With the bleak economy threatening to dampen holiday shopping and rob restaurants of lucrative customer traffic, operators are waving the value flag over their gift card and loyalty programs in bids to get Grinch-like guests to eat out.
Retail analysts are projecting one of the worst seasons ever for holiday shopping, which typically shifts into high gear from mid-November through December. However, job losses, declining home values and consumers’ reluctance or limited ability to buy on credit are expected to force retailers to fight ruthlessly for whatever dollars will be spent this year.
Rather than discounting, many restaurants are adding value through gift card programs or membership reward benefits to guests who will no doubt be hungry for good deals.
In its fourth annual Holiday Forecast, Stamford, Conn.-based Archstone Consulting is projecting that holiday retail sales this year will rise by a nominal 0.5 percent to 1 percent, lagging behind the core inflation rate of 2.6 percent.
Retailers and manufacturers are bracing for the “toughest holiday sales period since 2001, and perhaps since the ‘Volcker recession’ of 1981,” said Todd Lavieri, Archstone’s president and chief executive.
Where previous downturns led many consumers to use “shopping as therapy,” this year they are expected to have “almost an aversion to consumption,” he said.
However, while gift card sales are expected to dip overall by 5 percent to $25 billion this holiday season, restaurants’ cards are likely to be the most-purchased in the category, the Archstone survey said.
That’s because buyers are expected to shift what would have been purchases of other kinds of gift cards toward household necessities, gas and small indulgences, like dining out.
One low-cost tactic that is expected to grow in popularity this year is the offer of free bonus gift cards with the purchase of a certain amount in gift cards.
For example, Daily Grill, the 24-unit upscale-casual brand of Los Angeles-based Grill Concepts Inc., is offering free $10 gift cards for every $50 in gift cards purchased.
The offer is available through Dec. 28, and the bonus cards can be redeemed anytime next January and February.
“The gift cards are a favorite during the gift-giving season as many people enjoy giving their loved ones an ‘experience’ rather than merely an item that has limited use,” said Philip Gay, Daily Grill’s president and chief executive. “We incorporated an incentive program designed to make the gift card more appealing to a growing number of consumers concerned with finding value during these trying economic times.”
For the past two years, the chain has offered paper gift certificates as a reward for gift card purchases, but the $10 bonus this year is the highest amount they have offered, Gay said.
Paper certificates were hard to track and people tended to lose them, he added. However, he estimated that the chain saw about a 60-percent return rate.
This year the bonus comes in the form of a swipeable stored-value card, which will make it easier for the chain to track usage.
Another casual-dining chain, Z’Tejas Southwestern Grill, based in Scottsdale, Ariz., which has 10 units in five states, is offering a $5 bonus gift card for every $25 card sold through Dec. 24.
The beauty of such promotions is that customers who walk in with free bonus cards in hand are more likely to trade up in their menu selections, said gift card specialist Walter Paulsen, president of Card-Fact, a legal-compliance and consulting firm with offices in Columbus, Ohio, and Palo Alto, Calif.
“Daily Grill might have a great burger, but a customer who walks in with a free $10 gift card might be more inclined to order a steak,” Paulsen said.
Such promotions, however, are not without pitfalls, he noted.
Restaurant operators should make sure they are accounting for the promotional cards separately from their gift cards sold.
In some states, for example, unredeemed gift cards revert to the state after a certain period. Restaurants that cannot show which cards were paid for may be held liable for those they gave away for free.
Some states, including California, allow the recipients of gift cards to demand cash for unredeemed amounts under $10. Free bonus cards would be exempt from such requirements because the guest didn’t pay for it, but Paulsen recommended that restaurant operators print a disclaimer on the card making that clear and specifying that the bonus cards may be handled differently than paid-for gift cards.
Other chains are looking for ways to reward loyalty with the offer of freebies.
In July, 1,000-unit T.G.I. Friday’s launched a new customer loyalty program called “Give Me More Stripes,” offering benefits such as a free appetizer or dessert upon signing up; one “jump-the-line” pass to avoid a wait for tables; an $8 certificate for every $100 spent, excluding alcohol; and early notice of specials and new menu items.
The program was later extended to offer free food to members, such as Friday’s Chips and Dip or Hummus and Chips, or a free snack bag of Cheddar and Bacon Potato Skins during lunch.
Friday’s previous Gold Points program had about 300,000 members when the switch was made to Give Me More Stripes. Now the chain has more than 500,000 members, and plans to unveil a holiday gift card program soon.
A survey conducted by Harris Interactive for T.G.I. Friday’s in April found that 87 percent of adults found membership in a restaurant recognition or rewards program appealing. Of those, 79 percent said free food or drink is an appealing part of such programs.
Starbucks Coffee this month is also scheduled to launch its Gold Card program, a new-and-improved rewards system that offers better benefits and payment flexibility, but costs $25 for membership.
Previously, the Starbucks Card Rewards program offered such benefits as free beverage customization options, free refills on brewed coffee, a free drink with the purchase of whole-bean coffee and up to two hours of free Wi-Fi access per day.
Users of the Rewards Card, however, must pay for at least part of their purchases with the card. With Gold Card membership, guests can pay any way they like.
For their $25, Gold Card members receive 10 percent off most purchases in participating Starbucks and a free drink when they buy the card.
Analysts have noted, however, that a $250 per year spending pattern—roughly five transactions per month—would be necessary to recoup the cost of the card. And some argue that Starbucks is “preaching to the choir” by giving away margins to its most loyal customers, who would be most likely to pay full price anyway.
The Cheesecake Factory in October launched its rewards program, offering guests a card that entitles them to either a free slice of cheesecake or $10 off on their next visit. That effort is similar to one by California Pizza Kitchen earlier this year. Dubbed a “Thank You” program, CPK gave guests sealed envelopes with various prizes inside, including free first-class airfare for two and up to $25,000. To redeem the prize, however, a manager had to open the envelope on a subsequent visit.
CPK officials credited the Thank You program with significantly lifting same-store sales, which rose 1.4 percent for the quarter ended June 29. Without the program, the chain would have seen same-store sales drop 1 percent, company officials estimated.
Some shopping center landlords are attempting to battle holiday spending doldrums by partnering with restaurants.
The Victoria Gardens complex in Rancho Cucamonga, Calif., recently launched a frequent-dining campaign called “Dine VG.” Shoppers who sign up for membership receive exclusive special offers and promotions on weekdays, ranging from free glasses of wine to the invitation to a single’s night at a bar, at participating dining spots within the mall.
Members also accrue points toward more rewards when dining at the mall’s restaurants by turning in receipts at the guest services desk. Participating restaurants include CPK, Yard House, Johnny Rockets, P.F. Chang’s China Bistro and T.G.I. Friday’s.
