On the subject of how the public can help restaurants on a pre-holiday industry-related Zoom call, one participant wryly admitted: “Gift cards scare me, it’s great capital up front, but then my fear is that they’ll use them.”
Brent Frederick, CEO of Jester Concepts, had the opposite take: "We do get the cash now but more importantly, we are creating brand loyalty at the same time and ensuring that the customers come back in. Our hope is that they spend more than the gift card amount when they do return. If they do not return, which would be very unfortunate, then we aren’t out anything in that scenario either.” A 2018 survey by YouGov found that 20 percent of people surveyed said they forget to use gift cards, while 29 percent said they have a card right now in their wallet that they’ve never used.
Gift cards have traditionally been a great revenue stream during the holidays as individuals buy the cards for friends, family and business associates. They’re an easy, thoughtful gift, and in 2020, they were a lifeline for many a restaurant whose sales were a fraction of what they were the previous year.
Frederick was on the right wavelength when he said the recipients of the cards tend to spend over the face value of the card. Around 80 percent of consumers who redeem gift cards at fine-dining and fast-casual restaurants spend more than the value of the card, a study at First Data found. And since gift cards are now being purchased primarily online, they can be delivered to the recipient without the restaurant paying for a physical card, and without the buyer having to physically pick up a card.
According to a Chase Ink study, around 35 percent of small businesses say they would have closed during the pandemic without e-commerce.
Popular downtown Minneapolis restaurant, Hell’s Kitchen, has been closed since March, since having its dining room in the basement of an office building makes it difficult to do takeout. “Interesting thing,” said Cynthia Gerdes, CEO of Hell’s Kitchen. “My GM called the day before and said,’ holy cow.’ Online orders for products are eight times more than last year. But gift cards are stable, is that because of people’s fear they won’t be used?”
And even though Hell’s Kitchen will be around for those gift cards to be used in 2021, “I’d rather get an order for a product and get it out the door and have our obligation over.”
But there are all sorts of upsides to gift cards, as well, she reiterated; it may be one way to get people to come back downtown.
But with flat sales for gift cards, Gerdes pointed out, “That’s made me think we [all] need to let people know we’re going to survive.”
Parasole Holdings, parent company of steak concepts, Manny’s and Pittsburgh Blue, as well as the Good Earth and Salut, has been particularly aggressive with gift cards around the holidays. “This year, we projected 50 percent of what we did in former years,” says COO Donna Fahs. “As of yesterday (December 8), we were on track with that percentage in comparison to last year's sales at the same time. That's remarkable given the current climate of our industry. That said, most of the holiday gift cards were sold during the last two weeks before Christmas. It's doubtful we will keep that 50 percent margin, with the unlikelihood that our stores will reopen for dine-in before the New Year, we are bound to lose a significant number of sales we normally do in the stores.”
The purchase of gift cards, she added, is valuable in the good times and even more so in the current times. “As you know, the cash we receive from the purchase of gift cards is helpful in keeping ahead of payables and any debt on the books,” she said. “This is especially true this year when we have very limited sales with take out only being offered at a few of our locations: the fixed costs of utilities, insurance, etc. are expensed whether we are open or not.”
A report from an industry payment network provider, Blackhawk Network, said that consumers were projected to spend 29 percent more in 2020 on restaurant e-commerce gift cards than in 2019. A portion of the increase could be due to people supporting restaurants in a dire time, and help get them through to the warmer weather and a widespread vaccine use.
A bright spot for Minnesota restaurants up north was a campaign by the city of Duluth to shift its twice-a-year Eat Downtown promotion to a Gift Card Edition, according to an article in the Duluth News Tribune.
Another reality of gift cards is that people forget they have them or never get around to going to the restaurant or shop. Around 3 percent of gift card dollars are never redeemed, according to an estimate from the Mercator Advisory Group. For instance, they say, in 2019, consumers paid $98.6 billion to load cash on cards, which translated into almost $3 billion left unspent on the cards. A gain for the restaurant or store.
One final note on the origins of gift cards: According to Smithsonian magazine, the snooty Neiman Marcus department store was the first to sell the cards—discreetly. Blockbuster Video took that a step further by displaying the plastic cards in their stores to avoid people getting creative and printing off duplicate copies of the paper version. Then it was Starbucks, who in 2001, introduced cards that could hold a balance and be used more than once—and reloaded after the last sip of coffee.