Want proof that consumers who eat out are moving “down the ladder”, in terms of how fancy a venue they choose, and how much they spend? Look no further than the first quarter results for Rewards Network, which provides dining rewards programs and marketing services to the restaurant industry.
The company generated $54 million in net revenue and $902,000 in operating income, during first-quarter 2009. A year ago, it generated $59.1 million in revenue and $2.3 million in operating income. But it took a $113,000 net loss during the most recent quarter, compared with $1.2 million in net income a year ago, primarily due to higher costs of sales.
This was despite providing its services to 9,926 merchants, up from 9,586 a year ago. So with a larger client base, what happened?
"Consumers are dining out less often and spending less money when they do dine out,” said Ron Blake, CEO of Rewards Network, in a statement. “Based upon our insights into the restaurant industry, we anticipated the decline in consumer spending and prepared for it by tightening our standards for purchasing dining credits, by purchasing fewer dining credits, and by managing our expenses.”
The company has shifted its focus to establishments that have lower price points, and it eliminated bonuses that had previously been available to member restaurants. But the cost of providing benefits to those lower-price-point restaurants added up: Rewards Network’s cost of sales rose from 51.8% of its sales a year ago to 53.1%, reflecting a drop in average transaction amount from $46.55 to $43.58.
The company reported 3.14 million member accounts which were active during the last 12 months, up from 3.06 million a year ago. And the number of qualified transactions rose as well, from 2.3 million to 2.6 million.
The Fortuneteller’s Take: Net losses are never fun. But Rewards Network took its net loss while increasing both the number of participating establishments and patrons. If the company is able to keep these consumers engaged, and then follow them as they move back to upscale restaurants as the recession’s impact is mitigated, it will be in a pretty good position. On the surface, at least, this appears to be a case of a marketer increasing market share at the expense of profits during a down time.
