american express market briefing

ing

1© 2011 American Express MarketBriefing

Market Briefing October 2011

INSIDE MARKETBRIEFING

Market BriefT r a c k i n g a n d i n t e r p r e t i n g r e s t a u r a n t t r e n d s

MarketBriefing is produced by Technomic, Inc., the leading provider of consulting and consumer research to the restaurant industry. To find out about more American Express services to help you grow your business, go to www.americanexpress.com/restaurant.

Nutrition Disclosure Trend Barometer ...........................p. 2Today’s Trends in Tipping ...........p. 5

HEAVY RESTAURANT USAGE TREND BAROMETER

Editor’s note: Look for up-to-date metrics that shed light on key industry trends in each month’s MarketBriefing. For comparison, you can find past Trend Barometer metrics online at: www.technomic.com/MB.

1

The proportion of consumers who source food from restaurants at least twice a week has been rising this year—in both limited-service and full-service sectors. Almost three in 10 consumers (29%) polled in September said they had bought food from an LSR at least twice a week, compared to fewer than two in 10 (17%) last March. The proportion of consumers who eat at FSRs at least twice a week is also rising, from 8% of all consumers in March to 13% in September. Now that most consumers have concluded that the economic slump is likely to continue indefinitely, more may be incorporating their pre-recession dining habits into their “new normal” purchasing behaviors.

Frequent Diner Programs: How Well Are They Working?

Anyone who runs a business will tell you that generally speaking, his most profitable customers are his most frequent customers. Restaurants in particular cultivate their “regulars” who have an emotional

connection to the brand. For chains and independents that have faced declines in traffic, loyalty programs can assist in holding on to a customer base that is dining out less frequently. Over the past few years, restaurant loyalty programs have proliferated, gone online and become more creative, and the idea is still heating up. A few recent developments:

• Chipotle plans to launch a loyalty program called Farm Team. Unlike other programs that offer rewards based on dining frequency, Chipotle’s program will reward participants based on their knowledge of its Food With Integrity operating model.

• Red Robin Gourmet Burgers inaugurated a free Red Royalty loyalty-card program, an extension of its e-club. Cardholders not only earn rewards based on dining frequency and receive e-mails with special offers and promotions; they also get “Surprise & Delight” rewards throughout the year.

• Panera Bread Co.’s MyPanera program, rolled out systemwide last December, allows cardholders to earn rewards—including free menu items and invitations to tastings and events—based on how often they dine at a Panera. The program becomes more and more personalized the longer a member participates.

As bargain-hunting has become something of a national obsession over the last few years, participation in many types of frequency rewards programs has risen, and membership in restaurant rewards programs has risen dramatically. Today, more than a third of consumers polled are members of restaurant loyalty programs, a slightly higher participation rate than for airline or hotel rewards programs.

Most consumers who participate in restaurant loyalty programs are members of only one or two such programs. Participation in multiple programs rose during the Great Recession (2008–2009), but has leveled out since then.

T r a c k i n g a n d i n t e r p r e t i n g r e s t a u r a n t t r e n d s

© 2011 American Express MarketBriefing

October 2011

Market Briefing

Heavy Restaurant UsageTwo times a week or more

36%

24%

17%

29%

15%

9% 8%13%

May '10 Sept. '10 Mar '11 Sept. '11

LSR FSR

26%

19% 17%

24%20%

17%

32% 31%35%

Frequent FlyerPrograms

Frequent GuestPrograms

Frequent DinerPrograms

Aug 2007 Aug 2009 Sept 2011

Reward Program Participation Rates % of Consumers Enrolled, by Year


HOW MUCH LOYALTY?Loyalty to a particular brand is the point of loyalty programs. Most consumers report that these programs have only a moderate influence on their decision of where to eat, with half saying that a loyalty program influences their dining decision “sometimes.” However, three out of 10 consumers will choose a restaurant for which they have a loyalty card “always” or “most of the time.” Consumers are more likely to be swayed “most of the time” when they’re considering a dinner occasion rather than a lunch spot, perhaps because dinner is typically more expensive, and therefore a discount or deal seems more enticing—or simply because these consumers tend to gravitate to favorite places.

Restaurants that do not offer loyalty programs but are considering them may be encouraged to know that seven out of 10 consumers say they would visit a favorite restaurant more often if it offered a loyalty rewards program. That proportion is down a bit from 2007—when such programs were more of a novelty—but up from 2009.

