Episode Transcript
[00:00:00] Speaker A: Do you need a loyalty program for your restaurant? That's the title of today's episode. We're going to dive into it. I'm going to share my opinions, my perspectives on the topic. The answer will come to you by the end of this episode. Not just an answer of yes or no, but exactly what to do and how I think we should be thinking about it. All of that, all things loyalty. On today's episode of Restaurant Strategy. There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
Hey, everyone, thanks for tuning in. My name is Chip Close. This is Restaurant Strategy, a podcast where we turn on the microphone twice a week to help you build a more profitable and sustainable business. We help restaurants get to consistent, predictable 20% returns. I do that twice a week on this podcast. I do that on YouTube. I do that on Instagram, on TikTok. I speak all over the country. I wrote a book called the Restaurant Marketing Mindset, which you can get for free. You just pay shipping. I'm including that link in the show notes and I do that through the P3 mastermind. So I run a group coaching program where if you want more guidance, more handholding, you want someone in your corner week after week after week, that's what that program's all about. It's a six month commitment. So we're not together forever. Hopefully. You come in, we help you put this stuff into practice, help you generate Those consistent, predictable 20% returns and then send you on your way. If you want to stay for longer, cool. But all we ask for is that six month commitment. If you feel like you're working really hard and you've got a great restaurant and you should be making more from your restaurant, the answer might be B. Yes. So if you want to have that conversation, best way to get started is to click the link in the show notes. Right? So there's also a link in the show notes. It's restaurantstrategypodcast.com schedule. Grab time on the calendar. You'll chat with me or someone from my team. We'll learn more about you and your restaurant. You'll get to ask questions about the program we run. Again, it's called the P3 mastermind. We work with hundreds of restaurant owners from all over the country to help them increase profitability. So if you're not making what you want to make from your restaurant. It's time to have a conversation. RestaurantStrategyPodcast.com set up a time on the calendar or you'll find that link in the show notes.
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Now posing this question, right, do you need a loyalty program for your restaurant? And the answer the, the question that that leads to is, does loyalty work? And that's a real question. I'm asked that all the time. And this drives me crazy when restaurant owners, independent restaurant owners come to me and they say, hey, I'm thinking about doing loyalty, does it work? Or worse when they say, so I got this loyalty program, it's been running for like a year or two. And I don't know, I mean, do you think it's worthwh, like does it work? The fact that you would do something and not know whether it works is a problem. Now, not blaming you, I'm just saying that if you're going to spend money or time, resources, energy, if you're going to put, if you're going to put effort towards something, you have to say, well, I need to know whether this works. And so the way you figure out if it works is if you measure it. And so if you are setting up loyalty to be a set it and forget it sort of thing, which you sort of can, but you can't forget about it completely, right? So the answer is, do you need a loyalty program for your restaurant? My answer is maybe, right, let's talk about what kind of loyalty program for your restaurant. And that leads to that other question, right? Which is, does loyalty work at all? My answer to that is it must, right? The reason that all the airline companies, that all the, the hotel chains, right, Starbucks and some of the biggest Companies in the world have loyalty is because they know it works, right? So I often say this, like, we don't have to go spend millions of dollars in marketing because we can just look at other organizations, other industries that do spend millions of dollars in marketing and just do what they do it, just steal. I think that's incredibly helpful. So to that, to that effect, I think it is.
I think it's smart that we are thinking about that. We're having this conversation, right?
