Restaurants Hunger for Gift Cards

  Eight years ago Donna Giannis introduced the concept of gift cards to managers of her restaurant. She was greeted with blank stares and lots of questions about how value could be stored on the cards.
  "They were so used to seeing the values written by hand on gift certificates," says Giannis, assistant to the president of Chicago restaurant chain Carson's Ribs. "This was completely foreign to them."
  Today, Carson's has one of the most popular restaurant gift card programs in Chicago. "I would say we easily sell more than 2,500 gift cards annually. A lot of cards fly out of here during the holiday season," Giannis says.
  Carson's is not the only restaurant having success with gift cards. Indeed, restaurant gift card programs rapidly are growing in popularity, according to a study of 500 consumers conducted by Technomic Inc., a restaurant-consulting firm. Of those surveyed, 35% reported giving restaurant gift cards as a gift last holiday season, while 43% said they had received a restaurant gift card as a present.
  When it came to giving the gift of food or a traditional gift, nearly 70% of gift card givers said the cards were a better choice than regular gifts, while 97% of those that received the cards last year said they hope to receive the cards again this year.
  Of those surveyed, 40% said they plan to purchase more restaurant gift cards for the 2006 holiday season.
  "Consumer acceptance of gift cards, coupled with a growing hunger for experiences rather than things, creates an excellent opportunity for restaurant companies," says Michael Allenson, director of Technomic's Center for Consumer Research.
  Though consumers have found the cards to be a convenient way to give gifts, restaurant owners such as Giannis say the cards are an added service to customers and help to spur new business. "In some cases the cards are given to friends who have not eaten here," she says. "So they (the cards) are helping to introduce people to our business."
  Besides generating new business, restaurants are experiencing an uptick in business beyond the holiday season because of gift card sales. While these businesses receive a lot of foot traffic during the holidays from hungry shoppers, they were seeing gift redemptions beyond January.
  According to the Technomic study, less than half of the value loaded on the cards was spent by the end of January, meaning customers had more bucks left to redeem at a later date.
  Restaurant managers say a benefit of moving from paper certificates to gift cards is the reduction in human error in recording redemption amounts and in the fraud commonly associated with paper gift certificate programs. Merchants say that when gift certificates are used, there is the potential for counterfeiting, employee fraud and attempts by customers to forge handwritten amounts.
  "[Gift cards] prevent you from having to wonder whether or not an employee pocketed money when a gift certificate was redeemed," Giannis says.
  When Giannis first began offering gift cards, she used Franklin, Tenn.-based Valutec Card Solutions. However, Valutec's fee structure cut into profits. Carson's paid between 25 cents and 30 cents each time a card was loaded with value or was used for payment, says Giannis.
  Giannis stuck with Valutec for six years because she said the company was the "only game in town" at the time. Since then, she has turned to Nova Information Systems, a subsidiary of U.S. Bank's merchant services division, to manage her gift card program. Carsons pays 33 cents for each four-color, high-gloss gift card it purchases. The cards are printed by Chicago-based TB CardWorx LLC.
  As card programs continue to grow and mature, Allenson expects to see more card personalization by restaurants offering reloadable gift cards. "Reloadable cards, which require a customer to sign up for the card program, will help restaurants identify and track consumer habits," he says. "This will also help restaurants with marketing and outreach efforts."
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