The subscription business model has taken off in recent years. There is a reason that companies talk about becoming “the Netflix of (insert product or service here).” A successful subscription business can offer a more stable revenue stream and improve customer retention. Does the subscription model have a place in the restaurant business? Current trends suggest that the answer is yes. Over the last few years, an increasing number of restaurants — from large national chains to smaller local establishments — have incorporated subscriptions into their loyalty programs.

Loyalty Matters

Developing loyal repeat customers is critical to any business. The business literature is replete with studies showing that it costs more to acquire a new customer than to hang on to an existing one. According to the Harvard Business Review, “depending on which study you believe and what industry you are in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.” The same article also points to research showing that “increasing customer retention rates by 5% increases profits by 25% to 95%.”

Until recently, restaurant loyalty programs usually involved stamping a punch card or awarding redeemable points that customers could exchange for meal discounts, free beverages or other perks. Recently, however, many restaurants have recognized that a subscription model can help ensure more frequent customer visits and steadier revenue. Subscriptions can take many forms, such as dining credits, meal kits, unlimited soft drinks or free delivery for a monthly or annual fee. Here are a few examples:

• Panera Bread’s “unlimited sip club” offers subscribers unlimited coffee, tea and fountain drinks for $11.99 per month or $119.99 per year.
• P. F. Chang’s offers a variety of benefits to subscribers who pay $6.99 per month, including bonus reward points, unlimited free delivery, priority reservations and VIP concierge services.
• El Lopo, a San Francisco neighborhood bar, offers a subscription program called the “take care of me club.” Subscribers pay $89 per month for $100 in dining credits or $175 per month for $200 in dining credits. They also enjoy several other benefits, including standing reservations, free admission and early registration for events such as tastings or trivia nights, discounts on cases of wine, the right to gift a free drink to a stranger at each visit and the ability to order any wine on the wine list by the glass.

For a subscription program to be successful, it is important to target the right customers. That means customers who value your products and services and can generate value for your restaurant. Promotions offering deep discounts may get people in the door, but once the promotion ends, those customers are likely to move on in search of the next deal.

Watch Out for Subscription Fatigue

With so many types of businesses adopting the subscription business model, many consumers are experiencing “subscription fatigue.” So, the subscription programs that work will likely be those that offer surprising benefits or experiences that go beyond monetary savings. For example, at El Lopo, when club members dine in the staff starts bringing them food and drinks they think they will like (unless they opt to order specific items). This sort of personalized service can help set a restaurant’s subscription program apart from those of its competitors.

For more information about subscriptions and other restaurant loyalty programs, please contact Jim Pellino at [email protected]. Visit ORBA.com to learn more about our Restaurant Group.