There’s a gap between what consumers want and what restaurants are offering
According to the National Restaurant Association, 55% of all adults are interested in paying for a subscription to their neighborhood restaurant. Millennials in particular are interested in this. 1 in 20 are interested in doing it simply to help keep restaurants afloat. In other words, if you’re a restaurant, people just want to give you money.
Restaurant subscription services are vastly underutilized. Look at Panera and coffee subscriptions, look at AmazonPrime, look at CVSCarePass, look at Walmarts’ subscription service. Subscriptions are appealing because it saves your customers money, and it’s a no-cost way of enticing traffic and banking on the upsell of high margin items.
If you’re a restaurant, imagine you had a monthly 2-course meal for two that customers could pay upfront monthly or annually for. This subscription model actually solves some problems for restaurants. Not only do you build loyalty and get data, but you get predictable demand and predictable cash-flow. Maybe you do something special for people every time they come in.
With a subscription, you’re strengthening the customer relationship. Not to mention, as an economic model, recurring revenue is what everybody wants. A subscription is also telling you what people are intending to do in the future, rather than looking back at the past to make an estimate.
There’s a lot of uncertainty right now, but uncertainty offers opportunity. People are going to start asking: “Can I do a Friday night pizza subscription? Can I order a pizza from my couch while I’m watching Netflix?”
Most restaurants already have thousands of customers in their database — the idea is to leverage an existing community.
Anyone who wants to reach customers online is at the mercy of Facebook and Google, who control the internet ad market. They control so much of the market that businesses looking to reach customers online don’t have many options.
You’re subject to the whims of algorithms, and if the algorithms turn against you, you’re compelled to buy more ads. Because Facebook favors content posted by non-business users, brand pages only receive 1% organic reach. How do you fight against this?
Subscriptions are an increasingly powerful way to reach consumers — particularly younger, affluent ones with disposable income.
In February 2020, Panera became the first major chain to offer a monthly subscription to coffee drinkers, charging $8.99 a month for unlimited coffee.
Loyalty programs are not new. Grocery stores have been using them forever, offering discounts on specific items. Restaurants have long offered loyalty programs — usually free food after a certain number of visits. The Panera coffee subscription added 800,000 people to Panera’s loyalty program in 2020 (Panera already had 40 million members).
Building loyalty programs not only unlocks insights into your customers, it enables you to build trust. Subscription models build deeper emotional connections and drive more visits. Plus, the ROI on getting an existing customer back is significantly greater versus acquiring a new customer. Additionally, roughly 1 in 3 customers say the availability of a customer loyalty program would make them more likely to choose one restaurant over another.
For restaurants, this is a low-cost way to entice foot traffic and bank on the upsell of other products. For your guests, it’s cost savings for habits they would be doing anyway. It’s also a way to set a schedule with them.
Current subscription models:
One of my favorite things is this document called Reimagining a Sustainable Restaurant Industry in New York Where All Stakeholders Thrive by the Ford Foundation. It says 36% of restaurateurs wish they had more tech skills. Most restaurants work with tech vendors; 97% work with at least one, and 13% work with six or more.
A problem many restaurants are facing is integrating all of their tech platforms. You can’t just keep adding things on without taking other things away. The goal should always be simplification and efficiency.
The first thing you need to do is figure out what your reservation system is going to be, followed by your POS system, followed by how you’re going to approach delivery. Then you can start working on your subscription service. You’re going to have to figure out how to make sure all of your systems are aware of who has a subscription. Not to mention, your staff has to know what’s going on. I think figuring out the nitty gritty details has kept most restaurants away from this model so far.
Here’s what some tech-platforms are doing to help:
Table22: Table22 says it helps restaurants launch compelling subscription offerings that increase customer value, build predictable recurring revenue, and forge deeper connections with guests. Yet, when you look at their offerings, it really just adds an ancillary direct-to-consumer revenue stream to restaurants. So yes, it’s a subscription, but most of the time it’s for consumer goods delivered to your house. However, a typical subscriber to a restaurant on Table22 spends more than $800/year on membership alone, plus incremental spend on and off-premise.
Most restaurant “subscriptions” seem to follow this direct-to-consumer model because direct-to-consumer is seen as the future — I’m sure you’ve seen Magic Spoon or Fly by Jing. This stuff is aimed at Gen Z or Millennials. It’s something we used to do at a restaurant I worked at (A Toute Heure), but it’s actually a lot of work. The last thing you want to do is create more onerous work for your staff during a time when they’re already at the end of their rope. If that’s the business you want to get in to then go for it, but, realistically, you’re creating a whole ‘nother business instead of supporting the one you already have.
