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‘Tis the season – to expect a digital gift card in your email. And it was probably purchased on Cyber Monday. 

As inflation eases and December approaches, guests across the country are preparing themselves for the holidays in a time-honored tradition: purchasing gift cards. As reported in The Restaurant Gift Card Report: 2023 from Paytronix, ~45% of annual gift card sales for the year occur in the months of November and December, with a large portion of those sales occurring between Thanksgiving and Christmas Eve. Black Friday has traditionally kicked off this vital time of year, and 2023 has reason to give retailers hope, with the value of gift cards sold outpacing inflation and total cards sold rising. Gift card sales this year also point to changing consumer behavior, with digital sales continuing to increase and Cyber Monday asserting itself as the higher-volume day for gift card sales. 

In terms of total sales, restaurant gift card sellers have reason to be jolly: total dollars spent on restaurant gift cards was up 7.3% year over year, outpacing the latest reports of core inflation of 3.6% and establishing a new multi-year high. The good news continued in terms of total numbers of cards sold: over the entire weekend, the number of cards sold increased by 0.4%, with gains led by digital cards and cards for full-service restaurants. This is a reversal from last year, when the number of cards sold during the holiday season decreased. Unsurprisingly, the value per card also increased, once again highlighting the effect of inflation on gift card purchasing behavior. 

Total value of gift cards sold between Black Friday and Cyber Monday increased in 2023. 

Digital card sales led the way, increasing 8.5%, while physical card sales dropped 2.6%. Moreover, Paytronix data shows an increase in dollars spent on cards at both quick-service and full-service restaurants, full-service restaurants were clearly the favorite with a 9.6% increase (as opposed to quick-service, which only saw a 2% increase and a decrease in the number of cards purchased). It appears that when it comes to holiday gifting, guests favor the full-service experience.  

Given the rise in digital card sales, it is unsurprising that Cyber Monday has become a larger sales day. While the value of cards sold increased on both days, largely driven by deals offered by brands, the number of cards sold dropped on Black Friday, while the number of cards sold on Cyber Monday increased.  

The number of cards sold on Black Friday decreased, while Cyber Monday saw increased gift card sales. This change was, in part, driven by brand deals. 

Together, these trends point to the need for restaurants to incorporate digital gift cards, as an integrated part of their digital guest engagement strategy. As guest purchases are driven more and more by the marketing outreach of key sales days, such as Cyber Monday, brands without a gift card marketing outreach tied to their CRM risk losing business to more forward-thinking brands. And as more and more gift cards are delivered via email as opposed to physically, the regulatory and accounting concerns around those cards make a strong payments platform essential. 

Want to catch up on all the holiday gift card sales trends? Check out our blog predicting the 5 Gift Card Sales Trends for This Holiday Season. 

As a software engineer, I love experimenting with new technology. It’s like being a kid with a new toy. So when ChatGPT, an artificial intelligence chatbot from OpenAI, was introduced I wanted to see what all the buzz was about. As Vice President of Online Ordering at Paytronix, I also wanted to find out if a chat bot could help our clients. 

The speed that ChatGPT went from techie tool to mainstream is simply amazing. OpenAI officially launched it in November 2022 and anyone can try it out and get familiar with how it works.  

I got my hands on a beta version a little earlier and experimented with it both as a feedback response vehicle and for its language translation abilities. I had tried other AI chat options, but ChatGPT was the only chat bot that offered what Paytronix needed.  

How ChatCPT Can Help 

The beta version of ChatGPT confirmed my suspicions that the chat bot would be a great customer communication facilitator for the Paytronix guest surveys and feedback tool, which is an integral part of Paytronix Online Ordering. When it comes to keeping customers engaged, responding quickly to customer concerns is essential.  

The Paytronix Online Ordering platform automatically engages guests within two hours of their order so that they can respond with the experience fresh in their mind. Guests are asked to rate their experience on a scale of one to five, and the results are immediately sent via email to a store manager who also can see the guest’s lifetime value. Designed to help store managers measure and mediate interactions with guests who place orders online, this process helps store managers identify guests with unhappy online ordering experiences. A quick response is often the difference between keeping a guest returning and losing them for life.  

Previously, store managers would respond to an unhappy guest by using either generic, pre-written emails or customizing one for their experience. Neither situation is ideal, since one isn’t personalized, and the other is time-consuming.  

Here’s where ChatGPT offered its best use-case. By creating queries that take into account a user’s experience, ChatGPT can return a customized email that can be read, edited, and sent out fast.  

As this technology continues to advance, the process of reviewing and responding to guest issues will move further along the automation curve. The responses will get better and the process of sending them will get even faster.  

