As food inflation has soared, restaurants and other businesses have found customers leaning into their loyalty programs, consumers vigilantly doing the math: How many more orders before I get a freebie? Are there double points on certain days, an extra treat on my birthday?
Loyalty programs are effective at keeping regulars, well, loyal. And that can be a problem, businesses are finding.
This week Dunkin’ faced fierce blowback from many of the 18,000 members of a subreddit devoted to the ubiquitous purveyor of caramel swirl macchiatos and pumpkin spice lattes.
At issue: Dunkin’, owned by Inspire Brands, revised its 8-year-old DD Perks program and released a new Dunkin’ Rewards system last week that many said devalued their points.
Dunkin’ debuted the change on its website, saying it was “because our members deserve more! Dunkin’ Rewards is designed to help keep you running all day long with the best that Dunkin’ has to offer.”
Now, customers must accrue more than twice as many points before they can redeem them for free coffee drinks, and free birthday drinks went away.
Regular customers were not amused.
“What idiot do you think I am, Dunkin’? I did that math. Even while ‘boosted’ I’m earning 30 percent fewer points compared to the old system. I’m making less points and unlocking less rewards thanks to this new stingy system,” wrote one user.
“People are going to be mad they have to spend more before they get a freebie they actually want. I can’t wait to hear the complaints,” wrote another claiming to be a Dunkin’ employee.
Dunkin’ President Scott Murphy wrote in a statement to The Washington Post that the rewards changes allow customers to redeem a wider array of food and drink and to accrue points for a full meal.
“Dunkin’ loyalists told us they wanted the ability to redeem for more than just beverages and we listened,” he said. “They also wanted to bundle points for larger orders, which we accomplished. And they told us they wanted to be recognized for their loyalty, which they can now achieve through Boosted Status and earn points even faster when they come to Dunkin’ more often.”
Other companies have found that generous loyalty programs can cut into their bottom line. At Chili’s, for instance, 37% of customer checks have some kind of discount offer applied. In August, Chili’s new president Kevin Hochman told analysts on an earnings call that the company would rein in free food giveaways and reboot the My Chili’s Rewards program to “make that loyalty program more traffic driving, but less costly.”
“We probably will still give some things away, but it will be focused more on compressing the time between visits for our loyal guests,” he said, according to media reports.
Loyalty rewards programs are a double-edged sword in industries with very slim profit margins and rising costs. Paytronix, a software company for restaurants and convenience stores, in its annual loyalty report, out this week, found that loyalty spending is at the highest levels on record, with 55 percent of restaurants reporting that their loyalty check sizes increased more than the price of their items, and that 5 to 17 percent of total restaurant revenue is driven by the most loyal 2 to 3 percent of customers.
Some companies have updated loyalty programs by adding paid membership options. P.F. Chang’s announced last month it would add P.F. Chang’s Platinum Rewards for $6.99 per month. In addition to the rewards available in the free loyalty program, paid members earn 15 points for every $1 spent on P.F. Chang’s dine-in, takeout and delivery orders (free rewards program members earn 10), as well as unlimited free delivery and priority reservations.
In August, Subway adopted a similar strategy, selling 10,000 subscription services for $15, entitling customers to 50% off subs. And earlier this year, Taco Bell launched a $10 monthly taco subscription.
Devaluation of points and rewards can sometimes be tricky to detect. This spring, Hilton Honors upped the number of membership points required to book many of its properties, thus devaluing accrued points. And in August, Hertz Gold Plus Rewards frequent renter loyalty program devalued points, in some cases upping the number of points required for a free day’s rental by nearly a third.
As the costs of doing business continue to rise, it makes sense that companies would rein in their loyalty programs, too, said Lending Tree’s chief credit analyst Matt Schulz. It costs money to maintain a rewards program.
“During strong economic times, when profit margins are high and business is booming, companies can afford to lean into these programs in hopes of drumming up more and more business,” he said. “But if profit margins narrow and times get tougher, businesses may pull back. I’d expect to see that more in the near future until the economy improves and inflation wanes.”
His advice to consumers: Use the points rather than hoard them. They tend to get less valuable over time.
And for restaurants, Achille Traore, chief executive of White Label Loyalty, a loyalty platform for business in the United Kingdom, said that a brand that devalues its loyalty scheme risks losing not only customer engagement, but customer trust, as well.
“Imagine opening your rewards app to use your points to pay, only to discover that you now have to double your progress before you can use them,” he said.
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