Market for coffee is fueling restaurants, including Stumptown, Peet's and more

Smartphones are not the only addiction. A new generation of coffee addicts are making morning coffee stops part of their routine. Here's our theory: in the evening, people are interested in trying something new. In the morning, they want something reliable.

Chicago Tribune: Your morning fix is fueling Chicago's coffee boom, 2018-Jan-15 by Samantha Bomkamp

...Coffee builds a habit. When customers find a coffee drink they enjoy, they’re far more likely to come back every day — or at least several times per week — than they are for, say, a great burger, NPD analyst Bonnie Riggs said. 

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Coffee tends to produce higher profit margins than other food and drink businesses.

And coffee chains are expanding to capture the growth. Chain coffee shops increased their locations by 6 percent from 2016 to 2017, according to NPD. In all, the U.S. has almost 3,000 more coffee shops than it did five years ago. In Chicago, that includes smaller chains like Stumptown and Joe & the Juice. Stumptown opened its first Chicago location in December in the West Loop’s Ace Hotel, and Copenhagen-based Joe & the Juice opened its first Chicago location on the Near North Side on Wednesday.

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“I’ve got to tell you, I don’t think it’s going to slow down,” Coonan said of the broader coffee market. “I was nervous a couple years ago.”

Coonan said part of his confidence is tied to the growing desire by landlords to bring coffee retailers into buildings as an amenity for tenants. 

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Mallory Pilcher, Stumptown’s marketing director, said she feels there’s still a lot of room for coffee growth across the U.S. “So many parts of the country are just getting turned on to high quality, sustainably sourced, hand-crafted coffee,” she said. “Cafe concepts are evolving and menu options are expanding.”

Pilcher said the brand plans to roll out a loyalty program in the future to reward its regulars.

At larger sister brand Peet’s Coffee, which has a dozen Chicago locations, nearly a third of transactions earn loyalty points, and CEO Dave Burwick said the chain is working on “significant enhancements” to its app this year, including testing mobile ordering. 

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The rise of mobile ordering also is helping drive quick, habitual coffee purchases, Riggs said, because it makes people less cognizant of what they’re paying than when they hand over cold hard cash. The use of mobile ordering raises the chances that customers will opt to make multiple visits and spend more when they do, she said.

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Riggs said coffee sellers are finding ways to expand the market instead of fighting over the same group of java-loving customers.That’s helped by a focus on breakfast, which has seen growth while lunch and dinner slow, and afternoon snack time, when more people are justifying a cappuccino when they take a break from work, Riggs said.

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Customer visits to quick-service burger and gourmet coffee chains spurred by deals rose by 7 percent in the third quarter of 2017 compared with a year earlier, according to NPD, which called it the “strongest (traffic) seen in quite some time.” Customer visits not driven by promotions rose 4 percent. The burger and coffee categories together account for less than one-tenth of the total food service industry, but their growth was so strong they pulled the whole industry into positive territory, NPD said. It was the first time the sector recorded overall growth in a year and a half.

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Target adapting to the new retail environment

The ability of stores to adapt to the new retail environment will be realized in both small successful steps to change their behavior as well as new startegies and overhauls. Here's some evidence from Target. We assume that 70% of the footwear orders were NOT shipped from across the country but from a nearby store, leading to lower expenses and lower air pollution, too. 

Footwear News: Target Has Found the Secret to Getting the Most Out of Its Stores, 2018-Jan-9 by Sheena Butler-Young

“We’ve positioned our stores at the center of a continually expanding suite of convenient fulfillment options and made significant investments in our team, which enabled our stores to fulfill 70 percent of all digital orders in the November/December period,” said Target chairman and CEO Brian Cornell. “As we look ahead to 2018, we will build on the foundation we established this year by launching additional exclusive brands, enhancing our digital capabilities, opening approximately 30 small-format stores and tripling the size of our remodel program to more than 325 stores.”

