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« September 2006 Table of Contents

Trend Watch: The gift that keeps on giving

Restaurants find gift cards an effective way to build traffic and brand awareness

You have only to check your wallet for proof that gift cards are proliferating with abandon. Most of us carry at least three at any one time, and their presence is a reminder and an incentive to return to the retailers whose cards we carry.

If your restaurant does not offer a gift-card program, you might want to consider adding one. According to the National Res­taurant Asso­ciation, restaurant gift certificates and cards are No. 1 among consumers who were asked to rate their interest in receiving certain gifts, including clothing, books, CDs, DVDs, flowers, perfume, sports equipment and candy.

That interest was corroborated in a survey conducted by the Mar­keting Workshop, in which 47 percent of respondents indicated a higher preference for a restaurant gift card than any other type.

"The restaurant industry is one of the fastest-growing industries in the gift-card space," says Paul Panos, business development manager at Moneris Solutions.

"In 2004, 7 percent of all gift-card purchases were made at restaurants, and in 2005, that number went up to 12 percent."

Gift cards can have a very favorable impact on your restaurant's bottom line, says Karen Renk, executive director of the Incentive Gift Card Council.

"They drive business into the restaurant, and they're a form of marketing for a restaurant if the card is branded with its name and logo," she says.

"Every time that card is distributed, it's a marketing opportunity. And generally speaking, when a person receives a gift card to a restaurant and redeems it, they'll spend more money in that restaurant than is on the face value of the card."

Gift cards had their genesis in 1995, and their popularity has exploded. Tower Group data indicates gift-card dollar volume grew 50 percent from 2002 to 2003. Future growth is estimated to be more than $90 billion in sales by 2007.

A February 2005 post-holiday gift-card survey commissioned by De­loitte & Touche USA showed that the number of gift cards received per adult increased more than 20 percent from 2004, and that the redemption of those cards likely boosted retail sales by an estimated $18 billion.

"It's important to note that consumers are likely still holding on to another $9 billion of unredeemed value on their cards," says Tara Weiner, national managing partner of the Consumer Business Industries practice at Deloitte & Touche USA.

The survey found that 33 percent of respondents received at least one gift card to a restaurant or fast-food establishment, valued between $32 and $78.

Sixty-two percent of gift-card recipients spent more than the face value of the card, which led to the survey's conclusion that "the unused cards, once redeemed, have the potential to add another $13 billion or more to retail sales, based on the buying trends discerned."

There are few situations where it doesn't make sense to have a gift card program, says Panos. One is a cash-based business that does not accept credit cards.

"You'd need a terminal that already accepts credit cards, or a PC-based solution that would allow software to reside on the PC or a Web-based solution," he says.

It is easier to choose a package from one of various gift-card-program providers than to try to create a gift card program yourself.

"The gift-card world is still evolving," Panos says. "It hasn't found a standard format, especially in the small-business world, and pricing varies from a per-card basis to a per-transaction basis."

Several legalities also must be considered before finalizing a gift-card program. For example, certain states prohibit the appearance of an expiration date on the gift card, and service charges have to be disclosed.

"It's best to start with your attorney," cautions Renk.

One seafood restaurant chain that has done a commendable job on its gift cards is Darden, parent company of Red Lobster.

"They have a very successful gift-card program, and theirs is a restaurant gift card of choice, especially in the incentive field [for employee motivation or rewards]," Renk says. "That's because the gift cards are interchangeable at the company's various restaurants, which makes them very effective, especially for an incentive application."

Darden initiated its gift-card program in September 2000 and sells its cards at major retailers like CVS and grocery stores, online, at its restaurants, on order by telephone and in bulk through its corporate offices.

"[Gift cards do] have an impact on our business," says Denise Wil­son in Red Lobster's media-relations department, though she can't comment on how great the impact is.

Not everyone is thrilled with Darden's gift cards, however. The Federal Trade Commission notified Darden Restaurants last month that the company was violating a law prohibiting unfair or deceptive practices regarding gift cards.

That's because Darden purportedly failed to disclose that its cards lose value because of a dormancy fee if not used for 24 months.

Darden indicated that the FTC had suggested a payment of $31 million to settle the issue, and that if negotiations were unsuccessful within a 30-day period, the FTC would sue the company in federal district court, according to an Aug. 3 article in the Orlando Sentinel. Calls to Wilson were unanswered at press time.

Buckhead Life Restaurant Group in Georgia moved eight years ago from paper gift certificates to a gift card it calls the Ultimate Card. The program "is definitely a significant part of our bottom line," says Stacie Hanna, Buckhead's director of marketing.

Valid at all 12 of the group's restaurants, the rechargeable Ulti­mate Cards can be purchased online, by telephone, at the company's corporate office and at the individual restaurants.

"Redemption of our cards is extremely high, and that's what we want, because it's a great marketing avenue," she says.

"When the cards are in their hands, it makes customers choose to dine in our restaurants."

The bottom line is that gift cards are desirable, Renk notes. "They're convenient, they offer choice, and they're preferred over giving cash."

Contributing Editor Lauren Kramer lives in British Columbia