Chipotle Plots To Align Loyalty And Digital Marketing — What It Needs To Do To Succeed
As Chipotle pursues more traditional advertising, it will also need to enhance its search and email marketing programs, notes Yext Food Services Head Lee Zucker.
Chipotle Mexican Grill, a casual dining chain that was once praised as a prime innovator among restaurant franchises, has been working assiduously to return brand perception to previous heights following foodborne illness outbreaks two years ago.
While Chipotle’s Q4 earnings results were slightly better than expected by analysts, the company still has a ways to go in building up foot traffic, as CNBC reported that store visits appeared to be trending downward through the first week of February.
Mark Crumpacker, Chipotle’s chief marketing and business development officer, told analysts during the company’s Q4 earnings call that it was working on using traditional advertising, digital marketing, and rolling out a new loyalty program to increase store visits.
“The pivot toward more traditional advertising will continue, the one that we started last year,” Crumpacker told Chipotle analysts. “That’s not to say that we won’t do more non-traditional things, as we always have.”
The notable difference in 2018 is the addition of “a much more robust customer relationship management platform” and the inclusion of a loyalty program, which is slated for the second half of the year, Crumpacker said.
The new marketing plan also calls for about 30 percent — roughly 1,000 stores — of Chipotle locations to be remodeled with a “refreshed” look as well as additional “make-lines” for assembling burritos more efficiently.
On top of all that, Chipotle plans to improve digital ordering, as online purchases are about 8.6 percent of Chipotle’s overall sales. That’s primarily done through mobile ordering, which has increased 50 percent year over year, the company said.
“So that’ll give us – the combination of this more strategic approach to advertising, particularly the use of this addressable TV, along with a more robust CRM platform should allow us to reach the right customers more effectively. So I think it is overall a pivot to slightly more traditional, if you will, advertising, but we’re doing it in a very targeted way.”
Chipotle’s only experience with loyalty so far was a short-term promotion, Chiptopia, in the summer of 2016. After the 2015 illness outbreaks the chain experienced, it felt it needed to adopt a rewards program to reverse sales declines.
So, with this plan, is Chipotle still playing catch up?
“Chiptopia, while positioned as a loyalty program, was actually a promotion designed to drive traffic back into the restaurants,” Howard Schneider, Vice President of Loyalty Strategy for Kobie Marketing tells GeoMarketing. “While they have not released any details about the new program they are planning to launch in the second half of 2018, they are obviously still playing catch up.
“If their aim is to earn back consumer trust, they have their work cut out for them: In August 2017, 53 percent of consumers reported that they were eating less Chipotle than they had in the previous year. While a properly designed loyalty program can rebuild damaged customer trust, it’s not a quick fix by any means.”
Shrinking Share Of Stomach
Chipotle and its peer restaurant chains face the same challenges these days that they never had to face before: the competition and cost pressures from on-demand delivery, which encourages consumers to stay home and spend less than they would at a sit-down spot, while paying fees associated with app-based ordering. (Incidentally, last month, Chipotle struck a deal with app-based courier Postmates for deliveries tied to the Super Bowl.)
Meanwhile, competition from grocery stores and meal kit providers have also been added to the competitive mix for restaurant brands, notes Lee Zucker, head of Industry, Food Service, at Yext. (Full disclosure: Yext owns GeoMarketing. More details on that relationship here).
Meanwhile, the ways consumers find restaurants near them has also changed dramatically. So, in that sense, refocusing efforts on a formal loyalty/rewards program — a concept that Chipotle, which benefited from so much positive word-of-mouth early on, was able to take for granted.
“Chipotle were innovators in the space, they were the only ones really in their category, and now there are so many that match that category,” Zucker says. “They’re fighting for that same share of stomach, but the other guys, they are starting to innovate more than Chipotle has for the last 10 years. Whether you look at that as menus or technology, programs, or restaurant design. Chipotle hasn’t changed. But you have other brands like Zoe’s Kitchen which is remodeling and rebranding. You have the fast casual pizza brands. So it’s a more crowded field that Chipotle is contending with.
Loyalty And The Hungry Searcher
Given the “shrinking share of stomach,” loyalty programs represent a direct way to make sure a brand is top of mind for its regular customers, while attracting those that are less frequent visitors.
“About 68.3 percent of consumers search by food item or cuisine type. And so you think about, what are they doing, the other 31.7 percent of the time? They’re going to the restaurants that they know about, that are close to them that reward them,” Yext’s Zucker says.
Therefore, what a loyalty program does is it’s getting consumers in that buying funnel. Restaurants with the best loyalty programs have great email marketing to their loyal fans. They ask their loyal fans to write reviews, and you can prove margin based on your rating per location.
“There are so many ancillary benefits to having a loyalty program and bringing customers back,” Zucker says, noting how brands can take advantage of “intelligence search” that connects general menu items to specific brands, allowing food service marketers to boost those programs as well as improve traffic. “But you’re still going to have most of your customers being new customers to that location or the brand. And so if you want more customers in your loyalty program, you need more new customers constantly.”
The way that customers are finding a restaurant is by searching for food item or cuisine type through unbranded search, Zucker points out.
“I would never steer a restaurant brand away from the loyalty program. It’s really important, it’s a differentiator, consumers like to be rewarded, and they like to be rewarded with personalization,” Zucker says. “And loyalty programs allow restaurant brands to do that. But the way you get more consumers into that loyalty funnel is obviously by having a compelling program and a compelling reason for them to join, but also by making sure that that funnel continues to be fresh.”
There are some problems a loyalty program cannot solve by itself, such as poor location, bad service, incorrect pricing or, in this case, a lack of trust in product safety, Kobie Marketing’s Schneider adds .
“The company no longer has a problem with food safety, in fact they carried out an aggressive approach following the outbreaks to insure the quality of their food. The chain also invested quite a bit into technology to improve the customer experience. The real dilemma they are facing is with the public’s perception, Schneider says.
“So now, a well-designed loyalty program that solves customer pain-points and leverages could benefit Chipotle,” Schneider says. “But they may want to re-think some of the features of the Chiptopia promotion as they design a new program. Chiptopia did not seem to capture and use customer data to create customized offers and content that are relevant to individual customers – collecting and understanding customer data is one of the keys to a successful long-term loyalty program.”
They should also apply financial rigor to the structure of the new program, Schneider says. “Chiptopia delivered an unusually generous payback to customers. There’s no way to tell if the economics of the program delivered favorable ROI to Chipotle, but they should pay very careful attention to the long-term economics of a new program.”
So can an enhanced loyalty program turn things around more completely for Chipotle?
“The number one focus of companies in 2018 to differentiate themselves from competitors is through unique customer experience,”Schneider says. “Loyalty programs are a great way to solve points of friction and identify and engage your most valuable customers. If Chipotle’s new program addresses those needs – and their product and pricing remain competitive – there’s no reason they shouldn’t see an increase in retention numbers, satisfaction and more visits to its locations.”