Is Chick-fil-A’s Digital strategy driving their recent success?

April 2019

OverviewChick-fil-A performanceIs the loyalty app driving success?What is driving success?

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Executive Summary

Growth is coming from light LSR guests

Chick-fil-A has outperformed since their August 2018 mobile app refresh & loyalty program launch

• The highest relative gains have been in improved penetration of the 3 lightest LSR customer segments

• These light guests are disproportionally motivated byquality and healthy food rather than the loyalty app

• Chick-fil-A has seen year-over-year gains in visit share (8.7%) and check size (2.3%) since launch, plus app usage is up (79%)

The app & loyalty program isn’t the primary reason for Chick-fil-A’s success

• DMAs with greater app growth show no correlationto DMAs with higher visit share growth

• Higher market penetration has driven more than twice as much growth as visitation frequency

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Background: Chick-fil-A recently launched a national, mobile app-focused loyalty program

Chick-fil-A launched a national loyalty program in August 2018

Members receive food, gifts, and tickets as rewards

The program is primarily app-based

2012 2018

Mobile app fist launched by Chick-fil-

A

Treat Tracker program enabled

users to receive free items

“A-List” membership program with limited enrollment and

store participation

Chick-fil-A One launched and marketed nationally. Free items

granted to customers for enrolling

Members can reach higher status tiers with accelerating points

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Credit, Debit and Bank Transactions6M Market Consumers Survey Responses

1K+ Chick-fil-A customers

Foot Traffic Visitation2M Market Consumers

Our methodology for analyzing Chick-fil-A’s market performance

OverviewChick-fil-A performanceIs the loyalty app driving success?What is driving success?

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Chick-fil-A’s visit share grew quickly after the launch of One Loyalty Program

0.2%

8.7%

8 Months Prior to Launch

8 Months Following Launch

Chick-fil-A Year-over-Year Visit Share IncreaseBefore and after launch on a YoY relative % basis

Visit Share = the percent of market visits received by Chick-fil-A. Changes are relative % Year Over Year increase in the Limited Service Restaurant Market in DMAs with a Chick-fil-A location. All data based on brand locations opened prior to the start of 2018. The Prior time period includes December 2017 - July 2018, compared to equivalent periods prior year. The Following time period includes August 2018 - March 2019, compared to equivalent periods prior year.

Foot Traffic Data

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127 127128 128

131 131 131 130 130 131130 130

Aug2018

May Jun Jul Aug Sep Oct Nov Dec Jan2019

Feb Mar

8

Chick-fil-A’s check size is higher than competitors and modestly increased after the loyalty program launched

Survey responses on whether a mobile app was used, answered by consumers following a visit to the brand. Chick-fil-A customer sample size = ~1000 per quarter, peer benchmark customer sample = 8000+ per quarter, weighted by national Visit Share. Peer Benchmark includes McDonald's, Starbucks, Subway, Burger King, Wendy's, Taco Bell, Sonic Drive-In, Arby's, KFC, and Jack in the Box

Transaction Data

Chick-fil-A Average Check Size by MonthIndexed to Peer Benchmark (100 = on par with peers)

1.5% average YoY increase pre-launch

2.3% average YoY increase post-launch

Check size has not eroded with the loyalty program,

suggesting that the food rewards have

not cannibalized purchases

Loyalty Program Launch

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Usage of the Chick-fil-A app has grown dramatically since the loyalty program launch

Percent of Visitors using an App with Purchase

Survey responses on whether a mobile app was used, answered by consumers following a visit to the brand. Chick-fil-A customer sample size = ~1000 per quarter, peer benchmark customer sample = 8000+ per quarter, weighted by national Visit Share. Peer Benchmark includes McDonald's, Starbucks, Subway, Burger King, Wendy's, Taco Bell, Sonic Drive-In, Arby's, KFC, and Jack in the Box

0%

25%

50%

Q2 '18 Q3 '18 Q4 '18 Q1 '19

Chick-Fil-A Peer Benchmark

79%

36%

Relative Increase from Q2 ‘18

Loyalty Program Launch

Chick-fil-A

Peer Benchmark

Survey Data

OverviewChick-fil-A performanceIs the loyalty app driving success?What is driving success?

