US: With McDonald's loyalty announcement, QSR wars heat up

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By: RickFerguson |

Posted on March 16, 2016

In the United States, the landscape of quick-service restaurants (QSR) has undergone a seismic shift - with loyalty programmes at the epicentre. First, Starbucks announced major (and surprisingly controversial) changes to its industry-leading programme. Next, rivals such as Dunkin' Donuts stepped into the fray with loyalty programme offers designed to poach rivals from Starbucks. Now, industry behemoth McDonald's continues its turnaround efforts by announcing its own upcoming loyalty programme initiative. What does this focus on loyalty mean for the industry?

Nation's Restaurant News broke the story last week: following on the successful adoption of its smartphone app with 7.5 million downloads, McDonald's USA president Mike Andres announced at a conference presentation that the restaurant chain could debut a loyalty programme as soon as the end of this year.

Based on what we've heard so far, McDonald's isn't entering the loyalty game lightly; the company fully expects the programme to drive sales. The programme will provide insights on frequency and ticket size, and will likely offer time-based rewards to drive traffic back into the stores. Andres also noted the programme's potential to stem attrition with win-back offers targeted to lapsed customers. Money quote from Andres:

�We�re working on a customer-designed loyalty programme that we think will be as good as there is out there in the marketplace... If we see a thawing off, we can entice them with their favorite products to come to the restaurant. That�s the future of customer relationship management. We think it can be a significant sales layer for us.�

More broadly, McDonald's entry into loyalty signals a new phase in the war for QSR supremacy. Starbucks is certainly the pioneer in the space, and will continue to enjoy the advantages of first-mover, but will now face increasing pressure to maintain the value of its programme for members - particularly during the critical breakfast daypart.

The key question for industry observers: Will McDonald's move spark a loyalty arms race, with its QSR rivals quickly following to launch or revamp their own loyalty programmes? One clue may lie in the reaction of Wall Street to McDonald's move. One welcome trend we've seen over the past years is the Street's favorable reaction to loyalty initiatives, and the QSR industry is no exception. Here's analyst Jeff Russell writing in Profit Confidential:

"If McDonald�s gets its loyalty and mobile app right, it has the potential to be a customer loyalty driver. With so much competition in the restaurant industry, its imperative that McDonald�s locks down as many customers as it can...If McDonald�s can replicate the success with its new mobile app the way Starbucks has, investors will see more uptick in McDonald�s stock in the years to come."

Investment in loyalty moving the stock price: it's an exciting time to be in the loyalty industry.

-Rick Ferguson

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