Give It Away: Fast Feeders Favor Freebies
Giants Run Out of Places to Build, Use Sampling to Fuel Same-Store Growth
CHICAGO (AdAge.com) -- These days, it seems as if restaurants are literally giving away the store.
After years of trying to wean themselves off deep discounting that cheapens brands and conditions consumers to look for deals, Starbucks, McDonald's and a host of others are doling out free product, no strings attached. And instead of keeping giveaways -- once a kind of shameful industry practice -- quiet, restaurant marketers are now boasting about the amount of free product they've distributed.
"We believe we gave away well over our goal ... of 3 million free floats," said Todd Townsend, VP-chief marketing officer for Sonic Corp., of its June 7 inaugural Free Float Night. "We exceeded that pretty handily."
He's not alone. The Golden Arches, Wendy's, Sonic, KFC and Taco Bell are all offering gratis menu items to entice would-be customers. Starbucks and Chipotle started doing so years ago as a way to compete with their then-much-larger rivals on the quality of their offerings. But of late, the tactic borrowed from supermarkets and the department-store makeup counter has been spreading to industry titans as they struggle to jumpstart stalling growth and win ever-more-pitted market-share battles.
It's a reaction, said Robert Hardy, associate principal at Hale Group, to a slowdown of the restaurant building boom. While supermarkets are "site-saturated," he said, a major growth avenue for restaurants has been adding units -- until now. "From the '50s to the '90s, it was all about real estate and opening stores, so this is new territory for the restaurant people," he said. "The idea is: If I can get people to visit one more time a month, I'm going to pick up the rest of that meal occasion and drive volume."
'A reason to go'
Indeed, with chain growth up just 5.9% and even lower for fast feeders, the logical solution is to steal share from rivals. "The reason for the freebies is it's more about a reason to go," said Hale Group Associate Principal Mac Brand. "The debate is around whether it is more valuable in generating trial or bringing lapsed users into restaurants."
Not to mention whether it tempts a consumer -- new or lapsed -- who stops in for a free order of french fries to shell out some cash for a burger to go with them. In the case of Mickey D's Free Coffee Mondays, "I'm sure it's increasing sales across the board," said Sarah Eck-Thompson, co-owner and chief operating officer at All Terrain, a guerrilla-marketing and sampling company. "I'm sure their Egg McMuffin numbers are up too."
Quick-service chains that have already exhausted their war chests battling rivals across segments, dayparts, menu platforms and pricing schemes are now trying to boost average unit sales by boosting traffic, check size and frequency of visits. Today, the number of times a customer frequents a chain each month matters as much as how much they spend each time, so free product presents an opportunity to convert the curious into loyalists.
"We want to expose our brand to as many people as possible and optimize our traffic," said Sonic's Mr. Townsend. "We have significant conversion once [new customers] try our brand."
OK, so sampling gives exposure, but is it really boosting sales?
Cream in the coffee
At the JP Morgan Gaming, Lodging and Restaurants Conference in March, Don Thompson, president of McDonald's USA, credited the chain's new premium roast coffee with boosting "coffee unit movement" by 15%. He didn't specify whether that meant free or paid units, but at least half of customers buy something when McDonald's gives away its coffee, according to one knowledgeable executive. A McDonald's spokesman wouldn't confirm that statistic.
Chipotle learned the power of the freebie in an odd way -- from the trial of Timothy McVeigh. Publicity spiked after the restaurant fed hoards of international journalists gathered in Denver to cover the trial of the Oklahoma City bomber in 1997, and since then, the chain has given away burritos at store openings. "It grew very organically," said Jim Adams, director-marketing. "We'd take the burritos to TV stations, then to ad agencies to reach influencers. It just sort of grew and took on a life of its own." Today, the complimentary burritos are used to build awareness and showcase the quality of Chipotle's food. "We look at it as part of our marketing budget," he added, divulging only that the investment was "significant."
Mr. Adams said he doubts the gratis concept will work for some marketers, particularly older chains trying giveaways for the first time. "To make the commitment to give away a lot of food, [others] struggle at it," he said. "It's not a cure for an ailing company."
To be sure, you have to have your house in order first. Free food wouldn't have worked well for McDonald's before its operational and marketing renaissance. In 2006, it began distributing free samples of its Spicy Chicken sandwiches instead of coupons to generate trial. It's free-coffee promotions have helped drive sampling of the new blend as well as overall breakfast sales. Similarly, once KFC repositioned its brand around Kentucky pride, freebies helped its sales turnaround.
Deals erode value
Seeing such returns, nearly every major chain has turned to one or more comp offers to escape from the relationship loyalty expert Arjun Sen calls the "mistress brand," or the brand consumers use to cheat on their favorite brand. When companies earlier relied on price discounts or coupons, they learned that such deals create a sense of urgency for customers to buy in very competitive markets. But they also erode the brands' perceived price value, according to Mr. Sen. As a result, customers become trained to pay the lower price over time and suffer from sticker shock when prices are raised to more "fair" market rates. Stores then suffer lower profits since food is sold at a loss. "Sampling, on the other hand, has food-cost adjustments planned around it," Mr. Sen said.
In this Darwinian market, freebies have become a powerful form of marketing pheromones. By eliminating the discount altogether, customers seem to judge the product on its immediate attributes rather than its artificially low price.
There is, however, a question about what kind of lift free samples provide in converting new customers. "No matter what category, it tends to be about a 10% conversion increase across the board," said Cindy Johnson, owner of Sampling Effectiveness Advisors and chair of the Promotion Marketing Association's product-sampling council. Other observers argue the value is not about lift but about frequency.
"What they're thinking about is the individual lifetime value of the customer," said Hale Group's Mr. Brand. "Their strategic goal is to increase the ... loyalty of their core users, so when there's a Starbucks, a Dunkin' Donuts and a McDonald's, [each] wants to be the preferred choice."
McDonald's is crediting new coffee blends it's frequently giving away with boosting breakfast margins. In an April conference call with analysts, executives said demand is exceeding supply, and same-store sales at breakfast are growing at higher levels than those for the regular menu.
Sonic Corp.'s first Free Float Night was part of its "Even Sweeter after Dark" summer push, which positioned the chain as a late-night-treat destination. The campaign also involved dance and hula-hoop contests, radio and TV live remotes, strobe-lit patios, and an online game.
No. 3 fast feeder Wendy's on June 6 launched its biggest sampling event, a 25-city, six-month "taste tour" to offer free hamburgers and build buzz for its new "That's Right" campaign. Beginning in North Carolina, the tour features a mobile burger kitchen on a tractor-trailer rig, music, and picnic tables, which park at lunchtime gathering spots in major cities. The chain will distribute more than 1,000 burgers and 2,000 $5 gift cards at each site.
After years of free espresso-drink samples, Starbucks offered its first global audio freebie with an all-day listening event for the debut of Paul McCartney's "Memory Almost Full." Stores played the looped recording nonstop for an estimated 6 million coffee addicts in more than 10,000 stores in 29 countries. The event drew a record 23,000 single-day unit sales of the album for the chain.
KFC in January gave out free Colonel's Crispy Strips, backed by a full-page ad in USA Today. The week of the giveaway, the chain saw its highest sales for the strips, according to a spokeswoman. KFC also gave away 75,000 coupons for free Buffalo Snackers in seven days, a push that drew nearly 3 million page views to KFC.com that week, boosting traffic more than 40%. The chain also eclipsed its traffic and same-store-sales goals for the period.