Rewards Network CEO Says Restaurants Need Data-Driven Approach

Forty years ago, shoulder pads and high tops ruled fashion. Tina Turner and Madonna ruled the airwaves. The original movie version of “Dune” was in theatres (and it’s déjà vu all over again on that last one in 2024).

Back in 1984, Rewards Network launched a platform that has grown to become the largest local restaurant rewards network in the country, as CEO Ed Eger noted to Karen Webster during the latest Monday Conversation.

Back in the 1980s, Rewards Network’s value proposition was issued through the Transmedia card. Decades later, the company’s value prop still resonates with this vertical as Rewards Network drives diners into local establishments to fill unsold seats — the highest margin diner that restaurants can serve.

An unsold seat on a Tuesday is money that can never be recouped, just like an unsold seat on an airline.

“If you can’t fill a table at a restaurant one night, you can’t make up for it the next night … you can’t resell it,” Eger said.

But when those seats are filled, the restaurant’s margin can be as high as 70%.

Rewards Network exists as an unusual player at the center of the payments ecosystem, serving as a merchant-funded platform that monetizes the most perishable inventory at restaurants — unsold seats — by giving members of large established loyalty programs more everyday options to earn rewards.

Through Rewards Network’s platform, participating diners who are members of loyalty programs — such as with airlines, fuel, hotels or mobile phone service providers — can earn rewards (points or cash back) that can be redeemed within those programs. These loyalty program members opt into the Rewards Network program and register the card they will use when eating at these local establishments.

The positive ripple effects throughout Reward Network’s ecosystem are considerable. The membership platforms get to offer a new member perk, creating more frequent engagement within the loyalty program they already operate. Card issuers win when these cards drive more transaction volume and retain top-of-wallet status.

The network effect is critical, Eger said, adding that most restaurants don’t have the horsepower and capital to market themselves and often rely on word of mouth to fill tables. For the loyalty brands tied to the rewards platform, there’s the positive impact of delivering relevant, differentiated experiences to members. Members have an incentive to dine at the local eateries since the rewards they get for doing so are redeemable inside of the programs they already have an affinity with.

Filling Seats, Growing the Business

Eger joined Rewards Network six years ago following previous roles at PayPal and Citibank, so he is no stranger to payments and the value of networks.

“My passion, for a long time has been working with small local businesses and helping them grow,” he told Webster.

In his current tenure at the helm of Rewards Network, he said: “It’s inspiring when I get to go and meet with our restaurant owners who do just tremendous work every single day, and they put their heart and soul into these businesses.”

Finding new ways to monetize the biggest pain point of local eateries and changing the loyalty member focus to everyday spend has paid off.

Eger said he has seen Rewards Network more than double its number of restaurant clients over the last four years. There are now more than 20,000 restaurants being matched with 6 million actively dining loyalty customers who belong to 30 of the top loyalty brands in the United States, including United Airlines, AAdvantage, Marriott Bonvoy and Hilton Honors. Rewards Network is the exclusive restaurant partner for the loyalty programs that are part of the platform.

Eger said the company expects to add another 3,000 to 4,000 restaurants to the platform in 2024.

Building the Moat

Eger chuckled when asked to explain the work required of the restaurant to participate.

“They don’t have to do anything other than agree to participate as part of the network,” he said.

There are no sign-up or integration fees, and there is no technical integration required on the part of the restaurant. The restaurant seats the loyalty program member at an empty table in their restaurant. Participating restaurants are charged a fee when that diner eats at the restaurant and uses the card on file with their loyalty program to pay the bill.

“Our revenue model is built on sending diners into restaurants,” Eger said. “We get paid when we send them that business and the diner eats at that restaurant, but we don’t get paid until that happens.”

Reward Network’s “pipes” are connected directly to Mastercard, Visa and American Express, as well as the major processors. The company matches the card registered to the loyalty program diner with the restaurant’s processor feed to determine which member dined at a restaurant and how much of a reward they should earn. Rewards Network takes a fee based on the transaction amount for each of those transactions shared across the network.

The Data Gold Mine

Beyond increasing the guest count, the wealth of enterprise-quality, back-end data collected by the platform can give a restaurant the insight and info it needs to fine-tune its operations, down to the menu, and can help pinpoint areas for expansion or pivot toward offering bonus programs.

“We can tell the restaurant where people came from, how much they spent when they came, how frequently they came, and whether they are new or repeat customers,” Eger said.

Verified reviews let customers rate their experience, adding more data for the restaurant to use. This data can also put more money into the restaurant’s pocket via Reward Network’s funding options. The same data that highlights how the restaurant is doing helps inform the working capital arm of Rewards Network, as the platform gleans insight into spending volume and seasonality. Rewards Network pre-purchases credit card receivables, and the establishments pay the working capital advanced as members dine.

“We are probably the leading source of working capital for local independent restaurants,” he said.

It’s Not Just Restaurants

Eger told Webster that the perishable inventory problem isn’t unique to restaurants.

Observing the behavior of members who have used Rewards Network for dining has opened several new possibilities to expand network endpoints. Everything from tickets, concerts, sporting events, spa and hair appointments — any local business that makes its money selling services tied to a daily schedule could conceivably be fodder for the network.

Signing up those merchants is an easier lift for Rewards Network since it already has “feet on the street” expanding the restaurant network, he said. No matter the vertical, a key guiding principle governs it all.

“When you grow a network like this, you have to grow both sides simultaneously,” he observed.

For now, the core focus will remain restaurants, and there are hundreds of thousands more restaurants seeking to increase their guest counts.

As Eger told Webster: “I want for us to be relevant to the member from the first cup of coffee in the morning to the last dinner and dessert they eat at night.”