Consumer Staples Author: Tommy Mi Mar 10, 2022 04:12 PM (GMT+8)

With dated service style and price increase lashbacks, Haidilao is in dire need of a revamp. And modifications in its loyalty program could be a start.

Haidilao

Known for its stellar customer service, Haidilao Hotpot has garnered over 85 million members as of the interim of 2021, with peaked daily active users on the Haidilao App exceeding 310,000 during one of the company's holiday campaigns. In addition, members' consumption accounted for more than 80% of the revenue, which indicates a strong customer retention rate and brand loyalty. The loyalty program of Haidilao has been a major driving force behind Haidilao's success. But recent trends based on Haidilao's annual releases reveal a diminishing impact of its member system.

Overview of membership system

Haidilao's members are divided into four levels based on growth point, equivalent to the members' spendings (CNY 1 = 1 point) at Haidilao's restaurants. The four levels are Red Member, Silver Member, Gold Member, and Premium Member. To become a Premium Member, the highest level of the member system, one needs to spend over CNY 12,000 or above within the span of six months. A member's progress is easily tracked via Haidilao App. Like many member systems, Haidilao offers different benefits to each member level. For example, at the Premium level, the member can skip the waitlist entirely. With a wait time of around two hours during busy lunch hours, this perk only available to Premium members boosts many to dine more at Haidilao to progress in membership levels. 

Logic behind loyalty programs 

Restaurants widely adopt loyalty programs as a critical tool to turn first-time customers into brand advocates. Used right, restaurants can prompt members to spend more than non-members. According to a study done by Paytronix, loyalty members' checks were 6% larger on average than non-members in 2021. Although the study focused only on quick-service restaurants (QSR), the logic applies to Haidilao's member system. The reason is that the more rewards a customer has access to, the more a customer is willing to spend. The loyalty program of Haidilao is cleverly designed by setting transparent goals for members to reach. The scheme draws customers back as customers feel the desire to advance to the next level in the member system. Therefore, customers' overall spending at Haidilao increases even with discounts and free food tastings. 

A call for change

Many businesses have tried to copy Haidilao's over-the-top service, but few have succeeded. Haidilao employees do not adhere to a strict standard operating procedure but are encouraged to exercise their creativity, which leads to a highly customized dining experience. However, the extreme service standards may no longer be sought after by customers. 

KFC in China had recently revamped their business through a series of changes to cope with the likings of the youth generation. The loyalty programs at KFC are almost like a subscription service, in which the paid members would get access to deals and discounts. Customers can choose from three to four different programs based on their lifestyle. The membership program helped KFC China gain millennials' interest, who look for food quality and a pleasant dining experience. Since 2015, KFC has gone from 0 to over 120 million members by 2020. 

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KFC China's successful transition from being deemed a 'middle-aged businessman in a middle-age crisis' to becoming a trendy, digitized dining option for the millennials indicates that Haidilao's loyalty program is on the right track. They both realize the digitization need of the upcoming generation of consumers. However, Haidilao's famous service standards have gradually become more of a burden than an advantage. According to a study done by Atlantis Press, the overall review of services of Haidilao gives a negative public outcome. The majority of the customers do not respond well to the service style of Haidilao; some even feel embarrassed. Haidilao's loyalty program aims to instill a habit of eating hotpot into its customers' diet. But the loyalty program fails to account for the outdated service style of the hotpot chain. Furthermore, the unforgiving criteria of becoming a Premium member has pushed customers into lending and sharing membership status. Haidilao could incorporate more trendy elements into its loyalty programs and offer more variety to the member system. A 'self-disruption' similar to KFC China's may be needed to ensure sustainable growth in the future. 

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