Table22 is basically GoldBelly, but GoldBelly describes themself as a “curated marketplace for gourmet food & food gifts.” Here are some other examples, but these are not restaurant subscriptions as much as they are food delivery arms of existing businesses.
ChowNow: Their loyalty program is called Loyal Local, which is a membership program between diners and your restaurant. Customers prepay to join, and in return they get a discount. It costs zero dollars for you — it’s meant to drive revenue to your restaurant. Guests sign up for a membership program and select from one of three tiers: pay $25 to get 10% off orders for 1 year, $40 to get 15% off orders for 1 year, or $100 to get 25% off orders for one year. The idea is, customers will order more food, more often, and in the short term, you get money.
I see why a restaurant would use this model for the sake of simplicity, but I don’t see this working at high-end restaurants. I’m not even sure if this is enticing for fast-casual restaurants. You also run into the MoviePass problem where, at some point, if a person goes to your restaurant enough times, you start to lose money. You need to charge enough so that the guests who literally eat into your profits — sometimes called super-diners — are offset by those who don’t eat nearly as much as they paid for. Is $25 enough to get 10% off orders for that whole year?
Upserve: Upserve’s loyalty program allows your guests to accumulate points for dollars spent, and once customers hit a goal, the reward will be automatically credited to their card. But the only supporting data they offer is that guests may spend up to 39% more than usual to get their reward faster.
A coffee shop I frequent, Boxwood, uses this type of rewards system. But here’s the thing — whether or not the loyalty program existed, I would still be going there to get coffee. So all they’re doing is giving me free coffee every so often. These programs are so ubiquitous (in particular the push notifications on your phone), that it no longer differentiates you. When it comes to elements of value like brand reputation, quality, and value to price ratio — customers see a lot of sameness. The idea is to offer something no one else is currently offering.
Shopmove.co: People who sign up for Shopmove.co are paying for the privilege to buy goods at cost. When I saw this, it occurred to me just how much people are willing to pay to be part of a membership community. It also occurred to me that a restaurant could reverse this model by offering the membership “at cost” while making the profit when customers dine in.
According to Scott Galloway, the best thing a business can do for incremental growth is to move from a transactional model to a recurring revenue model. This exploits a flaw we all share — our inability to register time. He says, “Time flies. Specifically, it goes faster than our estimated consumption of a product during a given time period. For example, only 18% of gym members go to the gym consistently.”
The reality is that you can make a lot more money charging people monthly or annually for something rather than asking for one lump sum upfront (an opposite but applicable example is PayLater). Companies like Adobe learned this when they shifted to subscription-based services. In 2018, subscription sales accounted for 86% of Adobe’s total revenue, lifting their earnings 77% from 2017.
The subscription economy is booming and crushing businesses that forgo it. The average US household now has 9 simultaneous subscriptions (honestly I thought it would be more). Overall, the economy is shifting towards subscriptions and brand loyalty over the selling of individual products. The best way I’ve heard it put is that it enables your customers to over-consume in a simpler way.
I live in Central, New Jersey. If I was a restaurant here I would offer upper-middle class couples a date night subscription. It would be geared towards the people who live in the affluent suburbs that are home to many New York City transplants. Residents move to these towns in order to trade a small apartment for more space to raise a family. Yet, these families haven’t lost their appetite for cosmopolitan dining options. We would be targeting an experience first customer who wants to make the most of life, and we are competing with the last best experience that they had.
What: A date night subscription, good for two people, once a month, at your restaurant.
How: Partner with Table 22, or do it in house. The idea is to shift from brand marketing that builds reach to performance marketing that generates leads, conversions, and revenue. Here’s an example of what this might look like:
- $29 a month gets you both a glass of champagne and free dessert at our restaurant for “date night” 12 times a year + unlimited coffee, as well as an automatic reservation on Valentine’s Day.
- $59 a month gets you both a glass of champagne, free dessert and wine pairings for two courses for “date night” 12 times a year + unlimited coffee, as well as an automatic reservation on Valentine’s Day.
- $79 a month gets you both a glass of champagne, free dessert and wine pairings for two courses for “date night” 12 times a year + anniversary + birthdays + unlimited coffee, as well as an automatic reservation on Valentine’s Day.
Marketing + Influencers: It’s important to have a business objective and to define what we’re trying to accomplish. What exactly will this achieve for us?
The idea is to launch a campaign, which is a specific goal, with a particular desired result that will include many posts and content assets, as well as paid advertisements. The payoff is, if you get 1,000 people to sign up for just the $29 tier, you make hundreds of thousands of dollars a year for doing very little extra work — money you can count on coming in every month. And that doesn’t include the money people are spending when they dine in.
