Marketing

Loyalty programs are getting more cost-effective for restaurants, report says

The gap between loyalty and non-loyalty discounts is narrowing, according to Paytronix, as some restaurants make their rewards programs less generous.
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Loyalty programs have gotten more cost-effective to operate, but they still tend to be more expensive than regular discounting, according to new data from loyalty provider Paytronix. 

The company compared the level of discounting on loyalty transactions to the level of discounting on non-loyalty transactions and found that the gap between the two has shrunk over the past two years. In January 2021, the dollar discount on the average loyalty transaction was 16% higher than the average non-loyalty discount. By the end of 2022, the difference was 9%, according to the Paytronix 2023 Loyalty Report published Monday.

It was not clear exactly what accounted for the narrowing gap. But the report did highlight one possibility: Many restaurants have made their loyalty programs less generous recently in response to increases in their own operating costs. 

“With the high level of inflation over the last year, we saw some loyalty programs with fixed point-for-reward-item values (e.g., 100 points for a Free Item) experience an increase in the cost of their program, which meant the programs had to be trimmed back,” Kristin Lynch, senior director of strategy and analytics, wrote in the report.

Dunkin, for instance, angered some loyalty members last fall when it raised the exchange rate for some items, meaning members would have to spend more in order to get the same rewards. Chili’s Grill & Bar has similarly cut back on discounting within its Chili’s Rewards program to improve restaurant-level profit margins. 

Moves like those have apparently helped rein in the growth of loyalty costs, at least compared to regular discounting, which appears to be on the rise as restaurants try to attract inflation-weary consumers.

And while the average loyalty transaction still costs the restaurant about 9% more than a simple discount, according to Paytronix, those transactions can also yield additional benefits for operators. 

As the Paytronix report points out, loyalty members tend to spend more per visit than non-members. Last year, the average loyalty check was 5% larger than the average non-loyalty check—a difference of 54 cents.  

Loyalty members also tend to visit more frequently (and in some cases, a lot more frequently) than the average guest. According to Paytronix, the top 10% of loyalty members make up 44% of restaurant loyalty visits and about half of loyalty spend. 

And finally, loyalty transactions provide restaurants with more data on their customers, because they are tied to identifiable guest profiles. Restaurants can then use that data to hone in their marketing strategy for individual customers rather than send blanket offers that are the same for everyone.

“The knowledge of what a guest wants and when they want it, combined with a deep well of data, means that as guests change their relationships with brands, brands can change their offers to match,” Paytronix wrote in its report.

The Paytronix 2023 Loyalty Report is based on in-store and online transactions in the company’s database from January 2021 through June 2023. It includes data only from restaurants that were continuously operating loyalty programs during that time.

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