No, it’s not an obvious scam, but at Costco you can buy this item, containing two $50.00 restaurant gift cards, a cookbook and a seafood cooking tips DVD, for the price of $79.99. UPS ground shipping is included.
Okay, the cookbook and the DVD probably cost a combined $5.00 to manufacture, but you could throw those away and still end up $20.00 to the good. Costco has to be getting a piece of the action, plus paying for the shipping, so I figure McCormick & Schmick’s is getting $70.00 or less for the package. How does a business make money selling $100.00 worth of gift certificates for $70.00? Do they limit the use of the cards to one card per visit, ensuring you’ll eat there twice, or what?
It’s not too different from a coupon except for the bonus for the restaurant. They’re almost assured your business since you’re paying in advance of even going.
Depending on the restaurant, a $50 meal might cost less than $40 to the restaurant, and getting some people there who wouldn’t ordinarily go might be worth the smaller profit. If it’s a really good restaurant, it might even be worth taking a loss, if they think folks will enjoy the food enough to return.
what about people who buy the gift cards and either forget about them, lose them, die before they can use them, etc? Gift cards in general are probably a killer moneymaker for any place that uses them, considering they get your money NOW for a promise that you can buy stuff with it later. There has to be at least some percentage of people who buy the gift cards and give the businesses basically “free” money by never using them.
Definitely one card per visit, or they would have issued one $100 card. A small percentage of those gift cards will never be redeemed, yielding 100% profit for the restauraunt. A small percentage of the gift cards will be redeemed by people who’s bill is around $50. Most of the gift cards will be redeemed by people who’s bill is significantly >$50. Seafood restauraunt meals are generally more expensive than other types of food. They may lose some money on the cards, but they obviously feel the potential increase in customer base is worth the risk.
And, even $100 probably doesn’t go far at a seafood place, so they’ll get more of your money anyway. Without actually going there, I can’t confirm prices, but I found a review from 2003 that pegs them at $40+ per person, plus drinks.
My father works for Walgreens and he says gift cards are a HUGE money maker. I’m not sure how common it is anymore, but some gift cards charge their balance over time. So if you buy a $100 one and don’t use it for a year you might only have $90 on it. I’m not sure what percentage he told me, but it was something like 15-20% of gift cards are never redeemed. Hell, I have like $50 worth of gift cards on my dresser right now, some of them years old. Also, lots of people toss out gift cards that don’t have much left on them. Do you want to carry around a card with $0.50 on it? On a $10 card that’s a decent profit for the merchant.
$100 in restaurant giftcards for $80 pretty much equates to a 20% discount on your meals. Seeing that restaurants have markups of 100% and up (even higher on alcohol) it’s not denting their profits. And it may even encourage people to spend more for their meal knowing they have $50 to use up.
Dinner for two without a giftcard may be a couple of Cokes and two entrees.
Give me $50 to spend and I’ll be looking at alcohol, appetizers, and dessert. Big money makers for restaurants.
First, keep in mind it’s a restaurant gift card, which is quite different from a Visa gift card or even a retail store gift card.
Every year coupon books are produced to be sold by various groups as a fundraiser. A large percentage of the coupons are for restaurants, and a large percentage of the restaurant coupons are “buy one get one free.” That’s a bigger giveaway (percentage-wise) than your example, yet year after year a great many restaurants, from fast food to upscale gourmet, get included in the book. Apparently it’s a successful marketing technique. It’s certainly one of long standing.
ETA: And the hit is probably not as big as it first appears. Think of an upscale steakhouse, with a steak/potato/salad dinner selling for $50 or more. I think it’s safe to say their cost on the food for that meal is less than half of its selling price.
I’ve had gift cards to crappy places like Applebee’s and Red Lobster. First, there’s never any indication where you bought the cards from – was it their store? Costco? Online? Your company give you one for meeting some metric you forgot about? Second, there’s never a stipulation that you’re only limited to using one. Third, there are no alcohol restrictions. In summary, they’re as good as cash. The only stipulation on any of the cards I’ve ever seen was for the Red Lobster ones – good only in the USA.
One of our favorite places always has a promotion whereby you can buy $100 worth of gift cards, and they’ll give you $20 extra in gift cards. I’ve not tried it yet, but I wonder how they stop regulars like us from just buying and using the gift cards. Maybe the cash-first policy is worth it to them.
Well if you want to really game McCormick & Schmick’s then go to happy hour. They have appetizers for about $2 and you can get a hearty meal for about $8 (4 appetizers). All you have to do is buy a drink. So figure $17-18/person including tax & tip.
Restaurant cook chiming in here. When you buy food/beer/liquor at a restaurant/bar, you’re paying WAY more than what we’re paying. I do our food orders, we get angus burgers for $1.50 a piece, we add a bun, lettuce, tomatoes, fries and cook it. Then we charge customers $7.95 a piece. Costs us maybe $2.50 to make the burger.
If you want to pledge $100 of your dollars towards our business today, to be redeemed later for food/drinks that are overpriced to begin with, we’ll gladly take it. It’s basically a loan to the business for 0% interest to be redeemed later. Plus add in the whole "People who don’t redeem them anyways, in which case we got $100, and you got nothing.)
Both articles give figures for Best Buy - they either made $16 or $43 million (depending on how you do the counting) from unused gift cards in a single year.
For a niche restaurant, I’m guessing the % of unused cards is really, really high.
If you really want to give Aunty Flo a decent present, find a really nice fish cookbook and slip in a couple of Ulysses S. Grants for use in a restaurant of her choice.
Working in the biz, you shold also undrestand that food cost is only a fraction of total operating costs. If everyone was getting huge “profits” on food, restaraunts would not fail as often as they do. A realistic profit on your sample burger is more like $0.70
I worked as a secretary in a hotel during college and it drove me insane cause we would issue gift cards for rooms, and they would expire, and almost every single day I’d get calls from people demanding to have the expiration date extended. I worked for the GM and he’d always extend them, but it did make me wonder since people had an entire year to use them and they would always claim they couldn’t find the time to use them.
So I imagine a lot of gift cards are simply unused then lost. Or if they expire the money is gone forever.
This is IMHO, but personally, I don’t really see the point why people buy gift cards as a present for friends or relatives, at least if they buy the card at face value. Person A pays, say, $50 for a card which person B can use to buy $50 worth of products at a specified place. Why not giving the $50 in cash to person B? The cost to perso A remains the same, it even saves A the trouble of getting the card. Person B clearly has an advantage, since he can spend the money anywhere he likes, not just at a single place.
It seems there is a certain cultural taboo about money which makes people feel uncomfortable about giving away cash. Yet, the entire concept of gift cards is just strange to me.
I recently read that the percentage of gift cards that arent cashed lies somewhere between 5 and 10 percent! Pure profit for the stores who issue these gift cards.
It’s basically a loan to the business for 0% interest to be redeemed later. Plus add in the whole "People who don’t redeem them anyways, in which case we got $100, and you got nothing.)