July/August 2005

Competitive advantage, off-the-chart consumer demand, effective marketing and evolving technology shape the menu for this unique payment instrument

Gift cards make good business sense.  Overhead is low, returns are high and consumers want them.  Sales have surged year over year and even changed the face of retailing.  The once traditionally slow period in January now experiences a double-digit sales gain due to the redemption of gift cards received during the holidays.  Fast-serve concepts are launching new endeavors.  The trend continues to grow, and restaurateurs who aren’t leveraging it are behind the curve.  Understanding basics, taking a logical approach in selecting a provider and fully maximizing gift card marketing opportunities are keys to success.

Operational Features Determine Solution Selection

Restaurants should first be looking for a gift card solution that integrates with their current payment device(s) or operational system.  Furthermore, scale, diversity and the degree of required hands-on administration play a role in the decision.   Ask these critical questions:

What are the fees associated with implementing a gift card program?  Cost structures can be daunting however the competitive nature of the business gives restaurant operators the negotiating advantage.

What back-end reporting functions are available and in what form?  The best gift card solutions provide total sales, card activations by date, redemption activity, individual card history and inventory management functions in real-time. 

What customer and cardholder services are available?  A provider should be available during restaurant business hours to support staff and cardholders.  Does an Internet web site or telephone IVR (interactive voice response) system provide card balances and reload options?

How will the processing system meet growing demand for more cards and redemptions-particularly with new restaurant locations?

How automated is the system and how much administrative activity is required? Choose a turn-key program to avoid the need for additional labor.

Is the system redundant with a completely separate, off-site backup to avoid uninterrupted service?

If a restaurant is franchised or has multiple concepts that utilize separate processing or operating systems, does the provider’s technology support this more diverse infrastructure?

Is the system built on an open architecture which can be modified in the future as needed?

What about Gift Card Laws?

Compliance with state gift card laws is another important consideration.  The recent popularity of gift cards has led state governments to enact new consumer protection legislation and highly-contentious media coverage has ensued as a result.

In Georgia, expect a new law to go into effect in October which states that service fees and expiration dates must be clearly communicated on the gift card itself.  That’s good news to those who charge service fees as their legality is currently being contested in Georgia’s courts.  “By mandating that fees be printed on the card, the state is, in essence, condoning them,” says Mike Hobbs, an attorney with Troutman Sanders in Atlanta, who advises clients on gift card laws, policies and procedures.

On merchant-issued gift cards, however, some question that charging a consumer fees on something that was pre-sold and for which cash was already received might not be in the giving spirit of gift cards.  If the consumer doesn’t use the card for awhile, a restaurant hasn’t lost anything and even has a chance to earn interest on the unspent funds, commonly known as “float.”

At some point, however, there has to be a way for a merchant to get the liability off the books which means a gift card must expire.  Two years is generally recognized as a reasonable timeframe for a consumer to spend their card–anything lengthier can begin to create administration overhead that outweighs the benefits of the program.  When necessary, expired cards can be reissued at management’s discretion.

Another question is what should be done with money left on expired gift cards, commonly referred to as “breakage.”  The allocation of that money varies by state.  In many cases (as in Georgia), it goes to the state as unclaimed property-the legal term for which is “escheatment.”

 Every restaurant’s needs are distinctive.  Before launching a program, and periodically on a review basis, an operator should solicit the advice of their accountant and legal counsel to be certain their procedures are sound and in accordance with applicable laws.

To Market We Go

The way to maximize the success of a gift card program is to promote it well.  Innovators, regardless of their size, will continue to lead the charge.  The good news is that the approach can be creative without requiring a hefty advertising budget to make an impact.  Here are some basic ideas:  

Give the card a look that’s unique.  Consider distinctive special processes available now-metallic inks, translucent designs or die-cut shapes.

Don’t forget packaging as an element to boost the effectiveness, value and creativity of the gift card as a marketing tool.

Use gift cards as a primary strategy for fulfilling community donation and fundraising requests.

Particularly in the restaurant industry, gift cards should be reloadable to encourage repeat business.  Be sure this function is built-in and provides convenient ways to replenish cards-in person, by phone and/or on the Internet.

Sales of gift cards to companies and organizations can increase overall gift card volume by 40% or more.  Devise a promotional strategy and hire or assign someone to handle or outsource it on a commission basis.

Gift cards can be a loyalty tool.  Periodically, offer to enhance the value of gift card purchases by 15% to 20%.  Often, regular customers will take advantage of such an offer and use the cards or the bonus dollars themselves.  What’s wrong with that?  It rewards them more memorably than a discount coupon or freebie.