He added, “We will also remain focused on rapidly scaling up new fulfillment options including Same Day Delivery, which will be enabled by our acquisition of Shipt and our recently launched Drive Up service.”

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The store that understands you best will win: Kroger, Amazon or Walmart?

Under competitive pressure from Amazon, Kroger is deepening its investment in the collection and leverage of customer data. This represents more than loyalty and rewards. Like Amazon and Walmart, Kroger wants to build a revenue stream by selling advertising to its suppliers. If you're a product manufacturer with items for sale at Amazon, Kroger and Walmart, those three companies are competing for your advertising budget. The store which can offer you the best return on your advertising will flourish, and that return is based on the ability of the store to capture and correctly analyze data about its customers. 

We remember that not too long ago, Target got in trouble for sending diaper coupons to a household where the teenage daughter had not yet told her parents she was pregnant. What next?

Ad Exchanger: Why Kroger Wants to Be a Walled Garden--And Why It's an Uphill Battle, 2017-Dec-14 by James Hercher

The revelation that Kroger is developing a data-driven ad platform, Kroger Precision Marketing (KPM), to launch next year underscores how brick-and-mortars are trying to exert control over their data in the same manner as an ecommerce company. Yet the goal of a true brick-and-mortar walled garden is fraught with challenges.

For decades, retailers sold anonymized data to third-party aggregators, but most are beginning to pull back on that side revenue stream, said Sean Cheyney, VP of North American business development for the retail ad tech company Triad.

“Retailers are starting to see that open data model as them losing control of their most valuable assets,” he said.

Kroger has alerted agencies and tech vendors that campaigns with KPM must run through 84.51˚, a data and targeting business that the retailer purchased from Dunnhumby in 2015, according to three different retail ad tech companies that have been told of the update.

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Nike bets on membership data

As competition in athletic apparel heats up, driving prices down, Nike has latched onto their successful membership drives for products like personalized sneakers and exercise tracking applications. Their goal is to capture the information they need to push aggressive innovation while improving both customer satisfaction and engagement. 

diginomica: Nike focuses on digital membership and “relentless flow of innovation”, 2018-Jan-3 by Derek du Preez

Nike CEO and chairman Mark Parker recently told investors that its this “strategic shift to digital” that is satisfying customers and will underpin the company’s future success. Meanwhile, CFO Andy Campion explained how digital engagement is creating a better “price-value relationship” with its customers.

CEO Parker said:

We’re focused on unleashing a relentless flow of innovation at a scale that our industry has never seen, bringing NIKE closer to the consumer in key cities and delivering with speed and using the power of digital to go deep and broad by rewarding our most active NIKE+ members, while expanding that community to hundreds of millions.

Parker explained how across EMEA Nike is “taking friction out of the delivery and return process”, where, in Berlin, it now offers same day delivery by leveraging inventory within the city. Similar initiatives will be adopted in Paris and London later this year. Whilst in Shanghai, it has built a digital studio that will focus on creative selling opportunities and leveraging “real-time data with platforms like WeChat and Tmall”.

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Restaurants, such as Grub Burger Bar, leading with loyalty in their marketing

When we spotted an ad for the Grub Burger Bar's loyalty program on CultureMap, we drilled down to see why the restaurant is promoting its program instead of its food. Their loyalty app was developed by Punchh which has been innovating apps for quite a few years now. The deeper we dug, we began to realize that we'll see more restaurants advertising their loyalty programs. 

eMarketer Retail: Restaurant Industry Gets Serious About Loyalty Programs, 2017-Sep-5 by Andria Cheng

Among consumers, loyalty programs have jumped in terms of their ability to drive restaurant visits, according to an NPD Group survey of 9,100 consumers last year. When asked what would entice them to visit restaurants more often, 46% of respondents mentioned loyalty programs. This was second only to price discounts, mentioned by 66%. The percentage of consumers who cited other motivators including “polite staff,” “competitor’s coupons,” or “pick and choose items” ranged from 10% to 31%.

