work. Your marketing budget
should scale based on the return you're getting from your
marketing budget, and if you can get a good return,
(11:02):
you should keep throwing money against it. We're starting to
see restaurants and they embrace that mentality. Wait a minute,
my marketing, my loyalty program can be a revenue driver. Okay,
then spending more money on the program is a good investment.
I think as an industry, we're stuck thinking about Hey,
the last time I spent a bunch of money and
(11:22):
I upgraded my point of sale, it didn't drive any
revenue lift. So I don't want to spend money. As
we look at revenue driving technology investments, it needs to
be evaluated differently based on ROI for sure.
Speaker 1 (11:38):
All right, I got one more for you, and then
we can move on. Dominos.
Speaker 2 (11:42):
They revamped their loyalty They pointed to it as helping
fourth quarter same source sales or trying to drive more
light users and carry out users to.
Speaker 1 (11:53):
Come more frequently. You know, any opinions on that one.
Speaker 3 (11:57):
Yeah, I think it's a testament to doing change well. Actually,
and you know, Dominos has said we're a technology company,
and they have they have a very targeted reason why
they've adjusted their loyalty program, and their early indicators show
that it's working. And so I'm hopeful that the industry
draws the opposite conclusion that that we drew when looking
(12:19):
at Duncan. Here's an example of change is good and
I think that's a better conclusion, as I mentioned before,
than being fearful to adapt.
Speaker 1 (12:28):
All right, good stuff, all right?
Speaker 2 (12:30):
So should restaurant chains be building their own loyalty and
their own restaurant tech or should they buy it?
Speaker 1 (12:36):
And you know?
Speaker 2 (12:37):
Or does the answer really hinge on the size and
the resources of the company.
Speaker 3 (12:43):
I don't think there's a one size fits all. That said,
I would speculate that you can count on two hands
the number of restaurants that could actually pull off being
a technology brand and being a food brand, and it
may be one hand if we're honest. It effectively comes
down to access to cheap cost of capital, because technology
(13:05):
is expensive and it requires an upfront investment in order
to get the long term return, and most restaurants don't
have access to cheap enough capital to be a technology company.
Then there's the second problem of you have access to
cheap capital, do you know what to do with it?
And recruiting top notch talent even if you've got the
(13:26):
money to pay them. If you're a restaurant. In machine learning,
data analytics. Some can pull it off, but it's hard.
It's hard for technology to companies to compete with each
other because that's the second piece. As I mentioned with Chipotle,
it's not about launch an innovative technology and yay, we're
ahead and we'll reap the benefits. You have to launch
(13:47):
the technology, and then you have to keep iterating and
staying ahead because the pace is just constantly evolving. So
most restaurants can't and shouldn't be That's why SAW where
as a service has taken over other industries where you
focus on your core and you buy software as a
service solutions, and frankly we do that as a technology company.
(14:11):
There are a lot of things that we should be
best in class at, and then there are things A
lot of our back end data infrastructure we don't need
to run servers. We should not be building data pipelines.
There are there are technologies that do that better. We
spend a lot of money on Snowflake. Our restaurants probably
(14:33):
don't appreciate how much of a cost that is for us,
but that's because if we were to replicate all that stuff,
our solution would be way less innovative. We'd move much
more slowly and frankly, we'd likely have to charge more.
Speaker 2 (14:47):
That's interesting, and yeah, Wingstop should be an interesting test
for that.
Speaker 1 (14:52):
Yes, the billdo versus buy it? Right?
Speaker 3 (14:55):
That's right. I think that is a big, bold bet.
They've publicly ported fifty million or something already sunk into
their technology. That's a lot. But I think the bigger
question is they're gonna sink another one hundred if they're
going to really pull this off, and they may be
(15:15):
able to get the return on that, but that's a
high bar.
Speaker 2 (15:18):
Okay, there's a lot of pressure on some of these
public tech companies to expand their wallets share with the customers.
Speaker 1 (15:23):
Right. Can you speak to the cycles of all in
one tech?
Speaker 3 (15:27):
Yeah, all of this goes in cycles. But yeah, you're
seeing Toasts and OLO talk about average revenue per location
as a big metric for them, and it makes sense.