I like the idea of using influencers to sell a specific product (date-night subscriptions) in order to hold them accountable. There are a ton of foodie influencers out there, and we like influencers because consumers are much more likely to trust third parties. However, it’s difficult to prove that influencers are driving results — even if we’re looking at things most people don’t, like impression share or something — this data may or may not actually be helpful.
The truth is, marketing throws off a crazy amount of data, often burying people and making it difficult to find insights at all. So we’ll measure how well influencers are doing by seeing how many people are signing up for subscriptions.
An influencer doesn’t need to be internet famous — they can be a customer or employee. Compensation can be experiences. There’s an idea that followers and subscribers need to be relevant to your brand, but that’s not even necessarily true.
An example is Mr. Beast Burgers (Jimmy Donaldson, age 23, 67 million YouTube subscribers). This guy has never done anything in food, but he can generate demand. Anyone with marketing power can now do this. You can partner with someone that is popular, quite possibly way outside of the food space.
Social influence rests on the fact that, when faced with an abundance of choice, we habitually rely on others to know what to buy. When these people are just like us, we tend to trust them more. Influencers are close and relatable, and we perceive their recommendations as honest and authentic.
According to Ana Andjelic, the social influence market is just like any market. It uses currency (taste) to build capital (social status). Over the past few years, curators took over influencers as the core vehicle for capturing the cultural mood and starting trends. Curation can retain an audience, as well as attract a new one that hasn’t considered the brand before. It can attract a collaborator or start a brand partnership. Conversely, brand collaborators and freelancers can become influencers.
Flex commerce. Ana Andjelic says flex commerce is the demonstration of one’s taste through spending. The purpose of flex commerce is to establish status. She says, “It’s unrelated to the cost of goods and services, but tied to their intangible, symbolic value. In flex commerce, price is secondary. The social and cultural capital that a good or service carries is more important. In the modern aspirational economy, it’s the primary mode of cultural, social and economic exchange.”
Flex commerce is for those who seek (and can afford) to invest their time in curating their lifestyle. The primary activity of flex commerce is not buying, but collecting. Brands that transform their current commerce approach into flex commerce are better positioned to succeed.
Going out to dinner can simultaneously be a private and public act. But the culture of cool and exclusivity that exists in the city disappears when you get to the suburbs. Yet, people are constantly looking for opportunities to post on social media to demonstrate their value.
Soho House can’t exist in the suburbs. Carbone can’t exist in the suburbs. Velvet rope clubs can’t exist in the suburbs (at least not in the way they do in the city). Therefore, we need to think of other ways to allow people to demonstrate their value. Because there is objectively less to do in the suburbs, going out to dinner becomes the thing to do for couples — allow them to set a schedule (and give you money!).
Consumers compare aspirational products (and being able to afford to go out to eat all the time is nothing if not aspirational), with things like festivals, online courses and philanthropy. We know that a concert can be as equally desirable as a bottle of wine or a pair of sneakers. To win in aspirational markets, brands need to have a clear identity and the strategy to convey it, as well as a clear idea on what kind of growth model they want to pursue.
If you’re a higher end restaurant, in the same way that going to a concert costs more than buying music online, people will start to think of going out as an experience. They’re going to pay more. Especially in the suburbs, it replaces going to the theater — you can watch the chef and entertain yourself, or be entertained.
This may require specific strategies that are going to require the kind of business acumen and creativity that restaurateurs may not have historically had.
The subscription model actually taps into a love language (quality time). It appeals to couples who want experiences and variety, but also people looking to commit to spending time with each other. Buy the subscription and prove your commitment. It’s something to look forward to in the future. If you limit the number of subscriptions available you can create artificial scarcity and drive up the value of a subscription even more.
GrubHub collects a commission, but that commission is less for larger brands because they have the marketing power. Power accrues to whoever is generating demand.
Shifting to passive and private:
- 3rd party cookies are going away.
- Email click tracking is going away.
- Location based targeting may become more difficult.
- Facebook/Instagram likes may be going away.
- Private, subscription model search engines like Neeva and DuckDuckGo are becoming more popular.
- It’s much harder to get organic reach than it used to be, and unless a post is getting a boost or a push, it’s being buried by the algorithms.
People are passively consuming content and communicating more privately instead of sharing publicly as often as they once did. To counterbalance this, one thing to consider is developing a series. Whether you’re recording a podcast or filming a behind the scenes TV show, the goal is to share content that separates you from everyone else. A series allows you to set a schedule with your audience, which, in turn, sets expectations.
