Do You Need a Loyalty Program for Your Restaurant?

Thu Mar 13 2025

#428 - Do You Need a Loyalty Program for Your Restaurant? ***** This week's episode is brought to you by: AVERO Increase your profitability using the industry's best kept secret weapon. VISIT: https://averoinc.com/ ***** This week's episode is brought to you by: CHOWLY The Chowly Platform unites powerful tools to transform your restaurant’s digital presence and grow profits ouside four walls. From Online Ordering and Third-Party Marketplace POS Integration to Smart Pricing and Digital Marketing, everything works together seamlessly—creating, capturing, and converting demand into meaningful growth. Your tools and data, all in one place, to save time, boost profits, and give you complete control. VISIT: https://chowly.com/chowly-platform/ ***** Do loyalty program work? Yes. Do you need one for your restaurant? Maybe. Today's episode is all about helping you go deeper to create a program that ACTUALLY breeds loyalty among your guests. Don't just do plug-and-play and expect in...

Summary

Podcast Summary: Restaurant Strategy – "Do You Need a Loyalty Program for Your Restaurant?"

Episode Overview

In the March 13, 2025 episode of the Restaurant Strategy podcast, host Chip Klose delves into the critical question facing many independent restaurant owners: Do you need a loyalty program for your restaurant? Throughout the episode, Chip explores the efficacy of loyalty programs, shares insights from industry leaders, and offers actionable strategies to help restaurant owners increase profitability through effective loyalty initiatives.

Introduction to Loyalty Programs

Chip opens the discussion by posing the central question of the episode: "Do you need a loyalty program for your restaurant?" He emphasizes that the episode aims to provide more than a simple yes or no answer. Instead, listeners will gain a comprehensive understanding of what loyalty programs entail, how they can be effectively implemented, and the metrics needed to evaluate their success.

“Do you need a loyalty program for your restaurant? Maybe. Let’s talk about what kind of loyalty program for your restaurant.” – [00:00]

The Fundamental Importance of Measuring Loyalty Programs

Chip underscores the necessity of measuring the effectiveness of any loyalty program. He expresses frustration when restaurant owners implement loyalty programs without tracking their performance, rendering them uncertain about their return on investment.

“The fact that you would do something and not know whether it works is a problem.” – [05:30]

He advocates for a data-driven approach, asserting that if you invest time and resources into a loyalty program, you must also commit to measuring its outcomes to ensure it delivers value.

Does Loyalty Work?

Chip confidently asserts that loyalty programs do indeed work, citing successful implementations by major companies such as airline companies, hotel chains, Starbucks, and Chipotle. He reasons that these industry giants invest heavily in loyalty because they have proven its effectiveness through substantial data.

“The airlines, the hotel chains, the biggest organizations like Starbucks and Chipotle—all have loyalty programs because they know it works.” – [08:15]

However, he notes that traditional loyalty programs often primarily benefit heavy users, helping them become even more loyal without necessarily engaging casual patrons.

Critique of Standard Loyalty Programs

Chip critiques the one-size-fits-all approach commonly found in many loyalty programs, particularly those offered by POS systems like Toast. He argues that while these programs can effectively gather customer data, they often fail to foster genuine loyalty because they lack unique, tangible benefits that differentiate one restaurant from another.

“Every restaurant who's on Toast uses the Toast loyalty program. So for a consumer, it's indistinguishable. They sign up for all the loyalty programs, but it's not necessarily making them more loyal.” – [12:45]

Personal Anecdotes: The United vs. DSW Analogy

To illustrate his point, Chip shares personal experiences contrasting a meaningful loyalty program with a generic reward system. He compares his loyalty to United Airlines versus DSW (a shoe retailer), highlighting that tangible benefits from United incentivize him to remain loyal, whereas the minimal rewards from DSW do not significantly influence his shopping behavior.

“People don’t need just to keep spending money with you and then get $10 back every so often. My example of DSW doesn’t make me go there more, but the tangible benefits from United make me loyal.” – [13:50]

Case Study: Ribbon Shop’s Royalty Program

Chip introduces Ribbon Shop’s Royalty program as an exemplary model that transcends traditional loyalty programs. Unlike standard programs that offer generic rewards, Ribbon Shop provides exclusive, tangible benefits that foster genuine loyalty and generate consistent revenue.

Key Features of Ribbon Shop’s Royalty Program:

Exclusive Membership: Limited to 250 members per location, ensuring exclusivity and value.
Monthly Gift Cards: Members pay $50 monthly, which is preloaded onto a gift card. This not only encourages regular spending but also generates predictable revenue.
Tangible Benefits: Includes high-value perks such as a premium knife set, free entrees on birthdays, and prioritized seating. These benefits are designed to enhance the customer experience beyond mere discounts.

“They created a royalty program where every location has 250 royalty members. It’s a gift card program where $50 is preloaded every month, encouraging members to spend and generating over $12,000 in recurring revenue.” – [20:10]

Chip praises this approach for its ability to convert heavy users into even more loyal patrons. By offering substantial, meaningful rewards, Ribbon Shop ensures that members feel valued and are incentivized to visit more frequently.

