In 1984 Melvin Chasen bet that consumers would dine out more if they could pay less.
His idea took shape as the Transmedia card, giving discounts of 20% to 25% on customers' monthly credit card bills.
Mr. Chasen, president and chief executive officer of Transmedia Network Inc., Miami, has collected on that gamble, and the Transmedia card has become recognized by consumers and merchants in the United States, Europe, and Asia.
The dining-discount company has grown by leaps and bounds, from 125,000 cardholders and 1,500 participating restaurants five years ago to nearly a million cardholders in 1996 getting discounts at 7,000 restaurants and other travel and entertainment merchants.
But Transmedia's success has bred challengers that offer consumers more convenience-they may not need to present a private-label card at a restaurant, as they do with Transmedia-and Mr. Chasen's company is showing some strains.
Net income for fiscal 1996, which ended in September, declined 39%, to $2.5 million. It was the first decline in five years. Its stock price is currently around $5 a share, down from its 52-week high of $9 last April.
"We're patient," said Mr. Chasen of the stock price. "It'll come back."
Mr. Chasen, 68, has done many things in his career, from selling security alarms to heading his own mergers and acquisitions company. He backed into his current line of work when the investors in Transmedia insisted he run it.
The venture opened with $500,000 in private placement capital. In 1986 a stock offering netted $1 million, and in 1992 an additional private placement brought in $5 million more.
As Transmedia has blossomed, three other players have entered the market: In Good Taste in 1985, A la Carte International Inc. in 1992, and the Signature Group's Dining a La Card in 1993.
"When a business that has paved the road indicates that it is highly profitable, it is going to have imitators," Mr. Chasen said during a recent interview in his New York regional office.
The rivals are trying to exploit what they see as Transmedia's weakness- its status as a private-label card.
Transmedia cardholders tie the discount service to a credit card. When the charge shows up on the credit card bill, the discount has been deducted.
Meanwhile, Chicago-based Dining a La Card appeals to people's desire not to have to reveal their membership in a discount plan. Its 25% discounts automatically appear on any of three credit cards that members designate. Customers pay the full amount of the bill, then receive a reimbursement check.
"The Transmedia card definitely gives good value, but dining with business associates, I'm extremely reluctant to use a Transmedia card," said Glendale, Calif., restaurant Victor Samson, who frequently takes guests to other establishments.
Just presenting a MasterCard or Visa card, "there is less explaining to do," he said.
Dining a La Card began talks with Transmedia about seven years ago, hoping for a joint licensing agreement. Those discussions fell through, said Mr. Chasen.
"We could discuss from now until doomsday which program is better," said Mr. Chasen. "The important difference is that Transmedia is an identity and a brand name."
Mr. Chasen said that if a bank wanted to run a program jointly with a discount company like Dining a La Card, it couldn't be assured that its promotional expenses resulted in increased use of its own credit card. Consumers could be using other cards for payment.
Collin McKenny, head of Star Banc Corp.'s credit card program, initiated such a relationship with San Diego-based A la Carte International this month. It is described as an enhancement of the Cincinnati banking company's credit and debit cards. Neither the bank nor the cardholders pay a fee for the service.
Transmedia attracts restaurateurs in part through interest-free loans. For example, Transmedia will lend $1,000 to receive food and beverage credits of $2,000 that are available to cardholders eating at the participating restaurant.
The restaurants are also listed in the newsletters Transmedia distributes to members every six weeks.
"If you are running a restaurant you cannot operate for a long time by giving 50% in discounts," said Brian Tulloch, chairman and chief executive officer, Bankcard Rewards International, the creative arm of A la Carte International Inc.
In the A la Carte program, restaurants pay commissions of 20%, and cardholders receive 20% discounts. The company has five programs in 17 U.S. cities. It has signed up 3,500 restaurants and says it will reach 9,000 this year.
A La Carte International, like Transmedia, usually issues a private- label card, as does In Good Taste, also based in Miami. However, the latter's customers do not have to register a credit card, and monthly bills show 25% reductions on food tabs, excluding tax and tip.
"One of the reasons for the success of our program is we are not like loan sharks," said Mr. Tulloch of A la Carte.
But not every restaurant in the Transmedia program accepts loans. Others just pay commissions in exchange for Transmedia's advertising.
Cindy Smith, a partner in Spartina, a Mediterranean eatery in New York, signed up eight months ago. "Transmedia's established name has increased customer loyalty," she said.
"I could spend $10,000 on my own advertising and still not get an increase in customers," she added.
Looking ahead, Mr. Chasen said Transmedia must stay current with what customers want. "The more that we can offer consumers, the more we can expand," he said.
Indeed, Transmedia has branched out into a full-service discount company, offering everything from reduced-rate hotel rooms and ski trips to the ever-popular frequent-flier miles.
At Jiminy Peak, the mountain resort in Massachusetts, deals on ski-lift tickets generated $12,000 of business in the first week of the promotion.
Transmedia cards are also cobranded with Carnival Cruise Lines and with several prominent newspapers including The New York Times and Chicago Tribune.
"Transmedia's method of doing business hasn't hurt it, but it has had a difficult time replicating the success it has had in markets like metropolitan New York and Florida," said John T. Mahoney, senior analyst at Raymond James & Co., Tampa.
The New York market generates 39% of Transmedia's revenue. It has been expanding since 1990, franchising its concept from New Jersey to California.
In 1993 Mr. Chasen also granted licenses to operate Transmedia in Europe and the Asia-Pacific region.
In 1996, Transmedia bought back its West Coast and Chicago franchises, preferring to apply its own capital and management to more aggressive marketing.
California's Mr. Samson has accepted the Transmedia card in his four Don Ricardo's restaurants for two years. A year ago he added Dining a La Card.
The latter "seems to be a little more used in Southern California," said Mr. Samson. "But as a restaurateur I get more money back from Transmedia."
Accepting both discount cards has also contributed to an increase in business, said Mr. Samson, a restaurateur for 20 years. He said most restaurants in Southern California are reporting sales as either flat or down from the year before.
"The Southern California area was doing less business than we were doing in Detroit," said Mr. Chasen. "But in three years, California has the potential to generate the volume of what the whole company is doing now."
"You can't always predict the short-term effects of expansion," he added, "but the company's future is brighter than ever. Once this starts to become apparent, those shareholders today who choose to maintain their shares will be amply rewarded."
Mr. Chasen is continuing to diversify, establishing a presence on the Internet and in the card processing business.
Transmedia has replaced its old terminals in some restaurants with ones that accept all major credit cards, thus extending its data base marketing capability. Mr. Chasen intends both to sell the information Transmedia collects and to build new products from it.
But Mr. Chasen hastens to add that he hasn't forgotten Transmedia's core business.
The slogan-"get restaurants, get cardholders, and keep track of everything"-is emblazoned on T-shirts to remind him and the company's 80- person sales force of its fundamental concerns.
"They are talented, compensated, and motivated," said Mr. Chasen of his sales team. "They don't just sign (restaurants) and leave them."
Sales people often get involved in finding new chefs or maitre d's for their clients, and they do public relations work to get local media attention and reviews.
"Everything is in place to take advantage of the industry's opportunities," Mr. Chasen said. "Execution is the key."
