Diners’ Clubs : Fast-Food Chains Test Rewards for Regular Customers
There’s one thing that keeps Diana Bullen returning to the McDonald’s restaurant inside the shopping mall where she works.
Free McFood.
Every fifth time she buys something--even a cup of coffee--at the McDonald’s inside the Paramus Park Mall in northern New Jersey, she receives a coupon for a free menu item of comparable cost. Since Bullen is a cashier at a clothing store near the McDonald’s, she stops there several times a week--usually for a McChicken sandwich. Said Bullen: “I wish all McDonald’s had the same deal.”
Fast-food industry consultants say her wish may soon become reality--not just at McDonald’s, but across the fast-food industry. Much like the free plane tickets that major airlines flaunt to lure frequent fliers and establish customer loyalty, the fast-food industry giants may also use free food to coax value-hungry customers into eating at their restaurants.
“No customer is going to eat three meals a day at McDonald’s,” said Raj Chaudhry, consulting editor at Restaurants & Institutions magazine. “But the concept of giving free food to frequent customers is a good one. The question is, will people buy into it?”
That’s what all the fast-food chains are trying to find out. After two years of industry test-marketing at both the franchise and company store levels, several fast-food companies are gearing up to expand the programs at local and national levels.
Hardee’s is setting up a special division to test the program at some company-owned stores. Arby’s, which has been experimenting with a frequent-customer program for two years, plans to expand it this year.
The McDonald’s franchisee in northern New Jersey is so pleased with the program that it plans to expand it to five more outlets this year.
And while McDonald’s spokespersons declined to comment about the chain’s national plans, industry analysts say the company is closely monitoring its New Jersey franchisee because the king of fast food is considering testing the program on a larger scale.
Meanwhile, officials at Burger King and KFC are also closed-mouthed about their plans for frequent-diner programs, but a Burger King franchisee is testing a program in New York state, as is a KFC franchisee in western Canada.
“Once one of the major players gets into it in a big way--and shows some success--everyone else will jump on board,” said Robert Sandelman, founder of Sandelman & Associates, a fast-food consulting firm based in Brea.
These high-tech frequent-customer programs are a far cry from familiar pizza parlor punch cards, where customers get free pizzas for every 10 visits.
Most of the fast-food chains are testing plastic cards with magnetic strips--much like credit cards--that with one swipe help the chains learn more about their best customers.
Computer databases track where customers live, what items they prefer, even how much they spend each time they go to the outlet. The chains then use the information to target their most frequent customers with coupon mailings at home.
But there are many potential pitfalls. Chief among them: Unlike the airline frequent-flier programs, where the rewards are substantial, there is some question whether occasional free burgers or french fries are enough to turn fickle consumers into frequent customers.
“There is little loyalty in the fast-food industry,” Sandelman said. When people get hungry, they usually prefer to eat at the closest place, he said.
There is also some question whether the financial lure is big enough.
“You’re not going to get many people to change their dining habits for rewards that are only worth pennies,” said Ron Paul, president of Technomic Inc., a Chicago research firm.
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Fast-food analysts note that the programs are costly to administer and could force chains to raise food prices. But fast-food executives say that has not been the case in test markets.
Also, it may be very difficult to coax people to carry more plastic in their wallets. And if the process of running the cards through the high-tech equipment adds to the waiting time, it might irritate customers more interested in saving time than a few pennies.
“Nothing like this has ever been done in the fast-food business,” said Nick Karousatos, director of business analysis at Arby’s, which is the clear leader in testing frequent-diner programs. “There are still a lot of issues to be resolved.
Since late 1992, Arby’s has signed on 64,000 “Club Arby’s” members in four cities. Customers not only receive coupons for free food, but also accumulate points for prizes.
Eager to get free food, customers with the cards are returning to the participating Arby’s nearly 30% more often than before the program was tested, Karousatos said.