Actionable Strategies for Effective Loyalty Programs

Drawing from the Ribbon Shop example, Chip provides restaurant owners with practical advice on designing loyalty programs that truly drive loyalty and profitability:

Offer Tangible Benefits: Move beyond simple discounts. Provide exclusive perks that enhance the dining experience, such as priority reservations or special event access.
Limit Membership: Creating a sense of exclusivity can increase the perceived value of the program and foster stronger loyalty among members.
Encourage Regular Spend: Implementing preloaded gift cards ensures that members have a vested interest in returning to use their pre-funded credit.
Automate Reminders and Rewards: Use automated communications to remind members of their rewards and encourage them to redeem their benefits, thereby driving repeat visits.

“Do not be lazy, don’t take the easy way out. You need to build a program that actually gives people something that will make them loyal.” – [25:45]

Maximizing Data Utilization

While Chip acknowledges the value of data acquisition through loyalty programs, he emphasizes that data should be leveraged to engage customers meaningfully. By using the insights gathered, restaurants can tailor their marketing efforts to better meet customer needs and preferences, thereby enhancing the effectiveness of their loyalty initiatives.

“Customer acquisition without data acquisition is a waste because if we have no way to reach back out to somebody to remind them, to remarket to them, then we’re missing something pretty powerful.” – [16:45]

Final Thoughts and Encouragement

Chip concludes the episode by encouraging restaurant owners to think creatively and strategically about their loyalty programs. He stresses the importance of moving beyond generic reward systems to develop programs that offer real value to customers and drive sustained profitability for the business.

“You are creative, you are smart. You are capable of creating something great for your restaurant and great for your guests.” – [30:20]

He reiterates that effective loyalty programs are not just about discounts but about building meaningful relationships with customers through exclusive and valuable benefits.

Conclusion

In this insightful episode, Chip Klose provides a nuanced exploration of loyalty programs, advocating for strategies that go beyond superficial rewards to create genuine customer loyalty and drive restaurant profitability. By leveraging examples like Ribbon Shop’s Royalty program and emphasizing the importance of tangible benefits and data-driven approaches, Chip equips restaurant owners with the knowledge and inspiration needed to implement successful loyalty initiatives.

For restaurant owners looking to enhance their loyalty programs, this episode serves as a compelling guide to developing strategies that foster true customer loyalty and deliver consistent, predictable returns.

Notable Quotes:

“Do you need a loyalty program for your restaurant? Maybe. Let’s talk about what kind of loyalty program for your restaurant.” – Chip Klose [00:00]
“The fact that you would do something and not know whether it works is a problem.” – Chip Klose [05:30]
“The airlines, the hotel chains, the biggest organizations like Starbucks and Chipotle—all have loyalty programs because they know it works.” – Chip Klose [08:15]
“Every restaurant who's on Toast uses the Toast loyalty program. So for a consumer, it's indistinguishable.” – Chip Klose [12:45]
“People don’t need just to keep spending money with you and then get $10 back every so often. My example of DSW doesn’t make me go there more, but the tangible benefits from United make me loyal.” – Chip Klose [13:50]
“They created a royalty program where every location has 250 royalty members. It’s a gift card program where $50 is preloaded every month, encouraging members to spend and generating over $12,000 in recurring revenue.” – Chip Klose [20:10]
“Do not be lazy, don’t take the easy way out. You need to build a program that actually gives people something that will make them loyal.” – Chip Klose [25:45]
“Customer acquisition without data acquisition is a waste because if we have no way to reach back out to somebody to remind them, to remarket to them, then we’re missing something pretty powerful.” – Chip Klose [16:45]
“You are creative, you are smart. You are capable of creating something great for your restaurant and great for your guests.” – Chip Klose [30:20]

Resources Mentioned:

Ribbon Shop’s Royalty Program: An advanced loyalty initiative offering exclusive benefits and preloaded gift cards to foster genuine customer loyalty.
P3 Mastermind Program: A group coaching program led by Chip Klose designed to help restaurant owners implement effective strategies for increasing profitability.

Call to Action: Restaurant owners seeking to implement or refine their loyalty programs are encouraged to think creatively, leverage data effectively, and prioritize tangible benefits to build meaningful customer relationships that drive repeat business and sustained profitability.

Transcript

Chip Close (0:00)

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. Are you ready to revolutionize the way you run your restaurant? I want you to unlock the power of data to optimize your operations with Aveiro, the trusted technology partner for over 40,000 hospitality professionals worldwide. Aveiro understands restaurant operations. They have a data backed answer for every food and beverage challenge and are focused on delivering the right answers to the right people at the right time. With Aveiro, you can make better, faster, more profitable decisions. You can drive customer traffic, raise, check, average and ensure a consistent guest experience across all of your locations, all of your day parts. Are you ready to drive more sales by leveraging the hospitality industry's best kept secret weapon? Unlock your restaurant's full potential. Today. Get started for free and transform your business by visiting averoink.com a v e r o inc.com as always, that link is in the show notes. 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.