Solving the Digital Dilemma: It’s a Give and Take for Restaurants
The demand for convenience and personalization is greater than ever and it's changing the way guests interact with every single restaurant. There is a clear transition from at-counter mobile payments to mobile-initiated orders. More and more leading chains are breaking the 50 percent mark for digital orders and it’s safe to say we’re going to see this trend continue to grow for a while to come.
While this is exciting, it also presents a new challenge for restaurants as more consumers find their next meal digitally. I liken this to the proverbial “Faustian Bargain"—more commonly known as doing a deal with the devil. Restaurant operators are asked to relinquish control of their guest relationships in exchange for increased business when they list their menu on digital channels like Postmates, DoorDash, Grubhub, UberEats and even-larger new entrants like Amazon, Facebook and Google. All the while, these channels charge high commissions and slash profitability for the restaurant.
This is the devil’s bargain for the restaurant industry. Operators understand that listing on digital channels translates to more orders, more distribution, and what feels like "free" marketing. But in the restaurant world, notorious for its slim margins, operators are left writing off most of this potential uptick in profitability to high fees from the channel itself.
Historically, operators have two choices: 1) opt to only make the menu available on their own website and app and miss out on incremental revenue or 2) make the menu available on the aforementioned digital channels and increase reach, but take a hit on margins given the high cost of affiliation, and over time yield control to those channels.
That's far from an ideal scenario. But, it's not a foregone conclusion that you have to accept this Faustian bargain as-is. There are paths, none perfect either, to maintaining control while increasing reach. The primary level for re-balancing this deal with the devil is integrating channel relationships with Loyalty & Rewards.
Bear with me for a second here. In the status-quo, the choice is “list” or “don’t list.” And realistically, the choice is list, because that's where the market is headed. Remember how successfully hotels and airlines fought aggregation channels? Right.
So rather than fighting that Boolean battle, consider using your rewards program to make it not an all-or-nothing, but a spectrum of options of how you interact with channels, and how they can interact with you. Re-imagine your next conversation with Postmates as leading with a discussion of how to integrate their channel, with your rewards & CRM program, and offering three options:
- High fees, no rewards
- Middle fees, some rewards
- Low fees, most rewards
Remember, channels compete against each other as well, and so they want to offer guests the best value through their channels. Being part of your rewards program is a powerful lure. And, it's not like you're giving out those rewards for no reason, right? The point of them (if designed well) is to drive guest behavior in a more profitable direction (new items, higher frequency) regardless of channel.
Most importantly, this changes the Faustian Bargain from a do-or-don’t battle that, let's face it, you're going to lose, to a balanced conversation where you can exert leverage against the channels to define the best working relationship. As the operator, you now have the power and ability to benefit from customers ordering in a channel, while maintaining control of the most important part—the guest relationship.
In summary, our "recipe" for re-balancing the deal with the devil that channels represent is to introduce a new vector (rewards) and make it a spectrum conversation, not an all-or-nothing one. This added leverage point gives operators the tools they need to engage in channels, but keep control of guest relationships and maintain higher margins. The formula will vary for each restaurant, but can be boiled down to:
- Distribute your menu in every customer channel.
- Intelligently broadcast rewards to more favorable channels.
- Track behavior across channels to determine guest profitability.
As aggregators continue to scale and grow their presence, restaurants have to find a way to be present everywhere their customers are without ceding brand control. Cross-channel loyalty programs just might be the missing piece of the marketplace puzzle the industry has been waiting for.
Seth Priebatsch is founder and CEO, LevelUp. LevelUp connects restaurants and guests with a seamless customer experience that blends analytics, loyalty, and rewards. LevelUp’s Broadcast opportunity addresses this challenge by pushing menu listings to third party marketplace sites, while still connecting to brand loyalty.