American Express Market Briefing

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Market Briefing October 2011
October 2011
© 2011 American Express MarketBriefing

a a
Market Briefing
Market Brief
TT rr a c k i n g a nn dd i i nnt te er rp pr re e it n g g r er se t s a t ua r ua rn at n tt r e r e n d s
t i n t n d s

INSIDE MARKETBRIEFING
Frequent Diner Programs: How Well Are They Working? Nutrition Disclosure
Trend Barometer ...........................p. 2
A nyone 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
Today’s Trends in Tipping ...........p. 5

can assist in holding on to a customer base that is dining out less frequently. Over the past few years, HEAVY RESTAURANT USAGE
restaurant loyalty programs have proliferated, gone online and become more creative, and the idea is still TREND BAROMETER
heating up. A few recent developments:
• Chipotle plans to launch a loyalty program called Farm Team. Unlike other programs that offer The proportion of consumers who source
rewards based on dining frequency, Chipotle’s program will reward participants based on their food from restaurants at least twice a week
knowledge of its Food With Integrity operating model. has been rising this year—in both limited-
• Red Robin Gourmet Burgers inaugurated a free Red Royalty loyalty-card program, an extension of service and full-service sectors. Almost three
its e-club. Cardholders not only earn rewards based on dining frequency and receive e-mails with in 10 consumers (29%) polled in September
special offers and promotions; they also get “Surprise & Delight” rewards throughout the year. said they had bought food from an LSR at
• Panera Bread Co.’s MyPanera program, rolled out systemwide last December, allows cardholders least twice a week, compared to fewer than
to earn rewards—including free menu items and invitations to tastings and events—based on two in 10 (17%) last March. The proportion
how often they dine at a Panera. The program becomes more and more personalized the longer a of consumers who eat at FSRs at least
member participates. twice a week is also rising, from 8% of all
consumers in March to 13% in September.
As bargain-hunting has become something of a national obsession over the last few years, participation Now that most consumers have concluded
in many types of frequency rewards programs has risen, and membership in restaurant rewards programs that the economic slump is likely to continue
has risen dramatically. Today, more than a third of consumers polled are members of restaurant loyalty indefinitely, more may be incorporating their
programs, a slightly higher participation rate than for airline or hotel rewards programs. pre-recession dining habits into their “new
normal” purchasing behaviors.
Reward Program Participation Rates
% of Consumers Enrolled, by Year Heavy Restaurant Usage
Two times a week or more
35% 36%
32% 31%
26% 29%
24%
24%
19% 20%
17% 17%
17%
15%
13%
9% 8%

Frequent Flyer Frequent Guest Frequent Diner
Programs Programs Programs May '10 Sept. '10 Mar '11 Sept. '11

Aug 2007 Aug 2009 Sept 2011 LSR FSR

Most consumers who participate in restaurant loyalty programs are members of only one or two such
Editor’s note: Look for up-to-date
programs. Participation in multiple programs rose during the Great Recession (2008–2009), but has metrics that shed light on key industry
leveled out since then. trends in each month’s MarketBriefing.
For comparison, you can find past
Trend Barometer metrics online at:
www.technomic.com/MB.

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.
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NUTRITION DISCLOSURE
How many frequent diner programs do you participate in? TREND BAROMETER
3%
10% 11% 9% Ever since the summer of 2010, about
9% 13% two-thirds of consumers who have
32% noticed postings of calories and other
38% 37% nutrition information in restaurants
have been reporting that disclosure
55% has impacted their food choices there
42% 41% “somewhat” or “a great deal.” That’s
up from about half who said so in the
2007 2009 2011 summer of 2009.
One Two Three Four or more
Base: 131 (2007), 85 (2009) and 213 (2011) consumers who are members of at least one frequent diner program As more chains have been displaying
nutritional information, the proportion of
HOW MUCH LOYALTY? consumers seeing it has increased as well.
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 Impact of Nutritional Disclosure
influences their dining decision “sometimes.” However, three out of 10 consumers will choose a restaurant on Consumers’ Orders
% of Consumers Reporting “Great
for which they have a loyalty card “always” or “most of the time.” Consumers are more likely to be swayed Impact” or “Somewhat of an Impact”
“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 67% 68%
64%
these consumers tend to gravitate to favorite places.
50%
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?
241* 317* 300* 343*

Lunch 11% 16% 51% 17% 4%

Aug '09 Jul '10 Sep '10 Sep'11
Dinner 10% 20% 50% 16% 4% *Number of consumers who have visited restaurants
that have calorie counts/nutrition data posted
Always Most of the time Some of the time Rarely Never
Base: 213 consumers who belong to frequent diner programs

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.