WHAT INCENTIVES WORK BEST?Prompting customers to proactively sign up for a restaurant’s rewards program is the first hurdle. The enticement that generates the most interest is a quantified, versatile, near-term reward: a $10 gift card for the customer’s next visit, which nine out of 10 would find appealing. Free


NUTRITION DISCLOSURE

TREND BAROMETER Ever since the summer of 2010, about two-thirds of consumers who have noticed postings of calories and other nutrition information in restaurants have been reporting that disclosure has impacted their food choices there “somewhat” or “a great deal.” That’s up from about half who said so in the summer of 2009.

As more chains have been displaying nutritional information, the proportion of consumers seeing it has increased as well.

50%

67% 64% 68%

Aug '09 Jul '10 Sep '10 Sep'11

241* 300*317* 343*

Impact of Nutritional Disclosure on Consumers’ Orders

% of Consumers Reporting “Great Impact” or “Somewhat of an Impact”

*Number of consumers who have visited restaurants that have calorie counts/nutrition data posted

28%

24%

27%

47%

43%

44%

2007

2009

2011

Extremely likely Somewhat likely

71%

67%

75%

Total

How likely would you be to increase the number of visits you make to one of your favorite restaurants if you could participate in a reward program there for frequent diners?

10%

11%

20%

16%

50%

51%

16%

17%

4%

4%

Dinner

Lunch

Always Most of the time Some of the time Rarely Never

When you go out for lunch or dinner at a restaurant, how often do you consider the restaurant(s) in whose frequent diner programs you participate?

Base: 213 consumers who belong to frequent diner programs

55%42% 41%

32%38% 37%

10%9% 13%

3%11% 9%

2007 2009 2011One Two Three Four or more

Base: 131 (2007), 85 (2009) and 213 (2011) consumers who are members of at least one frequent diner program

How many frequent diner programs do you participate in?

ing

3


© 2011 American Express MarketBriefing3

points—a more abstract, less immediate reward—are the least effective, but nevertheless would tempt two-thirds of consumers to consider signing up.

Interestingly, all specific signup rewards are more appealing to women than to men, except for an across-the-board 10% discount for each future visit—something both groups appreciate equally.

PET PEEVES OF MEMBERS AND NON-MEMBERSWe asked respondents who already participate in one or more restaurant rewards programs what they don’t like about the programs. By far the biggest peeve: more than six out of 10 said they worry that the restaurant may be sharing their personal information with other companies. More than half object to having to pay a fee to join a rewards program. Close to half believe that signing up was more hassle than it was worth, and about the same proportion say they’re frustrated by programs that only reward dine-in occasions. About four out of 10 find it a burden to always bring their card to the restaurant to receive a reward, and about the same proportion remember the signup process as being confusing.

All of these frustrations were reported by larger proportions of women than of men. Careful, detail-oriented consumers, women may be more critical of the very tools they use to save money.

69%

73%

74%

80%

85%

85%

92%

62%

65%

65%

69%

73%

85%

83%

Free points upon joining

Free appetizer/dessert onbirthday

Free appetizer/dessert uponjoining

Emails with specialdiscounts

Free entrée (with purchaseof another) on birthday

10% discount on each visit

$10 gift card for next visit,upon joining

Male Female

88%

85%

79%

% Overall

75%

70%

69%

66%

How likely are the following incentives to influence you to join a frequent diner program at a restaurant you enjoy visiting?

% selecting very or somewhat likely, by gender

How much do the following factors bother you about the restaurant loyalty program(s) in which you currently participate?% bothered a lot or somewhat, by gender

Base: 213 consumers who are members of restaurant loyalty programs

45%

45%

52%

51%

58%

69%

36%

38%

35%

38%

45%

54%

Confusing process to sign up

Have to bring card

Program good only fordine-in business

Value from joining less thanhassle to join

Fee to join program

Personal info shared withother companies

Male Female

62%

52%

46%

% Overall

45%

42%

41%



4

We next asked consumers who are not members of a restaurant loyalty program why they have resisted signing up. An initial fee was by far the biggest roadblock, with 54% saying they objected to having to pay upfront. But only a quarter of these non-members raised the issue of their personal information being shared. For some, a loyalty program just didn’t fit their lifestyle: a quarter said there were no restaurants nearby that offered such programs, and a quarter said they didn’t go to any particular restaurant frequently enough to make a rewards program worthwhile. Two out of five were wary of being inundated with emails from the restaurant.

Objections to loyalty programs from non-members did not show the same stark gender differences that we saw in members’ objections, except for the potential for too many emails—a stumbling block for 25% of females but just 16% of males.

Bottom Line: In today’s cost-conscious environment, consumers are highly interested in restaurant rewards programs, but they are turned off by programs that may violate their privacy, come front-loaded with a signup cost, or create more hassles than rewards. Consumers want simplicity in the signup process and reward structure, and they want to be assured that their private information is respected and guarded.