Solving Integration Puzzle 

While much of the hype around ChatGPT has focused on the public version, Paytronix worked with OpenAI to license a premium version of ChatGPT, the best solution for embedding in commercial products like Online Ordering. Once we could access the ChatGPT application programming interface (API), Paytronix had access to ChatGPT 3.5 model and all its bells and whistles. 

The next step in making this a usable solution was “prompt engineering,” which requires engineers to write prose, not code, to test the AI chatbots. At Paytronix, our prompt engineers wanted to identify the most common responses in our survey tool, then help the chat bot come back with good answers to those questions.  

This is a case where content truly matters. When our engineers built prompts using direct quotes from guests the responses hit the right notes. But it’s not as simple as just sending the email over to ChatGPT, there needs to be some additional work happening to ensure we get the right responses. Even then it’s never going to be perfect, so it’s important to have a human to review and edit the response before hitting the send button.  

As we continue to develop this tool, we can take advantage of a general adversarial network (GAN), a type of machine learning capability, whereby one response can be played against another. The store manager can ask “is this appropriate to send? Yes/no.” Over time, the GAN will get better and better at understanding what is a plausible response and what is not.  

Beyond the email 

In addition to generating responses, ChatGPT can also summarize and categorize guest comments. Let’s assume a restaurant then received a barrage of negative comments in just one night. By adding TLDR (Too Long Didn’t Read) into the prompt, followed by the text ChatGPT can generate a synopsis in a fraction of a second. Now the manager can get a quick summary of what went wrong that night. ok 

On top of all that, ChatGPT offers a much better way to do sentiment analysis. To date, ChatGPT has demonstrated that it can ID data and statistical values when the proper input is provided. Likewise, it is getting better at spotlighting trends with the proper input. 

We’re now experimenting with other uses for ChatGPT. At its most basic it could be used to generate other copy like for menu item descriptions or personalized messages. We are also looking at it for translating information into various languages or even helping catalog things differently. This could help us rethink how we display or share menus.  

But no matter how we use it, there remains a human at the end making sure that what goes out is right and appropriate. AI is great, but we still can’t replace the human mind. 

Learn more about how to leverage artificial intelligence in your online ordering solution.

As gift card sales come roaring back and diners return with gusto, it’s worth taking a hard look at a common but costly practice that ends up taking a toll on restaurants: using gift cards as comp cards.

Complimentary (comp) programs entitle guests to receive products or special discounts at your restaurants. Whether used as a goodwill gesture for guests or to extend a privilege to employees, providing comps is a part of doing business.

Restaurants use gift cards as a means to comp guests. Like paper certificates, guests readily recognize gift cards, which are convenient to issue, and easy to redeem. Unfortunately, comp programs follow distinct financial accounting procedures. Failure to isolate comp transactions from standard gift card transactions creates a “double taxation” penalty that can overstate your sales tax and income tax burden by as much as 12%!

Common pains of comp programs

Comps typically represent 3-5% of total sales — a meaningful slice of your business — and are often not well controlled or properly processed. The main risks of poorly administered comp programs include fraud and abuse, as well as improper financial accounting.

Fraud and Abuse – No One Wants to Lose Money
Inadequate measurement and control of comp programs can result in fraudulent behavior. Paytronix customers report that restaurants lose one in 10 controllable comp dollars to fraud. Paper certificates lack inherent controls and are particularly susceptible. Fraud is not limited to paper-based systems, though. A discount button on your POS system without appropriate controls also invites overuse and abuse.

Improper Financial Accounting = Increased Tax Burden
Improper processing of comp transactions also causes needless financial losses. Recording the value of comp transactions requires specific accounting treatment. You fall victim to the “double taxation” penalty when that treatment is applied incorrectly.

Fundamentally, this taxation penalty occurs because the comp value is a restaurant expense, not revenue. When you fail to appropriately recognize this expense, you artificially inflate your revenues, overstate your net income, and thereby overstate your income and sales tax liability. This overstating is a costly and unnecessary expense.

Gift Cards, the Common Offender
This taxation penalty often arises when comp situations are handled by issuing a gift card. A gift card is the wrong device for comp transactions. Comp cards and gift cards are both valuable elements in retaining and attracting guests. But, they are distinctly different instruments.

A gift card is sold to guests, represents taxable revenue, and appears on the balance sheet as an accounting liability until redemption.

The value on a comp card is recognized as an accounting expense. A comp should appear as a discount that lowers the subtotal of a guest’s check and reduces the amount of tax associated with the transaction. The comp is given to a guest – not sold – and therefore should be reflected as a business expense, not as revenue.

Consequences of Mixing Gift and Comp Cards
Companies have sometimes had to restate earnings to correct for improper comp treatment. This is because they could not differentiate their comp and gift card balances and were forced by auditors to expense 25% of the combined outstanding balance.