Again, the airlines, the hotel chains, the biggest organizations like Starbucks and Chipotle and all of that, they do this. They have memberships, they have apps, they have loyalty. So it must work and they must have data that shows it works. In fact, I've talked to people in the hotel world, in the hospitality, that side of hospitality, and they do. They can point to the fact that it does help. Now, what it does is it helps your heavy users be even heavier. The one thing I hear over and over and over again is they say, you know, casual users or the middle of the package aren't necessarily going to use the, you know, use the app more or, or go to the restaurant more or book more flights on that airline. But the heavy users, it helps them be heavier. And I want to say I went going all the way back, right? We talk a lot about Pareto's principle, the 8020 law, right? 80% of your revenue comes from 20% of your guests, right? 80% of the output comes from 20% of the inputs. I had a guy named Peter Fader on the show a million years ago, I want to say the first year or two that we had this show, and he's a professor at Wharton and he's smart and he is a pure quant. He's not interested in the aesthetics or any sort of qualitative data. It's all quantitative data. And he said, actually the 8020 principle in his experience isn't exactly right. It's more like the 793 principle, right? That 93% of your revenue of your return visits, etc. Actually come from at 7% of your customers. When you actually look at the lifetime value of those heavy users, it is in your best interest to grow, to grow that revenue base, the revenue being generated from your heavy users. So all of that leads me to believe that I think a loyalty program is smart, but we have to understand what it can and can't do. Therefore, we understand the best way to use it and the best way to measure our inputs to make sure we're getting the proper outputs from the inputs, Right. The thing that drives me crazy about our industry is that we often take a one size fits all approach. Right. I'm going to beat up on Toast. I don't mean to beat up on Toast because there are lots of other programs out there, Right? But Toast is a POS company. I'm sure many of you are with Toast. And TOAST has an inventory and cogs management software. Toast has a scheduling and payroll software. Toast has a loyalty program. They have a marketing suite. They have all these things under the hood and they like to say, yeah, we got that, we got that, we got that. Just come in here. Everything is under 1:10, so to speak. The problem with that is that every restaurant who's on Toast uses the Toast loyalty program. So for a consumer going into this restaurant or that restaurant or that restaurant, it's indistinguishable. They sign up for all the loyalty programs. Okay? Not necessarily because they're going to be more loyal, but like, well, if I'm going to come here from time to time, I might as well rack up points and then eventually I'll have something to, you know, to redeem and I'll get a free gift out of it. Right? That's how people use. That's how my wife and I use dsw. Do we always go shop for shoes at dsw? Absolutely not. Do we go there from time to time? Yes. Will we buy shoes? Sure. We collect points and every once in a while we get up to the register and they say, hey, you got $10 in bonus points. Do you want me to take that off your bill today? Yeah, absolutely. My shoes are $10 cheaper. Cool. I didn't go to DSW specifically because of their loyalty or rewards program. Right. So it's this one size fits all approach that sort of drives me crazy. And again, it sounds like I'm beating up on Toast. I'm not. Toast is giving you a tool to use. And so I'm beating up on all of us, all of the owners and operators out there that don't give any further thought except like, oh, Toast has got it already baked. I'll just do that. Rather than tweaking it, bending it, expanding it, adding to it, there's more we can do. Now here's my caveat to that. If you're just going to sign up people for your loyalty program and not think anything else of it, that is an incredibly helpful lead source. Right. Customer acquisition without data acquisition is a waste because if we have no way to reach back out to somebody to remind them about them, to remarket to them, then we're missing something pretty powerful. So from a data collection standpoint, collecting people's information when they sign up for our loyalty program, I think is a good idea, right? But loyalty. Loyalty's got to be more than that. Loyalty is a. Is a, is a steep word, right?
Loyalty means I'm going to go to you more than any other option. I'm going to think of you first. You are top of mind before I think of any other option out there.
And that's a big deal. So I'll use my own. My own experience here and talk about the airlines, right? So for years and years and years and years, I didn't care which airline I used. So when I lived in Queens, when I lived in Brooklyn, I was very close to JFK Airport. I was very close to LaGuardia Airport. And with some inconvenience, though, I could get to the third airport, Newark. So New York City has three major airports, right? When you're in Brooklyn or Queens, you pretty much go to JFK and LaGuardia. When I have that many airlines and that many flight options to get to pretty much anywhere I want to get to in the world, for the most part, I shop for the cheapest flight. That's how I did it. And then I moved to New Jersey. And here in New Jersey, I am very close to Newark Airport. Newark Airport is the only airport I use. And I'm guessing that most of you out there listening to this have pretty much one airport in your market. You don't have the luxury like I did, being a New York City resident. You don't have the luxury of having three massive airports to pull from. You got one. And I'm guessing that one airline makes that airport a hub. That's certainly the case at Newark. United. Right. Newark is a United hub. More United flights fly out of that airport than any other airline. And so for the most part, and it started by accident, but when I start looking for flights, I find I have found, I continue to find that United pretty much has me covered. I became a loyal United customer simply out of convenience. And then what happened is that I started getting points and I started getting status, so I started getting bumped on flights. And now because. Because I have real tangible benefits, there's a benefit for me to stay loyal to United. I pretty much almost exclusively use United unless I'm going somewhere really exotic in the world. We've got a big trip to Asia planned at the end of this year, and I'm flying Singapore Air simply Because they had the best times, the most options, the best prices, certainly better than United. And I could go pretty much nonstop to Singapore, right? As opposed to United, where I had to take one or two stops if I wanted to get somewhere, right? But for the most part, I am loyal to United above any other airline. The reason is because now I have tangible benefits. It is in my best interest to book with them because I continue growing points. I get access to the lounge now I get access to, right. I get upgrades. You know, when I book, I can upgrade into the even more legroom seats. And now a couple of days before the flight, I will automatically get bumped to first class or business class if there's space, if I haven't already booked it. There are real tangible benefits, right? My bags are included. There's on and on and on, right? My bags get tagged with a special tag so they come out first on the conveyor belt, a baggage claim. There are real tangible benefits. So make no mistake, people don't need just to keep spending money with you and then get $10 back every so often. That's my example of DSW. It doesn't make me go there more, but the way I'm treated at United and the tangible benefits I actually get I can point to. And they're valuable enough for me to go to United first before I book with any other airline.