Robby Kukler from Fifth Group Restaurants provides hotel concierges with a bundle of $5 gift cards so when they make a restaurant recommendation, a token card comes with it.  What a unique experience this provides the guest and it boosts the hotel’s image as well as the restaurant.

During slow sales periods, create incremental visits.  Send out promotional cards to regular clientele loaded mystery dollars that are revealed when the card is redeemed.

Where is it going from here?

Looking forward, expect to see significantly more tie-ins between gift cards and loyalty programs.  Efficiency is improved with one-card programs and, along with it, will be integration of enhanced CRM (customer relationship management) functions.  Additionally, gift card systems will provide more sophisticated functionality like auto-replenishment meaning that a consumer can purchase a gift card and schedule in advance how much to load at what intervals.

Upcoming wireless and RFID (radio frequency identification) POS systems will process gift cards virtually anywhere-outdoor patios, fast-food restaurants, at-home deliveries or temporary locations at a community festival, for example.  Chase has selected Atlanta as a new test market for a contactless functionality called “Blink.”  Contactless cards speed transaction time immensely and are particularly valuable at restaurants where convenience can equate to more sales.

To further beat old-school thinking that gift cards are thoughtless notions, they’ll likely become more “experiential” in the future.  Instead of marketing a gift card with a specific dollar load, restaurants can promote them as “an anniversary dinner for two” or “dinner and a movie.”  Roses or movie tickets are delivered with dinner, and the restaurant arranges with and pays the florist or theater directly.

Since their inception just a decade ago, gift cards have proven their ability to meet the needs of merchants and consumers alike.  By offering multiple benefits to all parties, gift cards have struck a chord with everyone and, in turn, have created a very strong product lifecycle which will continue for years to come.

Thank you to providers Aloha POS, Capture Systems, Postec and Vantage Card; restaurateurs Fifth Group Restaurants and Wolfgang Puck Express; legal counsel Troutman Sanders, and agencies Melissa Libby Public Relations and The Reynolds Group for contributing to this article.

Brenda Gilpatrick, a self-professed gift card fanatic, is president of Your Fantastic Plastic, an Atlanta-based company specializing in cutting-edge gift card program management and marketing services.  Reach her at bgilpatrick@yourfantasticplastic.com, or at (404) 816-8515. 

July/August 2005

By Hope S. Philbrick

An ounce of prevention is worth a pound of cure. When mired in the day-to-day details of your business, it can be easy to forget that maxim’s lesson and focus on whatever requires immediate attention. But, waiting until something stops working or needs upgrading carries risks. Taking time to learn about Point of Sale (POS) systems can save time and potential frustration before the need arises.

POS systems used the right way can provide faster service, more accurate orders and financial accounting, and increased security, among other benefits.

The Basics

POS systems combine hardware and software to automate restaurant transactions. While there is no absolute standard-systems may be DOS or Microsoft Windows^TM-based, customized or off-the-shelf, proprietary or non-proprietary, broad or focused solutions, etc.-most offer similar capabilities.

Typically, food and drink orders are entered into the system (either by a server or the customer). Once items are recorded (such as “prime rib”) additional information may be attached. Such details may be required (like “rare”) or optional (“horseradish”). The order is sent to printers throughout the restaurant (in the bar, kitchen or special prep areas), ensuring that items are ordered before being prepared. Orders can be updated at any time (like adding another round of cocktails). Once complete, the customer is presented with a check (printed or electronic). Certain discounts, taxes, tipping, check-splitting and other calculations may be processed automatically; others may require management control. Payment is processed. Most systems can generate reports-from server performance and sales to time and attendance, to payments, voids, profitability, inventory, and table turns-by day, week, month, year or any timeframe.

What’s New

Technology changes at a rapid pace, responding to industry trends and sometimes changing the way business is done. POS system trends include:

Handwriting recognition in write-on wireless handheld devices will be as commonplace in the foodservice industry within five years as the touch screen is today, ASI predicts.

Internet protocol (IP)-based solutions are increasingly the standard over dial-up, says Ty Hardison, business development of Vantage Card Services, Inc.

Multi-Lingual capabilities, like NextPOS software, allow orders to be entered in English yet viewed in the kitchen in a native language (like Chinese).