At the McDonald’s in Paramus Park, customers see their names flash in lights on the cash register’s computer screen after their frequent-diner card is entered. Some 28,000 frequent-customer cards have been passed out since the program began two years ago, said Mike Leoce, manager of the franchise unit.
“Almost everyone who works in the mall has one of these cards.” Leoce said. “If you give customers something for free, they are bound to come back.”
Besides the free food, frequent diners at the unit can also receive free McDonald’s-related merchandise, such as Ronald McDonald watches. And frequent diners are automatically entered into drawings for even bigger prizes, such as $100 McDonald’s food certificates.
Hardee’s will begin testing the concept later this year. It hopes to establish a program that doesn’t require frequent customers to carry plastic membership cards, said Neil Cafasso, director of marketing research at Rocky Mount, N.C.-based Hardee’s.
If nothing else, Hardee’s has a nifty name for its program: Frequent Fryer Club.
Briefly . . .
Los Angeles-based Fotouhi Alonso Advertising has been named agency of record for Air L.A., the Los Angeles airline that flies to smaller markets in California and Mexico. The account is less than $1 million. . . . Los Angeles-based La Agencia de Orci has been selected by MCI to help develop Spanish-language broadcast and print ads targeting Latino businesses. . . . Electronic Retailing, a new publication about the electronic marketing industry, is being published by Van Nuys-based Creative Age Publications.
Fast-Food Fanatics
Ever wonder who eats the most fast-food? Here’s a demographic profile of adult fast-food customers in Southern California. The telephone survey of 600 customers was taken in the last quarter of 1993. Percentages refer to the number of respondents who said they eat fast food at least once a month.
SEX Male: 49.3% Female: 50.7
AGE 16-18: 6.2% 19-24: 14.6 25-34: 27.3 35-44: 21.2 45-54: 17.2 55-64: 13.5 Note: Consumers over age 64 were excluded from the survey because they are regarded by most fast food chains as very infrequent fast food customers.
OCCUPATION Professional/technical: 38.7% Sales/clerical/administrative: 15.2 Blue collar: 6.9 Homemaker: 7.3 Student: 16.1 Unemployed: 4.4 Retired: 11.5
MARITAL STATUS Single: 36.3% Married: 52.2 Divorced/widowed/separated: 11.5%
EDUCATION Did not complete high school: 10.3% High school graduate: 24.0 Some college: 31.6 College graduate: 34.1
HOUSEHOLD INCOME Under $30,000: 29.6 $30,000 to 39,999: 17.6 $40,000 to 49,999: 13.5 $50,000 to 74,999: 17.8 $75,000 and up: 21.5
RACE White: 59.2 Black: 8.5 Hispanic: 15.6 Asian: 10.8 Other: 5.9
Some totals may not add up to 100% because of rounding.
Source: Sandelman & Associates Inc.
Fast Food’s Top 10
Total fast-food industry sales in the United States rose more than 7% last year compared to the year before. Sales in 1993 exceeded $87 billion, compared to $81 billion in 1992.
1993 sales 1993 1992 sales Chain (in billions) restaurants (in billions) McDonald’s $14.19 9,283 $13.24 Burger King 5.46 5,996 5.30 Pizza Hut 4.80 7,965 4.30 Hardee’s/Roy Rogers 4.00 3,997 3.93 Taco Bell 3.72 4,809 3.18 Wendy’s 3.66 3,791 3.31 KFC 3.40 5,128 3.39 Dairy Queen 2.29 4,860 2.20 Little Caesar’s 2.23 4,687 1.99 Domino’s Pizza 2.20 4,750 2.21
1992 Chain restaurants McDonald’s 8,959 Burger King 5,705 Pizza Hut 7,609 Hardee’s/Roy Rogers 3,963 Taco Bell 4,078 Wendy’s 3,607 KFC 5,089 Dairy Queen 4,780 Little Caesar’s 4,370 Domino’s Pizza 4,753
Source: Technomic Inc.