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Chick-fil-A’s visit share growth is not correlated to increased penetration of its mobile app

-10%

0%

10%

20%

30%

-10% 0% 10% 20% 30%

Effe

ctiv

e V

isit

Sh

are

Ch

ange

Sin

ce

Loya

lty

Pro

gram

Lau

nch

% Increase in Proportion of Chick-fil-A Visits from a Guest with the Chick-fil-A App

Changes in Chick-fil-A Visit Share and Loyalty App Penetration by DMAEach point represents one DMA

DMAs with the most app growth are not

necessarily the ones with the highest visit share

growth

If the app & loyalty program were the drivers of Chick-fil-A’s visit share gains, we would expect the pattern of DMAs to move in an upper-right

direction

Effective Visit Share takes the relative Year Over Year Visit Share gains of Chick-fil-A Since Loyalty Program Launch during Q4 '18 - Q1 '19, and subtracts the Year Over Year Visit Share gains Chick-fil-A already was experiencing in Q2 '18 before the program went live. Increase in App Usage is based on the absolute % increase from Q2 2018 to combined Q4 2018 & Q1 2019 in the proportion of Chick-fil-A visits from customers with the Chick-fil-A app on their phone. 70 DMAs with a Chick-fil-A were analyzed based on adequate sample size.

Foot Traffic Data

App Installation Data

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Instead, market penetration has been a larger driver to Chick-fil-A’s success than increased guest Frequency

Conversion is defined by the percent of LSR market customers who visit the brand at least once in a given month. Frequency based on the average monthly visits per customer. Peer Benchmark based on the weighted average Limited Service Market Visit Share nationally for McDonald's, Starbucks, Subway, Burger King, Wendy's, Taco Bell, Sonic Drive-In, Arby's, Carl's Jr., and Hardee’s. The momentum time period considered was Apr 2018 – Jul 2018, compared on a YoY basis.

Foot Traffic Data

3.9%

1.4%

Effective lift in Conversion Effective lift in Frequency

Effective YoY lifts in Conversion (Penetration) and Frequency since program launchRelative change in visit share, normalized for momentum and benchmarked against a peer competitor set

OverviewChick-fil-A performanceIs the loyalty app driving success?What is driving success?

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Chick-fil-A’s growth since the launch is actually driven by higher penetration from light fast food customers

6%

5%

4%

1%

5%

4%

3%

16%

10%

9%

Mature Independents

Healthy Homemakers

Quiet Climbers

Busy Budgeters

Hardworking Homebodies

Family Foundations

Social Suburbanites

Millennial Movers

Urban Influencers

Affluent Adopters

Chick-fil-A Increase in Conversion by Customer SegmentLast 4 quarters, year over year

Segments with lower LSR visitation, and diverse drivers of choice (health,

convenience, habit)

Larger LSR consumer segments, typically value-driven

Segments that are technologically advanced and more quality-focused

than value-driven.

Foot Traffic Data

Conversion is defined by the percent of LSR market customers who visit the brand at least once in a given month. Q2 '18 to Q1 '19 relative % increase is based on average monthly conversion values for each segment

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53%

49%

42%

41%

37%

35%

15%

14%

5%

5%

2%

41%

41%

38%

30%

22%

31%

15%

16%

5%

3%

7%

More pleasant experience

Better food / drink

Faster service

Higher quality food

Healthier food

Now have location close by

Better menu variety

Want to be viewed as a Chick-fil-A customer

Less expensive

All other reasons (including app/loyalty program)

Eating fast food more overall

Light fast food customers

Heavy fast food customers

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Light fast food customers are more motivated by Chick-fil-A’s healthy & quality food than heavy fast food customers

Reasons for Increasing Chick-fil-A visitation over the past year

The biggest spread between heavy and light fast food consumers is the healthy / quality ingredient factor vs. competitors

The app and loyalty program (~1% of responses) was not a key reason to increase Chick-fil-A visits for either group

Survey Data

All respondents included indicated an increase in their Chick-fil-A visitation over the past year. Respondents could select multiple options. Sample of those who claim to not eat fast food "a lot" = 364, those who claim to eat fast food "a lot" = 384

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Conclusions

Recommendations for other brands: find your

differentiator

Chick-fil-A is gaining because its winning a

different kind of consumer

The bigger gain has come from improved conversion of typically infrequent fast food customers. Though Chick-fil-A’s service and experience matter, it’s the perceived healthy / quality ingredients that make Chick-fil-A not seem like regular ”fast food” to these customers. Chick-fil-A’s growth is more from this different kind of consumer vs. other LSRs.

For other brands looking to replicate this growth, the right next steps might not be to focus on health or ingredient quality, since Chick-fil-A just established a head start already. The objective isn’t to do what Chick-fil-A is doing better, it’s to find what attribute still isn’t being fulfilled by any competitor and is an opportunity for the next brand to differentiate itself.

Chick-fil-A’s success is not primarily from the app & loyalty program

Chick-fil-A has gained in visit share, check, size, and app usage since its August 2018 digital push. However, the app and loyalty program are not the primary drivers of incremental visits for the brand.

Thank you