When restaurants outdo each other to attract Christmas gift card shoppers, profitability takes a big hit.
How deeply embedded has the deal-of-the-day discounting mentality become in foodservice? Now it’s crossing over into a new realm. Four weeks out from Christmas, a large number of restaurants are offering 20 percent kickbacks to customers who purchase gift cards. Do these operators wind up actually making money?
Gift cards used to be a can’t-lose proposition for restaurants. They brought in cash up front, lured new customers into the dining room and brought in additional revenue when card-users spent more than face value. Best of all, sizable rates of nonredemption allowed operators to sometimes pocket significant sums without having to provide a service.
All these factors still hold true. But now operators find themselves in a gift card price war, offering ever-bigger deals to convince gift-givers to buy their restaurant’s card instead of those of a competitor.
Some of the offers are modest. Buyers of a $25 Cheesecake Factory gift card receive a “Slice of Joy” card for themselves, good for a slice of cheesecake. Those who purchase $50 in gift cards from BJ’s Restaurant receive a collectable mug. Buy a $25 card from Jamba Juice and you get a free smoothie, while Ben and Jerry’s provides a free scoop of ice cream for a $10 card purchase. Customers at Ruth’s Chris have to buy at least a $250 gift card to get the 10 percent bonus the steakhouse chain is offering.
On the other end of the spectrum, Ruby Tuesday gives out $15 coupons for a $50 card purchase—that’s 30 percent. Fast casual chain UFood Restaurant Group rewards purchasers of $20 cards with a $5 coupon for their personal use, a 25 percent kickback.
Most operators seem willing to give back 20 percent of the take from a gift card purchase. Famous Dave’s and IHOP both provide a $5 coupon for purchasers of $25 cards. Buyers of $100 gift cards at Brio Tuscan Grille, California Pizza Kitchen or Ted’s Montana Grill get $20 gift cards as their personal reward.
These are big discounts—or they were before deal-of-the-day services that provide even-bigger discounts came along. What the gift card wars are telling us is that both operators and customers now expect deals to be a routine occurrence in circumstances where they never were before.
It’s scary stuff. But at least some operators are savvy enough to put narrow “use-by” windows on their gift card bonus rewards. Customers who receive a $20 bonus card for buying a $100 gift card from Carrabba’s Italian Grill have to use it between 1/1/12 and 2/10/12. Cheesecake Factory free slice recipients have to redeem their reward between 12/26/11 and 3/31/12. Moves like these may well wind up creating additional revenue during the slow winter months, making the up-front discount worth it.
We hope coupon stackers don’t get wind of some of these deals. How would you feel about a customer who pays for his or her Groupon deal (which will net you only 25 percent of your full menu price) with a gift card on which you’ve already absorbed a 20 percent loss as an incentive paid to the card’s initial buyer? You wind up providing a meal for a measly five cents on the dollar.
If this scenario could happen at your restaurant, think about putting a “not valid with any other offers; gift cards cannot be applied to this purchase” disclaimer in your daily deal offers. Otherwise, you could wind up almost giving meals away.