BUSINESS-BUILDING IMPLICATIONS:

• Loyalty clubs are increasingly migrating to online and mobile media. Is your rewards program keeping up? Customers of Menchie’s Frozen Yogurt can sign up for its new mySmileage reward program at menchies.com, through Facebook or Twitter, or in-store with a mobile phone number, then pick up a mySmileage wallet and keychain cards in-store. Members earn one “Smile” for every dollar spent at Menchie’s; with 50 “Smiles,” Menchie’s automatically loads $5 in “Menchie’s money” onto the mySmileage card to be presented at point of purchase.

• If you’ve offered a loyalty program for several years, switch things up every once in a while to keep it interesting and meet changing consumer needs. For instance, T.G.I. Friday’s recently updated its well-known “Give Me More Stripes“ program (which offers VIP perks and rewards including a “jump the line” pass upon signup) to give members more rewards and more flexibility to accrue points.

• Make sure you’re making full use of your frequent diner program to collect demographic data about your best customers—their ages, incomes, professions, and so on—without being unduly intrusive. Members of online loyalty programs can also be surveyed on their opinions of upcoming or proposed menu changes or other operational changes, strengthening their link to your brand.

• A good deal of the excitement in consumers’ hunt for restaurant bargains has switched from loyalty programs to third-party couponing websites like Groupon or LivingSocial—which encourage trial of new restaurants, not loyalty to favorite spots. But couponing sites can also be used creatively as a new avenue for loyalty programs. Giving a new twist to the venerable punch card offering a freebie after repeat purchases, Quiznos recently offered a Groupon deal: a punch card for eight sandwiches or salads, worth about $50, for $25.

• A complicated and confusing signup process is one of the biggest barriers to greater consumer participation in restaurant rewards programs, so streamlining signup should be a top priority. A two-part process, in which a code given to a customer in a store must be entered online, can be a significant barrier to entry. It may be better to offer an enrollment process that’s either entirely in-restaurant or entirely online.

• Your loyal customers are skittish about their privacy. Make it clear to members and potential members of your loyalty program that you guard their personal information and will not sell it or share it with anyone outside your company.

• Fear of email clutter is another barrier to signing up for a frequency program. During the signup process, let potential members know how often they will receive emails and what types of deals will be offered, so they can decide whether the program is worthwhile for them.

4

20%

23%

24%

25%

54%

Don't want to get a ton of emailsfrom restaurant

Don't go to any one place oftenenough to make it worthwhile

Restaurants nearbydon't offer programs

Don't want personal infoto be shared

Don't want to pay a fee to join

Top Reasons Why Some Do Not Join Frequent Diner Programs*

Base: 289 consumers who are not enrolled in restaurant loyalty programs*Respondents selected up to three responses

ing



5

Today’s Trends in Tipping

As Americans worry more about incomes—their own and that of others, including those who serve them—the issue of tipping in restaurants has become more fraught. Tip jars are appearing on the counters of more and more limited-service restaurants, and consumers may be

wondering what’s now expected of them, or may resent implicitly being asked to pay more at the counter than what they always have.

Most consumers say their tipping habits when dining at restaurants have not changed over the past two or three years, but of those who have altered their patterns, more report increasing their tips than decreasing them. The increase is most notable for upscale casual-dining restaurants such as The Cheesecake Factory or P.F. Chang’s China Bistro. This sub-sector of casual dining is fairly new and still developing, and consumers may be differentiating the service they receive at such places from that offered by middle-tier casual-dining concepts such as Applebee’s or Chili’s.

WHERE DINERS TIP AND HOW MUCHDiners overwhelmingly believe that they are expected to tip at full-service restaurants of all types, with 80% or more saying a tip is customary. But about a quarter also feel that they are expected to tip at a buffet/cafeteria (27%) or at a fast-casual restaurant (23%). Both of these LSR sub-categories offer more service than a typical fast-food eatery. At a cafeteria or buffet, runners may bring beverages, offer refills and help diners to their tables. Fast-casual eateries may offer “made for me” meals that staff members assemble behind the counter in full view of customers, or meals brought to the table by runners after customers’ orders have been prepared.

Those consumers who give tips in limited-service concepts do, however, tend to tip less than they would in a full-service restaurant. About half of the guests who tip at a cafeteria/buffet tip no more than 15%, and half of that group tips less than 10%. At fast-casual restaurants, about four out of 10 tip 15% or less. At upscale-casual and mainstream casual-dining restaurants, the most common tip is in the 16%-20% range. Despite the 15% “norm,” the tip at family-dining concepts is most likely to be in the 11%-15% range.

