Web Exclusive | December 2010 | By Barney Wolf

Holiday Plastic is Hot

Prepare for the post-holiday rush. One-third of all gift cards are for restaurants.
Consumers are buying more restaurant gift cards.
Bookmark/Share this post with:
Email this story Email this story
Printer-friendly versionPrinter-friendly version

For most retailers, the days after Christmas are awash with returned gifts. But many quick-service operators are seeing a flood of gift cards.

Consumer spending for prepaid cards at limited-service restaurants soared this year, and the growth was even stronger during the holiday season, according to statistics from First Data Corp., a global payment-processing company.

“[Quick service] is definitely outperforming the rest of the business sectors we follow,” says Michael Hursta, vice president of prepaid services for the Atlanta-based company. These restaurants can expect “a lot of gift card redemptions in the weeks after Christmas.”

First Data reports that year-over-year sales gains through mid-December for new prepaid cards at its quick-serve customers far outpaced the rate for the company's merchants overall.

And, in the two weeks after Thanksgiving, the dollar volume of new quick-serve gift card activations jumped 10.4 percent over the same period in 2009, while the increase was just 1.8 percent for all merchants.

Other processors reported similar results.

“The growth in the quick-serve market is significant,” says Michael Breetzke, a marketing manager for Scottsdale, Arizona–based Opticard. “As we looked at November and its growth over last year, we saw a good increase in activations.”

Americans were expected to spend an average of $145.61 on gift cards this holiday season, according to a forecast by BIGresearch for the National Retail Federation. One-third of the cards will be for restaurants, second only to department stores (39.2 percent).

The projected increase follows two consecutive years of declines. One reason for the predicted turnaround is the improving economy, experts say. Another is the confidence created by new card regulations that call for fewer fees and longer expiration periods.

“The provisions make gift cards more friendly and more like a gift, because you aren't forced to use them right away,” says J. Michael Collins, director of the University of Wisconsin's Center for Financial Security and assistant professor of personal finance. “People are more willing to give cards if they aren't going to lose value.”

Other factors are leading to the big gains at quick-service and fast-casual restaurants.

“[Quick serves] on the whole are attractive to American families right now, because they represent more value for their dollar,” says First Data's Hursta. “That extends to gift cards,” which were seen as less-expensive stocking stuffers.

The average quick-serve gift card's value this year is $14.37, up from $14.04 in 2009, First Data reports. Still, that's just a little more than half as much as the average retail card given as a present, according to the company.

Gift card incentives have long been popular for restaurants during the holidays, and more than two-dozen quick-serve brands this year offered bonuses—free food or discounts—to card buyers.

This is a good marketing tool, Hursta says, because gift card recipients typically spend more than the cards are worth. “They view it as free money, so if they get a $5 card, they'll end up spending $10,” he says. Recipients also may reload the cards with their own money.

In the two weeks after Thanksgiving, the dollar volume of new quick-serve gift-card activations jumped 10.4 percent.

Culver's, which sells nearly half of its gift cards in November and December, offered a voucher for a Double Deluxe Value Basket with the purchase of a $20 gift card.

“The goal is really to sell more gift cards,” says Paul Pitas, communications director for the Wisconsin chain. “We know that many of these cards are redeemed in January and February, which is helpful during some historically slower months of the year.”

Culver's is also one of 10 retail merchants offering gift cards electronically through First Data's eGift Social program. This Facebook application allows consumers to give an item, such as a burger or shake, via another person's Facebook account or e-mail address.

The program's other quick-serve participants include Boston Market, Burger King, and Cold Stone Creamery.

Culver's has six food items—priced from $2.75 to $5.50—that can be sent via eGift. The recipient learns of the gift in a Facebook message or e-mail that includes an account number and information about redeeming the eGift.

“We have over 100,000 Facebook fans, so this gives us another way to interface with some of our customers and offer them a way to sample Culver's and give gifts,” Pitas says. “We started it during the holiday season, but we're going to continue it all year.”