Restaurants on the surface want fewer technologies that they have
to buy and integrate because that's easier. On the flip side,
(15:50):
restaurants are increasingly under pressure to drive comps up and
traffic in particular, and when it comes to things that
can impact traffic, they need best in class solutions and
so we're going to see that tension play out.
Speaker 1 (16:08):
For sure.
Speaker 3 (16:09):
There's also risk. There's risk in consolidating, and so we've
seen some indication that brands want to go with all
in one, but we've also seen some indication of brands
actually separating because they don't want their loyalty program tied
to their point of sale vendor, or they don't want
their ordering tied to their payments. And it's going to
(16:35):
be at this stage in the cycle, we're going to
see brands go both directions. But ultimately, I think that
if it's an all in one, you're optimizing for cost
and efficiency and you're willing to sacrifice on the long
term results, but you're getting a much more efficient buy
of software. If it's specialized, you're probably going to spend
(16:56):
more money, but you're probably able to get more result
if you use it well. And that's going to be
a brand by brand calculation.
Speaker 2 (17:05):
Yeah, it's interesting, and you mentioned to me too that
it kind of concentrates the risk for the technology company.
Speaker 3 (17:10):
For sure, and I think we're seeing that with some
of these public comps. As you lose a big brand,
a subway, a wingstop, it's pretty painful in the public markets,
and that's probably fair. Those are big brands. On the
flip side, this is a trillion dollar category. Now. Losing
(17:33):
one customer does not make or break any of these
software vendors.
Speaker 1 (17:38):
Cool.
Speaker 2 (17:40):
When these fourth quarter earnings call, new CEO Kirk Tanner
spoke about testing dynamic pricing next year and people went berserk.
So you know, the restaurant industry doesn't have the same
supply constraints that impact hotels and airlines. Will restaurant customers
ever accept dynamic pricing?
Speaker 3 (18:00):
Strung customers have been accepting dynamic pricing for eternity. This
was a messaging problem. What do you do with effective marketing?
You drive customers to do things that you don't think
they would have done otherwise, often with discounts. That's dynamic pricing.
(18:22):
At the end of the day, when you know that
you are slow on Wednesday, when you know that you
are slow at the dinner day part because you're thought
of as a lunch brand, you create incentives, often through
your loyalty program, to get consumers to think of you
in a different way, and then you hope that behavior
sticks without a dependency on the incentive. That is dynamic pricing.
(18:46):
I think the mistake here is thinking about it, and frankly,
Wendy's got caught up in a rough pr cycle that
I'm not sure they did anything wrong. But when you
think about it as surge pricing, because as you said,
this is not an industry where there's really a supply
and demand need for surge pricing, but dynamic pricing that
goes the other direction whatever. The opposite word of surge
(19:08):
is where it goes down when traffic is low to
create value. That is a smarter way to apply a
value menu. That's a way loyalty programs have been succeeding
for a long time, and this new industry of dynamic
pricing is about applying machine learning to do that type
of iteration way more quickly. But it's not, at any
(19:30):
end of the day, some thing that consumers should be
scared of. In fact, I expect consumers would embrace it
and have been embracing it for years.
Speaker 2 (19:40):
Yeah, look a happy hour, Right, you're leverage in the
box at a time where people may not be using it, right,
That's right. Yeah, that's it's interesting, and that's an interesting take.
Speaker 1 (19:52):
Talk to me.
Speaker 2 (19:53):
Everybody talks about it, but you know, I think you
have some interesting insights about it. Can you talk to
me a little bit about AI and the restaurant business
right now and what you think is going to work
and what is maybe just hype?
Speaker 3 (20:05):
Yeah, public restaurant leaders don't want to say it, so
I'll say it. Which is the most obvious application of
AI is on cost savings back of house and it's
about combating labor costs. And we're going to see more
and more of that absolutely, whether it's voice ordering so
that a human doesn't have to take that order, it's kiosks,
(20:29):
it's reducing rote prep time of things in the kitchen.
We're going to see robotics in AI in those places
and it's directly for cost savings and opportunities. People will
dance around it. We can redeploy labor, et cetera. But
we know what they're actually focused on, and it makes sense.