The goal here is to not just capture a person’s attention once, but keep it for the long term. It’s meant to counterbalance the shift to passive consumption, as it’s even more difficult to reach your audience when they’re less engaged than they once were.
One-off posts on social media aren’t going to reach people anymore. A series has a better chance of building a distinct, memorable connection between you and your audience (I personally think a podcast is the perfect thing to do, in addition to offering a subscription).
Customer Data + Delivery Services + Unbundling. This is not a piece about delivery, though I would argue that delivery and tech partnerships have become so crucial for restaurants that it’s something we have to bring up. Delivery is also tied to the most important thing we need, which is data.
According to the Harvard Business Review, delivery was about 7% of the market prior to the pandemic, now people think it could be 20–25%. Last year, the number of digital grocery buyers jumped 43%. Very soon, more than half of the US population will be digital grocery buyers.
The 3rd party platforms (GrubHub, Uber and DoorDash), realize the value of your customer data, so they keep it for themselves. They own all the data. They don’t share it. They remove the direct relationship you have with your guests, which is why they can come back to restaurants every year and raise commissions.
Everything is going through the platforms. You can work as hard as you want but still lose money because you’re not capturing the customer fully. It’s about owning your data. Data is especially important at a restaurant in order to plan and order properly.
Every restaurant that wanted to deliver used to have to manage a vertical supply chain. You had to source the ingredients, cook and prepare the food, market it, then get that food to the customer.
According to Youngme Moon: What’s happening now is the industry is operating in a more unbundled way at each level. There’s a kitchen function, which is food prep in dine-in restaurants, as well as ghost kitchens. There’s the delivery function, which are usually 3rd party apps. Then there’s the branding and marketing function. Power accrues to who owns the customer relationship. As the market gets more crowded, your ability to generate demand becomes increasingly important.
The idea is to completely control the virtual front end that attracts demand. The tug of war is between the value chain of food prep, delivery and the marketing/branding facade on top — who is going to accrue power in that scenario? They are not mutually exclusive, they are very quickly becoming consolidated. Third party delivery continues to vertically integrate: DoorDash is clearly the most aggressive player on the operating side by getting into in house brands and marketing. You also have a marketing function like Otter getting into in-house brands and courier services.
In order to compete with the behemoths of the food space, restaurants need to keep innovating.
2021 State of the Restaurant Industry — NRA — https://go.restaurant.org/rs/078-ZLA-461/images/2021-State-of-the-Restaurant-Industry.pdf — https://restaurant.org/news/pressroom/press-releases/2021-state-of-the-restaurant-industry-report
Up to 91% More Expensive: How Delivery Apps Eat Up Your Budget — https://www.nytimes.com/2020/02/26/technology/personaltech/ubereats-doordash-postmates-grubhub-review.html
Reimagining a Sustainable Restaurant Industry in New York Where All Stakeholders Thrive — https://www.fordfoundation.org/work/learning/research-reports/reimagining-a-sustainable-restaurant-industry-in-new-york/
Sign up now: Creating consumer — and business — value with subscriptions — https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/sign-up-now-creating-consumer-and-business-value-with-subscriptions
Why Subscriptions May Be the Wave of the Future — https://nymag.com/intelligencer/2021/06/why-subscriptions-may-be-the-wave-of-the-future.html
Scott Galloway’s Investment Principles (Talk) — https://vimeo.com/580887138/e6388c3265
I tried Panera’s unprecedented new $9-a-month unlimited coffee subscription — https://www.businessinsider.com/panera-unlimted-coffee-subscription-review-2020-3
Survey: 55% of New Yorkers Would Be Interested in Restaurant Subscriptions — https://www.propertynest.com/blog/data/survey-55-new-yorkers-would-be-interested-restaurant-subscriptions/
Marc Lore’s next attempt to woo the affluent consumer: A fleet of on-demand food trucks — https://www.cnbc.com/2021/05/06/marc-lore-invests-in-wonder-an-on-demand-gourmet-food-truck.html
Want More Loyal Customers? Offer a Community, Not Rewards — https://hbr.org/2021/02/want-more-loyal-customers-offer-a-community-not-rewards
10 Truths About Marketing After the Pandemic — https://hbr.org/2021/03/10-truths-about-marketing-after-the-pandemic
How to Get a Table at Carbone — https://www.newyorker.com/culture/annals-of-gastronomy/how-to-get-a-table-at-carbone/amp
N.J. is growing and getting more diverse, new Census numbers — showhttps://www.nj.com/news/2021/08/nj-is-growing-and-getting-more-diverse-new-census-numbers-show.html