Dive Brief:

• Chipotle is testing a new points-based loyalty program, Chipotle Rewards. The pilot is currently live in three markets – Phoenix, Kansas City and Columbus, Ohio, with a national launch targeted for 2019, according to a company release. 
• Eligible customers who sign up for the program via the brand’s app or website can earn 10 points for every $1 spent, with 1,250 points earning one free entrée of choice. 
• Chipotle Rewards is the company’s latest digital initiative, following the recent launch of its direct delivery service, digital pick-up shelves and second-make lines that allow employees to more quickly prepare entrees as digital orders are placed. 

Dive Insight:

To entice customers in test markets to sign up for its new loyalty program, Chipotle is offering free chips and guac after their first Rewards purchase. The company is also driving customers to sign up via its digital channels by offering an added incentive:15 points for every $1 spent in the app or online for a limited time.

The company is pulling out all the stops with this initiative, and for good reason. Chipotle Rewards’ first loyalty iteration — Chiptopia, launched in 2016 — was limited in scope and also proved to be cost ineffective. 

According to QSR Magazine, Chiptopia was launched as a three-month, three-tiered offering tied to customer visits. Guests earned free meals after their fourth, eighth and 11th visits each month. While it generated millions of users, the company yielded just a 33% return. The company also spent about $20 million on the 85,000-plus Chiptopia members who qualified for the program’s $240 catering package. 

More concerning, the program didn’t spark much by way of loyalty, and that is likely because it was rolled out far too soon after Chipotle’s 2015 food safety incidents that affected hundreds of customers across multiple states. Even the most effective loyalty programs can’t overcome that type of crisis so soon. 

The new Chipotle Rewards program will be able to glean deep insights via its customer relationship management (CRM) program and target personalized communication to help "drive trial, menu exploration and affinity," according to the release. The program’s new “stage-gate process” will allow the restaurant to learn from consumer feedback before its national rollout — and hopefully avoid the mistakes it made with Chiptopia. Personalizing loyalty messages, such as birthday offers, has proven to be highly effective for Starbucks, the standard-bearer in restaurant loyalty programs. 

Starbucks’ program, for example, now includes about 15 million members (up from 13 million last year) and has been successful because it engages customers through Spotify lists, birthday rewards, free in-store refills and more. Though it’s early for Chipotle’s program, Starbucks’ loyalty program also seems to offer a better value proposition. Eater broke down the comparison between loyalty programs at Starbucks, Chipotle and Chick-fil-A and found that Chipotle customers would have to spend $125 to earn a free burrito or bowl, while Starbucks’ customers have to spend $62.50 to earn a free item and Chick-fil-A customers have to spend $50 to earn a free sandwich. 

Although Chipotle has some catching up to do in the restaurant loyalty space (about 30% of restaurants offer some type of loyalty program) its new system’s points-to-dollars approach is one that has already been proven to work by other brands, so it’s a good place to start. And since repeat customers account for more than 70% of a restaurant’s sales, it’s a necessary place to be as industry competition intensifies. 

On Monday, Oppenheimer analysts argued that the brand’s digital strategies (as well as marketing and product strategies — including its chorizo relaunch) aren’t “transformative enough” to boost average unit volumes in a meaningful way.  For now, one thing is certain: Chipotle is in need of some type of spark. The company is still reeling from the effects of its dismal 2015 — stock prices are now about $450, compared to about $750 before the food safety incidents. But with a new leadership team finding its cadence, and a new loyalty program in place, Chipotle has a chance to bring back customers — though it looks to be a long road ahead.