So I don't love using anecdotal evidence or sort of my own experience, but those two things I think a lot of people experience. And I've had this conversation enough, my DSW experience as compared to my United experience, it is a real thing. And don't pretend like you don't do the same thing and don't pretend like your diners, your guests don't do the same thing. So all of that leads me to the next part of the conversation which we're going to have. Million years ago, I had somebody from Ribbon Shop on the show and they were talking to me not about their loyalty program, but about their Royalty program. And I thought it was a step up, it was a smart solution to what has become a lazy part of our marketing. And I want to talk to you about what they did. And most importantly, I want to use that to. I want to springboard into a larger conversation about what I think you should do and how you should think about this problem. So talk about Ribbon Shop and their Royalty program, what that means for your loyalty program, and how you can take actionable steps to actually create something that breeds loyalty in your people. All of that After a word from another one of our sponsors.
Now, Sterling Douglas is the co founder and CEO of a company called Chowley. Chowley does so much for this industry. And I want you to hear a little bit from Sterling.
[00:14:37] Speaker B: In the last few years, restaurants have faced massive changes. Labor costs, food costs, rent, even payment processing costs are up so much that price increases alone can't cover it. And at the same time, their customers are demanding a whole new way to interact digitally. And that's now a requirement to survive, let alone thrive. To their credit, restaurant operators have been resilient. They've survived pandemics, inflation, regulatory environments, and more. They've added the tablets, put out the QR codes, took reviews seriously. And their reward? A disjointed collection of tech that doesn't talk to each other and is impossible to manage. I've listened to hundreds of operators tell me the same story with the same problem. And that's why we came out with the Chale platform. One place to manage everything outside of your four walls. Just like everything built at Chale for our 17,000 restaurants. Integrations and connections are at the heart of everything we do. It starts with your digital storefront. Your website has two jobs. More traffic, more orders by connecting to Google business profile and your point of sale. We get that done for you. Digital marketing. We'll manage your paid ads, emails, and social posts. We'll help you win the hyperlocal knife fight to maximize your sales. We measure everything so you know exactly where your orders are coming from. Marketplace, email, website, ads, app. All in one place.
CH gives you more orders by ensuring your entire digital storefront is optimized with the data. You already have more time by using our knowledge in a done for you experience and more control by managing it all in one place. The Chowley platform isn't just a tool. It's a partner in running a more successful and profitable restaurant.
[00:16:31] Speaker A: If you want to learn more about Chowie, go find the link in the show notes.
Okay, so on today's program, we're answering the question, do you need a loyalty program for your restaurant? That led us to the next natural question, which was, does loyalty even work? My answer to that is yes, obviously it does. It must in the right vehicle, when presented the right way.