Many chains try to backout the comp transactions in their general ledger, but it is difficult to differentiate these transactions and to accurately account for the amount of comps extended. For example, some companies require that receipts be mailed to corporate for processing. This is a labor-intensive process where lost and unidentified receipts understate the true comp amounts.

Interested in the latest news on Gift Cards? Check out the Restaurant Gift Card Report: 2023

Plus, you cannot back out the sales tax. States generally conduct audits based on POS reports, not general ledger data. Assigning proper tax rates gets very complex when a check has different items with different tax rates and is paid with comp and other tenders.

In short, fraud and mishandled comp programs cost you money, so our comp cards provide you with a safe, practical way to offer complimentary value to guests while halting fraud and assuring proper accounting for every comp transaction. 

Top Predictions: 

• Total holiday gift card sales value will be up, while the total number of cards sold will be down. 
• Digital gift card sales will continue their rise. 
• Unless there’s another country-wide storm, the 23^rd of December will once again be the biggest day of gift card sales. 
• More consumers will opt for higher value gift cards. 
• Fine dining gift card sales will continue to rise, QSRs sales will fall. 
   

According to Paytronix Gift Card Data from the last several years, some retailers have much to be cheerful about. The data shows that the shift to digital gift cards is in full swing and that dining trends across the country continue to edge towards sit-down concepts. But despite the swing to digital, an arctic blast last December translated to lower gift card sales on a key shopping day, demonstrating that gift card sales are not insulated from factors such as weather. 

Last year, holiday gift card sales were largely up across the board. The total dollar value of cards sold was up 2.2% versus 2019 and up 1.4% since 2021. 2022 was the best year for gift card sales in recent memory, with more dollars spent on gift cards between Black Friday and Christmas Eve than any year since 2019. With inflation still higher than usual, we predict that this year, the total value of holiday gift card sales will reach a new high. 

However, while the total dollars spent on gift cards has increased, the number of gift cards sold was substantially lower than previous years. For the holiday period from November to December, numbers of gift cards sold dropped by 5.1% vs 2019 and by 10.7% from 2022. However, this trend has a notable exception: digital gift cards. Between Black Friday and Christmas Eve 2022, the value of physical gift cards dropped nearly a fifth (22%) vs 2019 and 7.9% since 2021. Digital gift cards, on the other hand, saw the value of sales increase by a whopping 77% since 2019 for the same time period, while the value of digital gift cards sold also increased 4.6% since 2021. We predict that digital cards will continue their rise and that the value per card will continue to increase. 

One trend of note during the Holiday Season of 2022 was the impact of a severe winter storm that froze out a large portion of the country just before Christmas. As shown in the chart below, December 23 is typically the best day for gift card sales. While this still held true for 2022, gift card sales suffered significantly, with numbers of cards sold per day down 32.6% from 2019, down 23% since 2022, and down 10.9 percent since 2020 during the height of the worst year on record. Shoppers who procrastinated had to find other stocking stuffers as the weather prevented last-minute shopping. However, we predict that if the weather is normal on December 23, that the gift dollars loaded will reach a new high on this critical day (and if your brand is concerned about the risk of bad weather, consider offering a promotion earlier in the season, like this sports bar did). 

Inflation has also impacted the values of gift cards sold.  $5 and $10 cards were far more popular in 2019, representing 11.2% and 16.7% of gift cards sold that year, respectively. During 2022, the sales of those values of cards dropped approximately 3% each, with sales of each representing 8.8% and 14.1% of total gift cards sold, respectively. On the other hand, sales of higher value gift cards increased to match, with sales of $50 growing from 12.2% to 16.3% and $100 gift cards getting a boost from 6% to 7.8%. As inflation has continued this year, we predict that higher value cards will increase in popularity. 

Finally, gift card sales this holiday season reveal that, 2 years out from the worst year on record, consumer tastes are changing. Between Black Friday and Christmas Eve, the value of gift cards sold for QSRs dropped 3.2% compared to 2019 and 6.9% compared to 2021. But the value of cards for fine-dining restaurants has increased 9% compared to 2019 and by 3.7% as compared to 2021, indicating a building demand to revisit concepts with a sit-down model. Moreover, dollars spent per day for fine-dining gift cards during the holiday season is up 80% as compared to 2020’s holiday season, indicating the trends of the 2020 are receding. While there were variants of note in 2023, we predict the fine-dining resurgence will continue, while the value of cards sold at QSRs will hold approximately the same. 

So, what does this all mean for restaurants? Inflation has taken its toll on the American consumer, but as previous Paytronix resources have shown, loyalty offerings like gift cards are an effective shield against inflation. Moreover, the concepts that suffered the worst during the pandemic will continue their resurgence. Finally, the proliferation of digital gift cards shows that digital guest engagement is increasing in popularity and will likely continue to build in popularity. 

And of course, cross your fingers for good weather on December 23^rd. 

Click the graphic to read the report