Radio Frequency Identification (RFIP) embeds a tiny microchip and radio antenna into cards that are scanned by automated reading equipment with a simple wave instead of swipe. Contact-less processing saves time and is “a more secure way to read card information,” says Brian Cook, chief technology officer of the Radiant Hospitality Division.

Self-service consumer-centric technologies include kiosks, interactive customer displays and web ordering. Brian Cook claims that animated graphics on kiosks have been shown to increase sales by 20% compared to a static wall sign.

Smart Cards contain an embedded microprocessor. Popular in Europe, these are just taking off in the United States. Cards are swiped through a reader, yet offer improved security over magnetic stripes.

Thermal printers put an end to ribbon changes and toner.

Wireless technologies are faster than landline transactions and portable. One advantage is that “Handheld wireless devices are stand-alone resilient, so if the server goes offline, these still work,” explains David Shaw, president of Postec. Another is allowing patrons to completely control their credit card authorizations using handheld devices like TableSwipe^TM, thereby eliminating “skimming” and facilitating faster table turns.

Web-based systems for reporting and back office management are growing in popularity, as are technologies to support off-premise and ‘to go’ sales, including delivery management systems.

Things to Consider

When purchasing or upgrading a POS system, understanding your needs is crucial. Getting answers to questions like these may help:

• Is the solution software, hardware or both? What about compatibility? If necessary in the future, could you change one and retain the other?
• Is the system easy to use? Are icons readily identifiable? Is the screen flow logical? Is English the only language?
• Is training provided? Is it standard or custom? How steep is the learning curve?
• Is the system flexible? Can it handle multiple currencies? Various sales tax requirements? Interface with other systems (like your existing payroll or banking systems)? Can it grow with your business?
• Who handles installation? Setup? Programming?
• Is the system reliable and durable?
• What guarantees are included?
• What happens when compliance requirements change?
• Are local support services available? How about a help desk? Is help available 24/7? Does an operator or an automated system answer calls? Are calls toll-free?
• What is the electronic audit trail?
• How is system security? Anti-virus protection? Firewalls? Spyware?
• If the system goes down for any reason, can credit/debit card payments continue to be processed? If one device is down, do others remain operational?
• What is the POS company’s reputation and track record? References? If two or more firms are working together (such as a manufacturer and reseller), how long has that relationship been in place?
• Do you believe the firm(s) will remain in business over the next few years (a POS system can be a five to seven year investment)?
• Does the contract stipulate that the system you agreed to purchase will, in fact, be the one installed?
• What is the seller’s relationship with any vendor/manufacturer of the system being recommended?
• What is the cost of ownership over a five-year period? Does it seem too good to be true?

As with any important decision, when selecting a POS system, be prepared to do your own research and read all contracts before signing them.

Security Requirements

In your business, you’re likely to collect personal information from two sources: employees and customers. Keeping such information safe makes sense from ethics and service standpoints, but safeguarding personal data is also a requirement.

And for good reason: According to the National Crime Prevention Council, identity theft is the fastest-growing crime in the U.S. The Federal Trade Commission reported nearly 250,000 identify theft victims nationwide in 2004. Georgia ranked 11th with 7,440 victims. (The top five cities were Atlanta, Marietta, Decatur, Lawrenceville, and Stone Mountain.) The FTC cites credit card fraud as the most common form of reported identity theft.

The Fair and Accurate Credit Transactions Act, passed in December 2003, added a disposal provision effective June 1, 2005. The law requires that all paper or computer disks containing personal information are destroyed-shredded, burned, smashed or wiped-before being discarded.

The law actually builds on strict, detailed security provisions which all of the major credit card companies started implementing in 2000, including:

• American Express Data Security Operating Policy (DSOP)
• Discover Information Security and Compliance (DISC) program
• MasterCard Site Data Protection (SDP) program
• Visa International Account Information Security (AIS) program
• Visa USA Cardholder Information Security Program (CISP)

Late last year, Visa and MasterCard aligned their programs in the Payment Card Industry (PCI) Data Security Standard, with these requirements:

1. Use a firewall
2. Don’t use vendor-supplied defaults
3. Protect and minimize stored data
4. Encrypt data sent across public networks
5. Use updated anti-virus software
6. Use secure systems and applications
7. Restrict access by “need to know”
8. Assign unique IDs to each person with computer access
9. Restrict and track all data access
10. Destroy data when it’s no longer needed
11. Routinely test security systems and processes
12. Have an information security policy

Meanwhile, like all businesses, your financial records must comply with federal accounting requirements. A POS system can help achieve compliance with federal and state regulations.