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?
Total

2011 27% 44% 71%

2009 24% 43% 67%

2007 28% 47% 75%

Extremely likely Somewhat likely

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
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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.

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
% Overall
$10 gift card for next visit, 83% 88%
upon joining 92%

10% discount on each visit 85% 85%
85%
Free entrée (with purchase 73%
of another) on birthday 85% 79%

Emails with special 69% 75%
discounts 80%
Free appetizer/dessert upon 65%
joining 74% 70%
Free appetizer/dessert on 65% 69%
birthday 73%

Free points upon joining 62% 66%
69%

Male Female

PET PEEVES OF MEMBERS AND NON-MEMBERS
We 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.
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
% Overall
Personal info shared with 54% 62%
other companies 69%

45%
Fee to join program 52%
58%
Value from joining less than 38%
hassle to join 51% 46%

Program good only for 35%
dine-in business 52% 45%

38%
Have to bring card 42%
45%

36%
Confusing process to sign up 41%
45%

Male Female
Base: 213 consumers who are members of restaurant loyalty programs

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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.

Top Reasons Why Some Do Not Join Frequent Diner Programs*

Don't want to pay a fee to join 54%

Don't want personal info
25%
to be shared
Restaurants nearby
24%
don't offer programs
Don't go to any one place often
23%
enough to make it worthwhile
Don't want to get a ton of emails
20%
from restaurant

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

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.

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Today’s Trends in Tipping
A s 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.

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?
69% 71% 68% 68%
65%

26%
18% 17% 18% 14% 18% 14%
9% 13% 12%

Upscale casual- Casual-dining Family-style Fast-casual Cafeteria/buffet
dining
More Less About the same
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

WHERE DINERS TIP AND HOW MUCH
Diners 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.

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

Upscale casual-dining 85%
Casual-dining 84%
Famly-style 80%
Buffet/cafeteria 27%
Fast-casual 23%

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.

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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.

Consumers’ Typical Tipping Rates
Dine-In Service Only
Upscale Cafeteria/
casual-dining Casual-dining Family-Style Fast-casual 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
2 1 2 5 6
restaurant type
Don’t tip at this type
-- 2 4 34 28
of restaurant
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

TIPPING FOR TAKEOUT
Although 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 Rates
Carryout Service Only
Upscale Cafeteria/
casual-dining Casual-dining Family-Style Fast-casual 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
17 17 14 8 14
restaurant type
Don’t tip at this type
30 36 38 57 48
of restaurant

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

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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.

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?

59% 65% 65% 62% 61%

21% 20% 20% 21% 23%
16% 19% 15% 17% 16%

Upscale casual- Casual-dining Family-style Fast-casual Cafeteria/buffet
dining
More Less About the same
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

THE QUESTION OF TIP JARS
In 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.
Consumers’ Likeliness to Tip When a Tip Jar is Provided*

Not likely
at all
Very likely
12%
21%

Not very likely
21% 51%

Somewhat likely
30%
Neither likely
nor unlikely
16%

*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

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


Why Some Consumers Place Tips in Tip Jars…
Friendly service 67%
Quick service 52%
Got order right 42%
Support cause listed on tip jar 28%
Get rid of loose change 24%
Feel obligated 21%
Server gave something for free 19%

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

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.
... and Why Some Consumers Do Not
No table service, no tip 50%
No need to pay extra for what is part of the job 38%
No particular reason 28%
Drinks/snacks already expensive enough 27%
Staff already gets minimum wage 18%
Service not good enough 16%
Too many jars at too many places 16%
Don't have the money 15%
*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

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.

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
kperman@technomic.com or directly at (312) 506-3831.

8

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Restaurant Neighbor
Recognizing RestauRateuRs foR outstanding community involvement

Doing good work in your community?
Share your story and enter
to win $5,000
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
For more information on the award or to apply online go to

www.restaurant.org/awards
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