Labor costs are rising rapidly. Where I think it's a
(20:52):
lot less proven is what does it do for front
of house? You know, consumer facing tech today. You know
the big moment we're in an AI is driven by
open AIS hype cycle right now, and it's all about
generative AI. I mean, you can write three sentences and
get a sixty second video that is mind blowing that
has no value to restaurants. Any restaurant that believes that
(21:14):
they can then use that forgets that at the end
of the day, they're a marketing business. You produce good food,
but your brand is key in your a marketing business,
and great creed formacy of young is on our board,
and he reminds us constantly that that's our job is
to help restaurants be great marketers because that's core to
what they do. So I don't think generative AI is
(21:36):
the breakthrough there that said five eight years ago marketing
and restaurants will send the same email to every single
one of your consumers, pat yourself on the back when
you get a good open rate, no clue whether it
drove revenue, and spray and pray marketing Today, with technology
like Thanks, brands are doing much more personalization out of
(21:58):
the box. Thanks has about a hund undred pre built
segments that divide your customers into. But still that's not
one to one personalization. And I think machine learning will
give the opportunity to really build hyper segmentation in marketing
that doesn't require the manual effort or insight of your
(22:19):
marketing team. We're working on doing more and more of
that right now, and I do think that's an opportunity
and it's going to be a reason why brands want
to use a SaaS solution like thanks as opposed to
build it themselves, because the ability to train a machine
learning model across brands and then to the benefit of
(22:40):
each individual brand, it's just much easier than trying to
train on just one brand's data, where you might draw
the wrong conclusion about your customer.
Speaker 1 (22:49):
Yeah, that's very cool, man.
Speaker 2 (22:50):
I'm sure a lot of restaurant chains and looking forward
to getting to that day, you know, because loyalty has
been such a you know, important topic business for a while,
right and the first cycle was I don't know, twenty seventeen,
twenty eighteen, and as you mentioned, a lot of them,
you know, have been unsuccessful in you know, getting to
(23:12):
that one to one marketing spot and they're given another
shot right now. So it's going to be really interesting
to watch.
Speaker 3 (23:21):
I agree, and I think it's because brands assume changing
your loyalty program is scary. As we've talked about the
actual structure, they also assume changing that technology is scary,
and it's because as an industry, we're so impacted by
how turbulent the point of sale experience has always been.
(23:44):
Every restaurant has changed their point of sale, and it
never goes as well as they're told it's going to go.
It never goes as quickly, and so I think restaurants
are programmed to think, wait a minute, changing other technologies hard.
We did a loyalty reef, we did a lot to
refresh yesterday. We did a loyalty refresh the day before
transitioning from legacy solutions. The consumers woke up their app refreshed.
(24:07):
All their loyalty print points were still there, all their
rewards were still there, but the underlying technology had changed.
It's not as scary as brands make it out to me.
Speaker 1 (24:16):
That's great.
Speaker 2 (24:17):
Yeah, POS which stands for something else, and then ERP
solutions too. I think give give a lot of tech
technology a bad name.
Speaker 1 (24:28):
Zach, thanks for this.
Speaker 2 (24:29):
I don't get a lot of color into some of
these loyalty programs, So I really appreciate you. I appreciate
the work you're doing at Thanks, and I look forward
to continuing.
Speaker 1 (24:39):
To follow your story. And I wish you nothing but
good luck man.
Speaker 3 (24:43):
I enjoy this. I think the more that we talk
about the actual data that's driving, that's driving frequency, and
that's ultimately leading to, you know, the same store sales
growth that the industry relies on, the better off will
be as a category. And your questions and your coverage
help with that a lot. That's what's going to drive
(25:04):
brands to be smarter in their loyalty structure, in their
use of data because they're getting questions from you about
whether it's working. So I share the appreciation.
Speaker 1 (25:15):
Yeah, thanks man.
Speaker 2 (25:17):
Yeah, they need all the help they can get right
now in terms of driving traffic, that's for sure. Where
can the audience go to find more out about Thanks.
Speaker 3 (25:25):
Thanks is Tha n X dot com. I regularly talk
on LinkedIn about this, trying to bring educational resources to
the industry, so you can find me Zach Goldstein on
LinkedIn And I appreciate the time, Mike, good stuff.
Speaker 2 (25:41):
I will also want to thank the audience for tuning in.
If you liked the episode, please share it with your
friends and colleagues. Check back in a couple of weeks
for a discussion with Brandon Guthrie, general partner and co
founder of CHTRNGE Capital Partner
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