Archive for the “Gift Card Strategy” Category

Understanding Comp Cards vs Gift Cards

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. 

Switching Gift Card Providers? Here’s What to Know.

Gift cards are a key part of the guest engagement ecosystem often acting as a way that guests can share their favorite brands with others. Also, in today’s mobile-oriented world, e-gift with recharge acts as a way for guests to store value that they can use for regular orders. So choosing the right provider is key.

Gift Card Tips

Gift cards help you extend your brand presence beyond your locations by expanding your channels and meeting your guests where they are. You can also offer online or virtual gift cards. Beyond that, you can expand to third-party and discounted third-party retailers, but remember that this step adds complexity. It’s important to know the limits of your spreadsheets by tracking sales fees, discounts, breakage across programs, and money movement between locations.

Investing in a Gift Card Solution

When selecting a gift card software provider, you need to make sure that the platform delivers the automation you need, so that you can avoid having to manually track gift card costs and discounts. Discount tracking is a huge part of this automation; it helps you recognize the expense card-by-card and transaction-by-transaction.

You also need a provider that can help you track money movement (both centralized and decentralized) across different stores, franchises, and corporations.

Tips for Managing a Successful Program

  • One of the most time-consuming processes in this realm is reconciling gift card sales and redemptions across different systems. Robust and trustworthy reporting on liability and redemption can help you be prepared for audits.
  • Avoid guest friction by making it easy to purchase, redeem, and check the balances of gift cards, and ensuring funds are redeemable both at the point of sale and for online ordering.
  • Keep your franchisees happy by ensuring that accurate, reliable, timely, and automated settlement funds are available.
  • Keep your guests happy by considering comp cards instead of gift cards; gift cards can add extra layers of complexity for your accounting.
Gift CardThe DifferencesComp Card
Purchased by customerIssue methodPurchase by restaurant
LiabilityFinancial classification when issuedExpense
RevenueFinancial treatment upon redemptionExpense
YesSales tax & income taxNo
YesSubject to tax escheatmentNo
5 yearsMinimum expiration periodNone

[Image: Comp cards vs. gift cards slide]

10 Tips for Making the Change

  1. Make sure that you own your data and can easily access it.
  2. Create a team that handles gift card migration; this involves marketing, IT, finance, and operations.
  3. Streamline the migration process to ensure all appropriate parties are weighing in.
  4. Understand the timeline of the process so that your customers do as well.
  5. Perform POS configuration and testing to ensure success.
  6. Make an inventory of your current gift card stock to ensure you can meet demand.
  7. Integrate online ordering so that the customer experience is as smooth as possible.
  8. Consider third-party channels, while understanding that they add complexity.
  9. Consider e-gift cards for added convenience.
  10. Be sure your new provider matches or improves your current reporting.

How Gift Card Programs Can Serve Your Strategy

Gift cards can be a key part of a larger guest engagement strategy. When combined with loyalty programs, ordering, and comp, they can create real and lasting value, as long as they are smoothly aligned with each other.

Listen to the Paytronix podcast with restaurant and retail analyst Ryan DiLello here.

These Restaurants Are Selling More Gift Cards Than Ever. Here’s Why.

The great thing about selling gift cards is that it’s about more than making a gift of a nice meal – it’s about giving someone a great experience. Full-service restaurants know this, and they’ve realized that gift cards are an ideal way to turn first-timers into regulars… and regulars into brand ambassadors. Because gift cards, after all, always bring customers back to the brands they love.

So how do restaurants go about winning gift card sales? Do they take a one-size-fits-all approach? Or is their strategy to get a little more targeted and a little more nuanced? Let’s take a look.

A Remarkable Recovery

The pandemic was catastrophic for the restaurant industry… but the numbers show it’s making a strong recovery. According to the Restaurant Gift Card Report: 2023 from Paytronix, gift card sales at full-service restaurants have staged a remarkable comeback from the worst depths of the pandemic. Year over year since 2021, both revenue from gift card sales and total cards sold at full-service restaurants increased, by 12% and 10%, respectively. This is especially interesting when compared with the numbers for quick-service restaurants, whose gift card sales actually declined (despite weathering the pandemic better overall).

FSR Gift Cards sold by Year graph shows a 10 percent increase between 2021 and 2022.

Moreover, revenue from gift card sales at full-service restaurants has increased since 2019, although the number of cards sold at full-service restaurants has yet to hit pre-pandemic levels, with one exception: fine dining.

The Impact of Inflation

The majority of card sales at full-service restaurants are for $20, $25, $50, and $100 cards. As compared to 2019, the percentage of $50 and $100 cards sold has risen, while the percentage of $20 and $25 cards sold has fallen, indicating that inflation has pushed up the cost of a dining experience at these restaurants. On the whole, guests have responded in positive correlation with higher prices.

How They’re Winning Sales

Full-service restaurants have broken out every trick in the book to drive gift card sales. One evergreen, can’t-miss tactic that has consistently driven bigger results is the flash sale. Flash sales have worked particularly well for Duffy’s Sports Grill, a Paytronix client headquartered in Palm Beach County, Florida; their holiday gift card sales (during which physical gift cards are offered along with bonus dollars) have delivered incredible results. The results were especially dramatic in 2021: on flash sale days, sales increased by up to 10.9 times the daily average.

Don’t Forget Digital

Digital sales are also a critical tool in the toolbox. Digital gift card sales have seen a 12% increase in revenue year over year, and are often more valuable than physical cards, due to added perks and incentives from digital sales. During the holiday season, Cyber Monday continues to see the highest sales of any day during the holiday period from Black Friday to Christmas Eve. Even though digital cards represent just 12% of the gift cards sold between Black Friday and Christmas Eve, their sales have increased over 70% since 2019.

Would you like to know more? Just download the Restaurant Gift Card Report: 2023 from Paytronix FREE today.

Valentine’s Day Gift Card Sales Show Guests’ Love for Digital (and Procrastinating)

February 27, 2023

As noted in the recently-released Gift Card Report: 2023 from Paytronix, restaurant gift card sales have been going increasingly digital since 2020. But the effect of this shift shows up brightly when we looked closely at Valentine’s Day card sales.

Paytronix data shows that digital gift card sales on Valentine’s Day hit their highest number on record, increasing nearly 7% over last year and more than doubling since 2019. Also of interest, the highest sales of digital gift cards shifted from the day before Valentine’s Day to Valentine’s Day itself, indicating that guests are taking advantage of the flexibility of digital gift cards and delaying their purchases until the last minute.

This has the potential to change how brands market cards to their guests.

Moreover, 2023 saw the highest revenue of any year from 2019-2023 for the period from February 1 through 14, indicating that restaurant gift card spending may finally surpass pre-pandemic revenue – a welcome relief for a restaurant industry battered by the pandemic, inflation, and staffing shortages.

And of course, to all the restaurants out there: Happy Valentine’s Day from your friends at Paytronix. We have gift cards for all of you.

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