Paper Cuts

Efficient, convenient gift cards have become important promotion tools

By Margaret Sheridan, Senior Editor -- Restaurants & Institutions, 8/1/2003

The long-promised paperless office may not yet be a reality, but paper retail and restaurant gift certificates gradually are giving way to prepaid electronic gift cards and reloadable debit cards. Both types of branded cards integrate with point-of-sales systems, reducing handling, processing and overhead, and providing near-instant accounting.

For many casual-dining chains, gift cards represent significant revenue. O’Charley’s, for example, reports that 2% of total food-and-beverage sales in 2002 came through such cards, translating to nearly $9.6 million in prepaid revenues. Claim Jumper tallied 4% of sales via gift cards last year.

Fatz Cafe switched from gift certificates to gift cards in 2001 as a matter of convenience. “It’s easier to track sales, and customers appreciate the compact size, like a credit card,’’ explains Lynn Burton, director of marketing strategies for the 19-unit, Taylor, S.C.-based chain, where gift cards account for 3% of total sales.

Fatz Cafe customers can purchase reloadable cards at any of the restaurant locations. A toll-free call allows them to check unused balances. Burton says each unit handles marketing of its cards, but the casual-dining chain’s headquarters runs a company-wide internal promotion: The unit with the highest card sales and reloads during set weeks receives 10% of total card revenues for that period.

The chain also discounts large orders of gift cards placed by local businesses. “Some companies give them to employees for Christmas or as birthday presents,’’ says Burton.

Cracker Barrel Old Country Store offers gift cards in denominations of $10, $25 and $50. Launched in October 2001, the program has been a success, with more gift cards sold than comparable paper certificates the previous year, according to Dawn Rutledge Jones, spokeswoman for the Lebanon, Tenn.-based chain. In 2002, card sales jumped 35% over paper certificates, and 2003 sales are running 18% above last year.

The program is marketed online, at checkout counters, on table tents and billboards, with the majority sold during the December holidays. “And gift cards are faster to use than credit cards. Just swipe. No handwriting,’’ adds Jones.

ONE WORD: PLASTIC
Paper gift certificates were standard issue at Red Hot & Blue until last December, when President and Co-founder Robert Friedman watched competitors reap the benefits of increased holiday gift-card sales. That’s when he retired the 35-unit chain’s handwritten certificates and switched to plastic.

Because paper certificates are labor-intensive, requiring managers to write forms by hand, record serial numbers and make change for customers, the process discourages guests from buying them. “Cards ended a paperwork hassle for our chain,’’ he says. “Cards mean no extra bookkeeping. No logging in paper certificates. No danger of theft or duplication.’’

Gift-card sales average $10,000 a month per unit, Friedman says, higher during the December holiday season. Leading the way, two units reported 300% year-over-year increases in sales of gift cards versus paper certificates during the 2001 holidays.

TIME TO RELOAD
Fatz Cafe’s gift card can be replenished, converting it from prepaid gift card into a stored-value card. Starbucks was a pioneer in selling reloadable cards, introducing its stored-value card in November 2001 and reporting that 5 million had been activated by September 2002. Customers can opt to have cards automatically reloaded via personal credit card through the chain’s Web site. The coffee leader also has been trumpeting the arrival later this year of its new Starbucks Card, which functions both as stored-value and all-purpose credit card, with purchases earning rewards.

Convenience-store chains including 7-Eleven and Sheetz, which long have sold prepaid phone cards, now are issuing their own stored-value cards, usable for buying foods and gasoline.

Reloadable cards are the future, adds Christy Geiling, spokeswoman for Carlsbad, Calif.-based Rubio’s Fresh Mexican Grill. Instead of buying a new card or tossing one in the trash, the reloadable is more efficient and practical.

“When you offer a prepaid gift card, customers use it for special occasions,” she explains. “When they have money on a reloadable card, guests use it more. They don’t need cash or to go to an ATM machine. The future of the reloadable card is endless. Think of the information you can put on it.’’