Millennials, who focus on value and digital price comparison shopping, are particularly attracted to loyalty programs. A Lab42 survey released in June found that roughly three-quarters of millennials polled consider loyalty programs an important influence when making a purchase.... 

said Shyam Rao, CEO and co-founder of Punchh, a provider of restaurant marketing cloud software that counts Moe's among its clients. “[Many] brick-and-mortar restaurants are behind in terms of understanding who their customers are. There are consumers who love a brand and walk in a few times a week, and these brands have no idea who they are.”

Techcrunch: Punchh, The Platform That Connects A Restaurant’s Cash Register To A Customer’s Smart Phone, 2013-Oct-10 by Alex Williams

Punchh is a three-year-old company that started as a virtual punch card service. It is now targeting verticles, starting with the restaurant business. It provides restaurants with apps that integrate with POS systems so customers can scan their receipts, earn points or get rewards. In turn, the owner can ask the customer for a review that will be posted to a social network. Punchh builds private label apps that engage customers with games, campaigns and surveys that are tied to a loyalty program.

CultureMap (Advertising): Houston burger spot serves everyone a slice of its sweet rewards, 2017-Nov-30 by Promoted Series Correspondent

Grub Love
This isn't your average loyalty program. Grub Love understands your need for burgers, shakes, and Brussels sprouts, and rewards you with one point earned for each dollar spent with the Grub Love app. Fifty points equals $5 in rewards, and the points never expire. Plus, you can look forward to a free shake around your birthday and exclusive monthly offers. You can also purchase gift cards for friends, family, or yourself, and pay right from your app. Now through the end of the year, each gift card you buy through the app gets you an additional 10 Grub Love points.

Forget to tap "earn" when you ordered? No problem — you have up to three days to scan your receipt and receive credit. Share the love by referring friends, and earn points when they make their first purchase (your friend gets an extra 20 points on that first meal, too). Sign up for a Grub Love account here or through Facebook.

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Amazon Key: overreach versus loyalty

The American Heritage Dictionary defines overreach as "to defeat oneself by going too far or by doing or trying to gain too much." Amazon would do better to outsource this service. 

LA Times: Amazon wants a key to your house. I did it, and I regret it, 2017-Dec-7 by Geoffrey A. Fowler

Amazon is barely hiding its goal: It wants to be the operating system for your home. Amazon says Key will eventually work with dog walkers, maids and other service workers who bill through its marketplace. An Amazon home security service and grocery delivery from Whole Foods can't be far off. (Wal-Mart has announced plans to test delivering groceries straight to the refrigerator with a smart lock maker called August.)

Amazon said it doesn't have access to data about when you lock your door or the video feed from the Cloud Cam — both good things. But surely its data team is also crunching the numbers on how Key changes your consumer behavior, especially whether you are buying more stuff from Amazon.

What's so bad about living in an all-Amazon house? The company doesn't always have the best prices or act in ways that benefit consumers. For example, it's currently in a spat with Google, whose smart-home products such as Chromecast and Google Home are not carried by Amazon — and who retaliated by blocking access to its YouTube apps on some Amazon products. (Grow up, you two!)

Amazon Key did give me some peace of mind about delivery theft. But the trade-off is giving more power over your life to a company that probably already has too much. 

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Sephora innovates loyalty by wrapping their business around the customer

Mentioned below are just a few of the innovations among Sephora's experiments in customer experience. When we see a company investing so much in us, in our education and well-being, it's hard not to become loyal. 

Retail Dive: 30 minutes with Sephora's head of marketing, 2017-Nov-29 by Cara Salpini

Deborah Yeh, SVP of marketing and brand at Sephora, gave Retail Dive a glimpse into three of the retailer's most dynamic marketing moves.... 

"We want to make sure that we are catering to not just folks who are the ultimate beauty junkies, but also people who are early in their beauty journey and exploring beauty for the first time," Yeh said, noting that Sephora has an exceptionally broad audience to address.

