Restaurants flock to mobile loyalty apps

Restaurant operators are increasingly supplementing their old loyalty-card programs with mobile options to keep eaters coming back in a soft economy.

The restaurant chains and their franchisees are turning to mobile loyalty apps such as Front Flip and Belly, which they say help them attract and retain customers with more individualized, interactive approaches than the traditional loyalty programs.

More than 30 such mobile loyalty apps have emerged in recent months, said Logan LaHive, chief executive of Belly Inc., the largest of the group.

Anyone with a smartphone can download the apps and begin using them.

For instance, at restaurants that use Front Flip, customers use their iPhone or Android phone to scan a QR code that is usually placed at the entrance or on a table. That unlocks a digital scratch-off card—in which the player scratches off a covering that reveals a prize—and gives customers a chance to win free or discounted menu items on the spot. Customers also can scan a code on the back of their receipt from home. The system resets daily so customers can keep trying to win.

Front Flip charges restaurants $125 a month for the service and has 2,000 locations signed up nationwide.

The loyalty reward apps are still new and aren't totally proven, but some operators are finding early success with them at a time of growing competition for customers.

To give customers a reason to come back—and to reach young customers who don't clip coupons, Todd Luther, owner of nine McDonald's Corp.outlets in Fort Collins, Colo., recently signed onto Front Flip. The mobile loyalty program is available at eight of his outlets and gives diners a chance to win a sandwich or drink when they visit.

Mr. Luther said he has noticed a 10% to 25% increase in sales of menu items promoted on Front Flip compared with rival McDonald's in the area that don't offer the app.

"The [restaurant] market is not expanding, so everyone is in a fight for that one customer," he said. "What can we do differently to get them in the door?"

Loyalty app provider Belly—more than half of whose nearly 6,000 merchants are restaurants—charges operators $50 to $100 a month. For that, they get an iPad, which they usually place on the store's counter near the cash register, and a loyalty program customized for their business. Customers with mobile phones scan a bar code from the app on the restaurant's iPad, which tracks the points they earn and redeem. Customers who don't own a mobile device can scan the iPad with a plastic rewards card.

The new influx of loyalty apps comes as cash-strapped customers have curbed their restaurant visits.

Membership in traditional punch-card loyalty programs, in which a customer gets a free meal after a certain number of visits, is still much larger, and continuing to grow. But analysts at Colloquy, an arm of Alliance Data Systems Co. that provides research about loyalty marketing programs, say that some customers are using them less because they're overwhelmed by the number of different programs and underwhelmed by the perks.

While loyalty program memberships rose almost 27% to 2.65 billion in 2012, active participation—those cases in which people redeemed rewards at least once a year—dropped to 44% last year from 46% in 2010, according to Colloquy.

Still, the same boredom that has dampened participation in traditional loyalty programs could plague the digital ones if the apps don't keep coming up with fresh features. And if customers who play don't win deals often enough, they could abandon the apps.

App providers say they also can provide customer data to help restaurants tailor their marketing. When customers scan their smartphones at a business, Front Flip said customers share their first name, last name initial, gender, age and visit information. "We track what day of week they're coming, what time of day and how often they come, and all the data goes to the business," said Sean Beckner, CEO of Front Flip LLC.

In order to download the Front Flip app, customers are prompted to either sign up using their Facebook account or their email address. If someone opts to use their email address, they are required to provide their name, gender, birth date and ZIP Code.

Papa Murphy's International LLC outlets in the Kansas City, Mo., area used to send text messages to customers about specials, but the franchisees wanted a more interactive way to engage diners. Now the 32 take-and-bake pizza restaurants there have amassed 30,000 Front Flip users since adopting the app six months ago. Before Front Flip, the Papa Murphy's restaurants in that market knew through customer surveys that the number of days between visits averaged more than 50. For those using the Front Flip app, the average number of days between visits is 22.

To entice customers to come back more often, Front Flip automatically sends a "gift" of the restaurant's choosing to customers who haven't visited in 30, 60 or 90 days. The Papa Murphy's franchisees agreed to offer more aggressive deals the longer the lapse in visits. For example, a customer who hasn't been back in 30 days is offered a family-size pizza for the price of a medium, while a customer who hasn't been back in 90 days is offered any pizza at half price.

But the Papa Murphy's franchisees have had to make some adjustments. Customers initially complained they weren't winning enough. So about three months into the program, the restaurant owners agreed to adjust the odds of losing on a given day from 30% down to just 7.5%, according to Paul Cox, who owns one outlet.

Landry's Inc., which owns several restaurant chains including Rainforest Café, Morton's and Bubba Gump, has a mobile loyalty program that allows customers to check their rewards balance on their smartphone or defer the redemption of their rewards points. But the company is coming out with an enhanced app that will offer more geo-targeted promotions to people based on what they order, according to Lori Kittle, Landry's chief information officer.