I think our loyalty programs that we use through partners like Toast, you know, where we just sign people up, they spend a certain amount of money, then they get a bonus. Right. I don't know if that works. I think it's really good for data. Data acquisition, right. For. For, you know, Generating more leads for capturing more emails and phone numbers. I think that's, that's really helpful. So even, just, even if you just said that like, well, I don't really care so much about loyalty, but it really is a good lead source for me. Great. You can remarket your people. You will not hear any argument from me as long as you know what you're doing with it and what it's doing for you. I think that's great if you are going to do that though, right? I told you the whole back half of this episode, it's gonna be a series of advice. I want to dig in deeper into what Ribbon Chop does and then I want to talk about how you can use these loyalty programs. But just right off the bat, right, your loyalty program, you should be, let's say emailing everybody. Or you should set up an automation so that anytime somebody crosses the threshold and gets enough points to redeem for a tangible gift, you should email them like, hey, guess what? You now have $10 on your account next time you order, your loyalty program now has enough for $10 off. Or I used to do this. On the first of every month you generate a report, right? Or you segment your audience within your CRM, within your email service provider and a tool like Toast should let you do this. But you run a report and say, hey, I want a list of everybody who has enough money, you know, enough points on account to redeem them for a dollar value. And then you send an email and say, hey, it's the first of the month. Just wanted to let you know you gotta come in sometime this month because you have captured enough points to be able to ream redeem for real dollar value. Click here to check your balance or click here to book a reservation. If you do that on the 1st of every month, I promise you will get more visits. That's the whole point of loyalty, right? And if you say, well, I'd rather not if they've redeemed enough, I don't want to necessarily give it away. You're totally wrong. Because they come in, spend $10, actually gonna spend $90, let's say, and get $10 off. So that's $80 in revenue you wouldn't have otherwise gotten. But simply by reminding people that they got a free gift waiting for them at your restaurant, it will get more people in. I promise you that works. So if you're using it for data capture, great. If you're using it to get people back in, then you need to do stuff, stuff that will actually get People back in, I want to use that to bounce into this ribbon shop conversation. So ribbon shop, right. A couple of years ago, said, you know, all loyalty programs are the same, and we want to create something better. We want to do something. They set out to solve the problem I brought up earlier. They set out to solve the problem of like, does loyalty actually work? Does it do what we say it's supposed to do? And their takeaway was no, because everyone pretty much does the same thing. So we don't stand out from anybody else. So there's no tangible benefits to people being more loyal to us.
But what could we do to change that? And so they created not their loyalty program, but their royalty program. So every location of ribbon shop has, I want to say, 250 royalty members. Now, that was what it was when I had the interview a couple years ago. Maybe they've expanded the program, but each location has, let's say, 250 royalty members. That's it, 250. And it's basically a gift card program. So when you join the program, it's $50 a month to be part of the program. When you join, you get a knife set. You get some other tangible benefits like gifts. You get, I think, a free entree on your birthday or a free dessert on your birthday.
You get bumped to the top of the wait list. So they don't take reservations, so you gotta come in and wait for your table. So if you're a royalty member, you get bumped to the top of the list. So if the list is 25 deep and you walk in at 7:15 on a Saturday night and you say, hey, table for four, please. You get bumped to the top of the list right below any other royalty members who might have arrived before you.
Those are tangible benefits. The knife set, the swag that they get, the free entree every birthday, being bumped to the top of the list. Now here's the brilliance of it. It costs $50 a month to be in the program, but that $50 gets preloaded or reloaded every month onto a gift card, right? So on the first day every month, they say, hey, you got $50 now to spend. And it's not. You can't roll it over. So the 50 bucks in March disappears at the end of March, and then 50 new dollars gets added on there in April. What happens is you get money burning a hole in your pocket. Like, I'm gonna lose it. I've already paid the 50 bucks. I might as well go use it. And of course, at rib and chop, it's really hard for two people to dine there for 50 bucks. They know that they've made that number such that it will bring people in and they will spend more than that. So on the one hand you do the math. 50 bucks times 250, right. That ends up being recurring revenue for the restaurant. Right. So over $12,000 just automatically coming in. Whether people redeem that, use that money or not, that's a no brainer. $12,000. I want to say most restaurants probably do like 100k a month, 125k a month. That's give or take 10, 12% of your revenue every single month. Like just, just, just at the bottom of the barrel before you even do it. Like that's really smart. And then they create again. Going back to Peter Feder, right, who reworked Pareto's principle, the 8020 said it's