Offering beauty classes not only gets customers in the door, but it also gives them something more than just a product to walk away with. Similar to Lululemon's approach, which was to feature yoga teachers in stores and turn them into brand ambassadors that could both sell clothing and offer free classes, Sephora's beauty advisors are there to give customers an experience first, and sell them a product second.

But even outside of scheduled courses, Sephora stores are looked at as hubs of learning and experimentation — something that is bolstered by the use of in-store tech. Take, for example, Sephora's color IQ technology. If a girl walks in looking for foundation, a beauty advisor can scan her face in three different places to find what should be the perfect foundation for her skin tone. 

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How Starbucks captures customer loyalty

For Starbucks, the mobile app is key to customer retention. Competitors should look elsewhere for differentiation, or evolve a mobile app with different benefits. 

The Motley Fool: Starbucks Corporation Talks Digital Strategy, Guidance, and Food Sales, 2017-Nov-16 by Daniel Sparks

Starbucks is regarded as the pioneer in mobile loyalty programs and mobile ordering, proving how a well-executed digital flywheel can help increase sales. But even after years of success in digital, Starbucks' digital flywheel remains paramount to the company's long-term plans -- and it's still driving significant results.

Starbucks CEO Kevin Johnson explained (via a Motley Fool transcript):

Our priority to accelerate the power and momentum of our digital flywheel reflects the fact that digital relationships are among our most powerful demand generation levers. In fiscal '17, Starbucks Rewards membership in the U.S. rose 11% year over year. Per member spent increased 8% in Q4, alone. The cumulative fact is that today, 36% of tender comes from Starbucks Rewards, the vast majority, via our mobile app.

With this compelling data in mind, Johnson said the company will soon start making mobile order and pay available to all customers -- not just Starbucks Rewards members.

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Marriott, IHG, Wyndham discover dining rewards can lead to loyalty

Recently, we saw a restaurant refer to the second and third return visits as the 'pre-loyalty' stage. At first, 'pre-loyalty' seemed a little silly, but then we realized that many, many visitors will never make it to the second visit, so capturing the third visit moment is key for helping the owner decide whether to offer loyalty rewards. 

Hotel owners have a similar incentive to find out which guests are spending beyond the room, and now they're realizing the dining experiences may be key to building loyalty. 

Econsultancy: Hotels are boosting loyalty with dining experiences, 2017-Nov-22 by Nikki Gilliland

While dining can undoubtedly be a social experience within the context of travel, at a basic level, it’s also a daily habit. IHG and Wyhndam tap into this, giving members greater convenience (and loyalty incentives) no matter where or how they want to eat. In contrast, both Marriott and Shangri-La use the emotive and social aspects of food, offering them memorable and immersive experiences to drive loyalty.

When it comes to choosing a hotel, food and drink might not be a key incentive. However, when it comes to re-booking or becoming a loyal member, these examples show that it is certainly a key driver.

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7-Eleven Leverages Facebook Messenger with a bot

In strengthening their brand of convenience, 7-Eleven responds quickly in every communication channel their customer uses. The 7Rewards program makes the 7th cup free for any mix of a variety of beverages. Everything is their marketing is a quick read--very impressive. 

The Wise Marketer: 7-11 leads in Digital Transformation, 2017-Nov-22 by Rick Ferguson

Consumers using Messenger can engage in a conversation with the 7-Eleven Bot by chatting with 7-Eleven on Messenger.  The chatbot allows customers to engage with 7-Eleven easily and quickly. Users can sign up for the 7Rewards customer loyalty platform, find a store location near them, and learn about the latest discount offers. Money quote from Gurmeet Singh, 7-Eleven’s Chief Digital Officer:

“Today’s digital-savvy consumers expect brands to be present when and where they choose, in an effortless manner, and 7-Eleven Bot on Messenger allows that to happen. We are launching a unique loyalty experience for our consumers through an intelligent Bot. Using groundbreaking technology, customers immediately receive a digital card in messenger and can scan to start earning points, check status as well as collect coupons when they choose. Bye-bye physical loyalty cards.

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