Roundup: Loyalty in Q2 2022 Earnings Reports

We dug loyalty insights out of Q2 earnings, so you don’t have to — including a firm whose choice to shutter their loyalty scheme isn’t what it seems…

US home improvement retailer Lowe’s ($LOW) earnings report beat analysts’ expectations yesterday, August 17, with sales headwinds outweighed by operational efficiencies. One of the headline figures is the surge in sales to professionals and contractors — driven, CEO Marvin Ellison says, by the success of their MVP Pro Rewards scheme.

"Some thoughts on the Pro loyalty program,” Mr Ellison said. “We talked about the 30% comp growth in Pro and 37% growth on a two-year basis."

"We think our new MVP program is incredibly successful in the early stages. And so, how do I define that? Customers that are engaged in Pro loyalty and credit spend 3x more than Pros that don't. To me, that's the key metric that we look at.” 

“The events that we've launched this year, leveraging points and Pro loyalty have exceeded our expectations, and we have a lot more to come."

A key aspect of the Lowe’s loyalty success is tying rewards to the customer profile. Mr Ellison explained: “Because time is money for Pros, one of the most valuable ways that we can serve them is by saving them time with enhanced fulfillment.”

It’s this outcome-focused mindset that is key to success in building a loyalty scheme.

American fast-casual dining chain Sweetgreen ($SG) had mixed results in Q2, with sales lower than expected and forecasts for the rest of the year cut. However, they did offer a series of initiatives to return to profitability. One remark from Sweetgreen's CFO, Mitch Reback, stood out.

Mr Reback said: “Restaurant-Level Profit Margin was 18%, an increase of roughly 300 basis points versus the prior year period, primarily due to greater sales leverage associated with our recovery from the impact of COVID-19 pandemic… a 6% benefit from menu pricing increases… and the termination of our loyalty program.”

According to the Form 10-Q filed by Sweetgreen on August 10, ‘gift cards and loyalty liability’ closed at $1.6m in June, versus $1.8m in Q4 2021. This hardly seems like a huge reduction across six months, or one that would move the needle a lot on a per-restaurant margin, especially when averaged out across almost 1,000 locations. 

Sweetgreen did announce it was closing its loyalty program in March 2021, which had rewarded its customers with $9 in credit for every $99 they spent. A blanket 10% cashback deal is extremely generous and probably was giving away a bit too much to make business sense.

However, it’s technically incorrect to say they’ve ‘terminated’ their loyalty program. What they’ve done instead is replaced it with a premium loyalty program, with a heavy focus on gamification and personalization. 

The Sweetpass subscription offers loyalty benefits to members; for $10 a month they get access to a $3 credit, a speedier in-store experience and order personalization options. 

In addition, they trialed a four-week Summer of Rewards and Challenges, which gave users bonuses for completing healthy eating challenges. The scheme was so successful they plan to roll it out as a wider loyalty program in 2023. 

So, while the headline announcement might be ‘Sweetgreens increased margin by cutting loyalty’, the real story is that loyalty done right is a smarter bet than a generic, impersonal system. 

When you think of a successful loyalty program, Starbucks ($SBUX) is definitely one of the first that comes to mind. Starbucks’s loyalty scheme is so successful, it has deposits of around $1 billion. 

To put that into context, consider that 85% of US banks have less than $1B in assets. In their Q2 earnings 2022, they announced that they now have 27.4 million 90-day active members, an increase of 13% YoY. 

And with a recent announcement of a foray into Web3 for their loyalty program, it’s definitely one to watch — how will another layer of financialization impact The Bank of Bucks?

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