26%18% 17% 18% 18%

9% 13% 12% 14% 14%

65% 69% 71% 68% 68%

Upscale casual-dining

Casual-dining Family-style Fast-casual Cafeteria/buffet

More Less About the same

Is the percentage you are tipping now when you dine at restaurants more, less or about the same as what you tipped 2-3 years ago, before the recession?

Base: 256 (upscale casual-dining), 400 (casual-dining), 343 (family-style), 209 (fast-casual) and 165 (cafeteria/buffet) consumers who dine in and tip at the particular restaurant segment

23%

27%

80%

84%

85%

Fast-casual

Buffet/cafeteria

Famly-style

Casual-dining


At which of the following types of restaurants do you feel that you are “supposed” to tip?



6

At upscale-casual restaurants, about two out of 10 customers are extremely generous tippers, offering more than 20% of the bill. But less-expensive family-dining restaurants seem to get more of these big tippers than do mainstream casual-dining concepts—they represent 13% of guests at family-dining restaurants and 11% of diners at casual-dining spots.

TIPPING FOR TAKEOUTAlthough it’s often asserted that full-service takeout has proliferated in part because consumers don’t feel obligated to leave a tip for carryout meals, a large proportion of diners say they do tip when they pick up carryout meals from full-service restaurants. (Delivery orders were specifically excluded from this question.)

Takeout tipping is more generous at full-service restaurants—but not by much. About half of those who get takeout at full-service restaurants report that they leave behind a tip: 52% of carryout customers at upscale restaurants, 47% at casual-dining restaurants and 48% at family-dining restaurants leave something extra. Carryout customers of cafeteria/buffets and fast-casual restaurants are also generous: 37% of those who pick up takeout at either type of restaurant report that they leave behind a tip.

Consumers’ Typical Tipping RatesDine-In Service Only

Upscale casual-dining Casual-dining Family-Style Fast-casual

Cafeteria/buffet

Less than 10% 11% 10% 10% 16% 24%

11-15% 26 36 39 22 24

16-20% 41 40 32 15 10

21-25% 12 9 9 5 4

Greater than 25% 7 2 4 3 4

Carryout only at this restaurant type 2 1 2 5 6

Don’t tip at this type of restaurant -- 2 4 34 28

Base: 262 (upscale casual-dining), 411 (casual-dining), 364 (family-style), 345 (fast-casual) and 250 (cafeteria/buffet) consumers who dine at respective restaurant type at least once every 2-3 months

Consumers’ Typical Tipping RatesCarryout Service Only

Upscale casual-dining Casual-dining Family-Style Fast-casual

Cafeteria/buffet

Less than 10% 15% 16% 15% 11% 14%

11-15% 17 18 15 12 14

16-20% 11 8 10 8 3

21-25% 5 4 4 3 2

Greater than 25% 4 1 4 3 4

Dine in only at this restaurant type 17 17 14 8 14

Don’t tip at this type of restaurant 30 36 38 57 48

Base: 262 (upscale casual-dining), 411 (casual-dining), 364 (family-style), 345 (fast-casual) and 250 (cafeteria/buffet) consumers who dine at respective restaurant type at least once every 2-3 months

ing



Tipping for takeout isn’t a new phenomenon. About six out of 10 consumers say they’ve been tipping for carryout at the same rate over the past two or three years. Carryout customers who’ve changed their tipping habits are slightly more likely to be leaving bigger tips at upscale-casual, family-dining and fast-casual restaurants, and smaller tips at casual-dining restaurants and cafeteria/buffets.

THE QUESTION OF TIP JARSIn recent years, some limited-service restaurants—particularly coffee and beverage concepts—have placed tip jars on counters to prompt customers to drop their change as a gratuity. This bid for tips seems to be working with about half of consumers; 51% say they would be very or somewhat likely to leave a tip at a beverage concept if they saw a countertop tip jar.

What’s more, most consumers see their tip-jar tip as a true reward for good service, not something they’ve been guilted into. Only 21% say a countertop jar makes them feel obligated to leave a tip. Two-thirds say they drop money into the tip jar for friendly service; half for fast service; and four out of 10 for an accurate order. Two out of 10 say they’d leave a tip as a quid pro quo for a free item.

Not all countertop collection jars are going directly to staff tips; 28% say they drop a tip at a beverage concept when the money is going to a cause that they support. And some consumers see the tip jar not just as a way to give something, but as a way to rid themselves of something—24% say it’s a convenient receptacle for their loose change.

7

21%16% 20% 21%

16%20% 19% 15% 17%23%

59% 65% 65% 62% 61%


Casual-dining Family-style Fast-casual Cafeteria/buffet

More Less About the same

Is the percentage you are tipping now when you order carryout from restaurants more, less or about the same as what you tipped 2-3 years ago, before the recession?

