What’s in the Cards?
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Credit cards and the restaurant industry have always engaged in a symbiotic relationship. Indeed, the idea for Diners Club, the first multi-use, or third-party, charge card, emerged in a restaurant in 1949 when New York businessman named Frank McNamara discovered he’d left his wallet at home. “We call that ‘the First Supper,'” jokes Walter Sanders, Diners Club’s vice president of corporate affairs.
According to the latest figures from the National Restaurant Association, credit card purchases represented nearly 13% of all restaurant sales in 1996. The more expensive the menu, the more likely a customer was to charge. In casual-dining restaurants, more than 33% of sales are credit card transactions, while more than half the checks at fine-dining restaurants were paid for with plastic. Those percentages have been increasing over the last several years.
The use of credit cards is growing in other types of restaurants as well. According to a recent American Express study, 20% of consumers surveyed had charged meals at a fast-food restaurant in the past year, and an additional 26% said they would like to have the option.
“That’s a fairly recent development, and it closely follows the trend in general of people wanting to use plastic for more every-day expenditures,” says Lloyd Wirshba, vice president and general manager for restaurants and entertainment at American Express. “Credit or charge cards started in the travel, entertainment and dining industries, then moved into retail in the ’70s and ’80s. Now, in the ’90s, people are using them for everyday spending: in the supermarket, at the gas station and in quick-service restaurants.”
Technology companies continue to develop credit card devices geared specifically for the full-service restaurant. One of the latest developments is the wireless point-of-sale device, which may be the answer to many customer prayers about speeding up the back-and-forth volleying that occurs when paying a check with credit cards. Usually, the server first drops the check off, returns to take the customer’s card to a stationary device and returns to the table with the receipt. “All the studies show that one of the biggest hassles restaurant customers cite is waiting for their bill to be processed,” points out Sebe Williford, vice president, relationship management for Novus Services, the company behind the Discover, Universal and Private Issue cards.
The first generation of hand-held transaction terminals, such as Toronto-based International Verifact’s Spirit and the VeriFone Folio, ideally could be brought to the table so customers could swipe their own cards and enter their own information. Servers would still need to authorize the transaction with the payment network from a stationary terminal base.
The newest generation of devices, such as Verifact’s Elite 700 series, use long-range wireless technology so the entire transaction, from swiping the card to receiving authorization to printing the receipt, can be completed at the customer’s table. Phoenix-based Hypercom also recently unveiled a wireless device for restaurants called the ICE Portable.
Smart cards—plastic cards containing a microchip—promise a revolution in the electronic-transaction industries. Unlike credit or debit cards which store information that allows access to the card-holder’s account through a computerized network, smart cards can contain a wider range of data. They can be “loaded” with a cash value for non-credit spending. These types of smart cards are being touted as a replacement for cash and are being demonstrated in a test program undertaken by Citibank, Chase Manhattan Bank, MasterCard and Visa in parts of Manhattan.
In the program, about 400 merchants including restaurants have been equipped with devices to accept smart-card payments, while over 40,000 cards have been issued to consumers in the area. In some cases, consumers have been set up with “personal ATMs” through which they can access their bank accounts and load or unload value onto their smart cards from their homes.
These smart cards are intended to replace small cash transactions in quick-serve restaurants and grocery stores. “Fast food restaurants are some of our biggest users,” reports Mark Rogers, a spokesperson for Citibank. “We’re just trying to learn about the ways consumers and merchants want to use these cards.”
Because smart cards, some of which are equipped with both a microchip and a magnetic stripe, can be used to hold several types of information, some industry experts envision a time when consumers will need only one card that contains cash value and provides access to all credit cards, bank accounts, even library cards and frequent-flyer memberships.
Restaurant companies themselves are developing new ways to use card technology. The multi-unit Ruth’s Chris Steakhouse, working with New Brunswick, NJ-based Data Mark Technologies, has developed a system that uses magnetic-stripe cards rather than paper for its gift certificate program. When a certificate is purchased, the amount of the gift is swiped onto a card via a credit card terminal, the VeriFone Tranz 380. The terminal sends the card number, the cash value, time and date of purchase and store number to Data Mark. When the gift certificate recipient uses the card in any Ruth’s Chris, the card is swiped and the system subtracts the price of the meal from the value of the gift.
This automated system has several benefits over a paper-based gift certificate program, according to Tom Pennison, Ruth’s CFO. “It keeps track of the gift certificates properly,” he says. “It eliminates a big paper mess and provides more tracking information.” For example, if a gift certificate is bought at a corporate-owned restaurant and used at a franchisee, the system automatically initiates the transfer of funds from one restaurant to the other. The system can also provide exact figures about the value of gift certificates the chain has outstanding and increases certificate security. Recipients can protect their cards by calling a toll-free number and giving the card number, name and address. If the card is lost or stolen, calling the same number will deactivate the card, and a new card is issued “It’s very easy to steal a paper certificate, write in an amount and use it,” says Pennison, “and we had several situations where that happened.” The cards, in contrast, contain no value and are not activated until paid for.
With paper, even if the chain was aware a gift certificate was stolen, it often ended up being honored anyway. “We’d have a list of ones not to honor, but in the heat of a weekend, they’d slip past,” says Pennison.
And when customers call to protect their cards, which about 40 to 50% of them do, the chain is able to build a database of customer names and addresses. “We don’t use a lot of direct mail, but this definitely opens the window,” says Pennison.
Some customers seem to like the cards so much they “reload” them once they spend the original gift amount. The 55-location chain has been using this gift certificate system for three months and has activated approximately 50,000 to 60,000 cards for its customers to date.
Bennigan’s has been using a similar system of magnetic-stripe cards and VeriFone transaction devices with its Copper Clover Beer Quest program, which rewards customers based on how many different beers they’ve tried. The Metromedia Restaurant Group-owned chain, based in Plano, TX, has recently begun working with a new electronic-payment processor, Dallas-based Paymentech, which plans to provide the chain with a single type of transaction device will handle its credit card sales, its Beer Quest program and card-based gift certificates.
NO MORE NO SHOWS
American Express has worked hard to solve a chronic problem plaguing many restaurants: reservation no-shows. “It is not unusual for most restaurants, on a given night, to experience a no-show rate of 15%,” says Henny Santo, one of the owners of Sign of the Dove, an upscale restaurant in New York City now moving to a new location.
American Express has run public relations and advertising campaigns designed to persuade restaurant customers to call and cancel restaurant reservations that they know they will not keep. Most importantly, American Express is the first card that will now allow restaurants who agree to follow certain guidelines to charge a fee if a cardmember makes a reservation and fails to honor or cancel it.
Sign of the Dove has participated in the Guaranteed Reservations Program since American Express began testing the concept four years ago. Though following the guidelines does add complexity to the act of taking reservations—the person taking them must explain the no-show fee and take down the customer’s American Express number, expiration date, name, address and phone number—Santo says the no-show rate on weekends went from 15% to zero on reservations that had been guaranteed with an American Express card.
“American Express was in a position to respond to this problem,” says Lloyd Wirshba, the company’s vice president for restaurants and entertainment. He stresses that the program, now available to any restaurant that accepts American Express, is not meant to be used for every reservation. “It’s not for that reservation for two on Tuesday night, but for use during holidays and for large parties of six, eight, ten, when the impact of that empty table can be just enormous,” he says.
But the industry is working on more than smart cards, table-side transactions and guaranteed reservations As the technology continues to evolve and credit-card companies develop marketing, educational and operational support, the future for card-based transactions continue to look good for restaurants.