really like 93, 7, 93% of your revenue is really coming from 7% of your users. And our goal is to make those heavy users become heavier users. I don't know whether Ribbon Shop and the folks in the marketing department knew Peter Fedor's work but they're sort of, they sort of backed into that sort of math. So if you are going to do a loyalty program, even if you're going to use a ready baked program like what Toast gives you, I would beg you to embellish upon it. Make their real tangible benefits. Honestly, I don't think to spend enough money and get a reward, I don't think that actually breeds loyalty. I think if you're the kind of place that doesn't take reservations, you'll get bumped to the top of the email, you know, at the top of the wait list every time you walk in. That's a real tangible benefit for any brunch place. Listening, listening in for any sort of like casual or upscale casual place. Right. The fact that you get to walk in no matter what or you know, in an upscale or fine dining capacity, you could absolutely do this, right? So let's say you take reservations one month in advance but the royalty members or your loyalty program members get to book six weeks in advance instead of four weeks in advance so they get the very best tables. Or maybe there are tables held for your loyalty members or your royalty members held until the last minute so they can always call two days ahead of time and say hey I need a table for four at seven o'clock and there are tables for them. Maybe there's a special hotline or a special, a special booking, you know Special booking link they use. There are so many tangible benefits you could give people aside from a typical loyalty program which is basically a discounting program. Pay really close attention. Ribbon Shop is not discounting their product except for May, maybe whatever the free dessert or the free entree on the card members birthday every year. So one of their 12 or 20 visits every year they get a free entree. It's a no brainer because they're increasing the frequency of their visits. I don't think most people go to Ribbon Shop once a month and they're ensuring that those people, the heavy users are now once a month. There's minimum. That's a no brainer when you think about building your loyalty program or royalty program or whatever it is. Do not be lazy, don't take the easy way out, don't do the ready baked solution and don't think that discounting is the only way to go. Again look at Ribbon Shop. There is no discount there. They get other tangible benefits that really cost the restaurant nothing and actually generates them consistent, predictable revenue. I'm guessing it's somewhere between 5 and 10% of their monthly revenue every single month. That is huge. Just from 250 people buying a preloaded gift card. $50 every month and they're in the program for life. And then there's a waiting list, there's a waiting list for those spots. So if anybody backs out, they know they've got somebody to take that spot.
I can't tell you how incredible that is. So I've done this with breweries. Breweries have started doing this, right? It's a version of their mug club. But instead of discounting like give tangible benefits, this whole podcast is dedicated to making you more money, helping you be more profitable. Discounting and giving people freebies back doesn't help you be more profitable.
Now talk more about discounting in a couple of weeks. We've got a really great episode that I've already written and recorded.
This really goes hand in hand. And the more I do this further I go down here, the less I believe discounting is what's required. We'll talk about more, talk about that more in a very deliberate way in a couple of weeks. But this is what I wanted to talk about. Yes, loyalty programs work. Yes, they can work for you. I think if you do it, you have to make sure you're tracking certain metrics so you can know that it's working for you. And for the love of all things holy, you need to not take the easy way out, not take the lazy way out. You need to build a program that actually gives people something that will make them loyal, as I do most weeks. I hope this isn't giving you a bunch of answers, bunch of paint by numbers, but getting you to think outside the box and think about how we apply this again, the DSW and the United analogy, this ribbon chop story. I hope this is helping you think outside the box so that you can come up with something that's appropriate for your restaurant. You are creative, you are smart. I know both of those things are true. You are capable of creating something great for your restaurant and great for your guests. That's it, guys. I appreciate you being here every single week. One final request. If you get any sort of value from this show, take a few minutes and leave us a rating and a review on Apple Podcasts. Five star rating and leave us a review. Actually tell people what you get out of the show, what you've gotten out of the show, why you think they should listen to the show. That more than anything else would help us grow this community. This community is incredible. I love showing up for you guys every single week and I appreciate you guys showing up for me every single week. If you ever need me, you know where to reach me. I give my email from time to time. I answer Every single email. Chip close.com C-H I P K L O S E dot com. You got any questions about this or any other episode? If you want to ask some questions about the Mastermind program, I run the P3 mastermind. Whatever. We'll talk about whatever you want. Just send me an email. Send me an email and say hey. And again, if you got a few minutes, go leave us a rating and review on Apple Podcast. I appreciate you guys. Thank you very much and I will see you next time.