Base: 256 (upscale casual-dining), 400 (casual -dining), 343 (family-style), 209 (fast-casual) and 165 (cafeteria/buffet) consumers who tip at a particular restaurnat segment when ordering food for carryout

Very likely21%

Somewhat likely30%

Neither likely nor unlikely

16%

Not very likely21%

Not likely at all12%

51%

Consumers’ Likeliness to Tip When a Tip Jar is Provided*

*At a coffee/beverage concept, e.g. Starbucks, Jamba Juice, etc.Base: 301 consumers who visit a coffee/beverage shop at least once every 2-3 months



8

Editor’s note: Except where otherwise noted, source of data is a periodic overnight survey of 500 consumers representative of the U.S. population, conducted via the Internet by Technomic, Inc. in September 2011. Margin of error ± 4.4%.

About MarketBriefing Through MarketBriefing, American Express provides restaurants with research-based analysis of key industry developments. Data is collected and analyzed by Technomic, Inc. To subscribe or find past issues of MarketBriefing go to: www.technomic.com/MB. This issue of MarketBriefing was written by Rita Negrete based on research conducted and interpreted by Kimberly Perman. If you have questions, comments or topic suggestions, please contact Kimberly Perman at [email protected] or directly at (312) 506-3831.

Nevertheless, there is also significant customer resistance to the spread of tipping at beverage concepts. Of those who don’t contribute to these tip jars, half argue that a tip should not be expected for limited service, and four out of 10 object to being asked to pay a tip to someone simply doing the job expected. More than a quarter say food and beverage items at these concepts are already expensive enough.

Bottom Line: The link between tipping and superior service has not been lost; consumers tip the most at restaurants with the most lavish service, but will cheerfully tip even at the coffee counter for service that goes “above and beyond.” On the other hand, widespread tipping for takeout—with little service offered in exchange—may indicate that many consumers have come to see the tip as just an expected part of their bill.

BUSINESS-BUILDING IMPLICATIONS

• Math is hard, and leaving a tip that’s smaller or larger than the diner intended is all too easy. Make it simple for your customers to calculate their intended tip by noting at the bottom of the check the dollar equivalents of before-tax 15% and 20% gratuities. Since many consumers routinely tip for carryout, there’s no need to remove the suggestion from checks for to-go orders.

• In both full service (where tipping is routine) and limited service (where it’s sporadic), tips improve when service improves. The responsibility for creating topnotch service is shared between servers and managers, who must hire the right people and then nurture them. It takes initial and ongoing training, combined with mentoring from managers and peers, to create knowledgeable, capable, friendly servers who can score the best tips.

• Limited-service operators who are thinking of placing a tip jar on the counter should proceed with caution; a jar can garner enough cash to make life a little better for staff members, but it can also cause a backlash from consumers irritated about being “nickeled and dimed” when they make a purchase. Survey customers before instituting a tip jar. Or begin by placing “tipping” and “no tipping” jars on the counter, with proceeds donated to charity; that way, your customers can “vote” with their spare change.

19%

21%

24%

28%

42%

52%

67%

Server gave something for free

Feel obligated

Get rid of loose change

Support cause listed on tip jar

Got order right

Quick service

Friendly service

Why Some Consumers Place Tips in Tip Jars…

Base: 151 consumers who are very or somewhat likely to tip at coffee/beverage shopsRespondents selected all responses that apply

15%

16%

16%

18%

27%

28%

38%

50%

Don't have the money

Too many jars at too many places

Service not good enough

Staff already gets minimum wage

Drinks/snacks already expensive enough

No particular reason

No need to pay extra for what is part of the job

No table service, no tip

... and Why Some Consumers Do Not

*At a coffee/beverage concept, e.g. Starbucks, Jamba Juice, etc.Base: 101 consumers who visit a coffee/beverage shop at least once every 2-3 months and are unlikely to tip

ing



Restaurant NeighborRecognizing RestauRateuRs foR outstanding community involvement

For more information on the award or to apply online go to

www.restaurant.org/awards

Four national winners receive $5,000 each to support their community efforts as well as an all-expense-paid trip to Washington, DC to receive their award during a gala awards dinner held in April 2012.

DEADLINE TO APPLY IS DECEMBER 5, 2011

Doing good work in your community?

Share your story and enter to win $5,000

american express market briefing

Technology

consumers orders

lsrfsrmost consumers

thirds of consumers

restaurant rewards programs

point of loyalty programs

members of restaurant

loyalty card

multiple programs