There's no doubt that gift cards make great presents. More personal than cash stuffed into an envelope, recipients can buy books or CDs, pick out a new outfit or of course, dine at their favorite restaurant. But what do businesses think of them and do they help or hurt the bottom line?

Gift cards are everywhere and not just at large retailers and big businesses, but veterinary clinics and even small hospital gift shops, explained Larry Rubin, president of Swipe It, a company that offers gift, loyalty and credit card programs for small to medium sized merchants. And the sales of gift cards are growing each year. The National Retail Federation compiled a survey after the 2006 holiday season and reported, "Consumers spent an average of $164.81 on gift cards, up from the $146.20 they expected to spend. As a result, gift card spending during the holidays was $27.8 billion, higher than the $24.8 billion initially estimated by NRF." Not surprisingly, men spent the most on gift cards, averaging $176.84.

Restaurateurs, take note. According to the survey, 37.9% of customers gave gift cards for department stores and 26.8% chose restaurant gift cards, ahead of bookstores, electronic stores and discounters. Many restaurants sell the majority of their gift cards during the holiday months, but there are ways to increase sales throughout the year. "It all comes down to marketing," noted Rubin, "during the holidays, everyone will sell gift cards, but it's the other 10 months of the year that they're usually an impulse purchase. You need to have marketing at the point of sale so customers know they're available." Rubin explained that inserts in check holders are great advertisements. If a customer really enjoyed his meal and sees an insert while paying his bill, he may be more apt to unexpectedly purchase a gift card. "When people are in your restaurant, you need to take advantage of the possibility and market to them," he added.

"We're always looking for cost-effective marketing products that we can offer on our website that will help a restaurant increase their exposure for their gift cards, like check inserts, posters or displays for tables," Rubin said. His company will get as involved as the restaurant allows and have gone into restaurants to help with advertising placement. "What works at one location, might not work at another."

When Swipe It transferred a customer from paper gift certificates to plastic gift cards, Rubin suggested a promotion that used up the old paper certificates. Advertising stated that if someone purchased a "new" $50 gift card, they'd also receive a $5 gift certificate. "This sells a larger gift card for that incentive, boosts up the average ticket, thanks the customer that comes in to purchase it, and will essentially bring two people back into the restaurant," he explained. "We found this to be an effective tool."

Rubin also observes a decline in gift cards such as American Express and Visa cards sold through malls, noting that people are tired of paying fees to purchase them. Instead, he sees a trend in people buying cards at specific merchants. The majority of Swipe It's customers have seen an increase in sales with their gift card programs. Minimal charges for the service can run $0.15 to $0.30 per transaction and the monthly fee ranges from $5 to $25, which includes transaction reports. Rubin talked about third-party companies that sell restaurant gift cards on their websites or offer one card for various establishments. Restaurants will pay a percentage of the dollar amount for commissions, but he explained that restaurants would rather give up 15% than have an empty table.

The British Beer Company sells gift cards for their seven locations across the South Shore and Cape Cod, and president Gary Simon said that on a per store basis, the number of gift cards sold each year is definitely increasing. "The bulk of them are still sold during holidays, but we'd like to sell more of them year round," he added. "We need to get it into people's heads that it's always a good gift." Combined, his stores boast $100,000 in gift card sales in December 2006 alone, with approximately 80% of them redeemed within the next three months, mostly in January.

While Simon acknowledged that gift card sales definitely help a restaurant's bottom line, he's more focused on getting someone to come into his restaurants who has never been there before. "When they use a gift card, it represents the potential to get a repeat customer," he explained. The British Beer Company's redemption rate is not 100% and Simon would rather see people come in to eat than not use them at all. There are always those people that don't use a gift card and now with new regulations, gift cards must be valid for at least seven years. But customers are what restaurants want. "For us, it's all about the more people that come through the doors, the better business is," he added. "People often spend more than the amount on the card. They don't necessarily look at it as something free, but that it helps with the cost of the meal."

To promote the sale of gift cards, The British Beer Company uses in-store signage and runs advertising during the holidays. The company doesn't use a third-party service so they don't pay transaction fees. The gift cards are purchased outright and software on their POS system tracks where the cards were purchased and in which location they were redeemed. "The best thing for us is to see them using it at multiple locations. All of our restaurants are different, so there is an incentive to see what the others look like," noted Simon.

"Dining out has become very trendy and gift cards really make a great gift," said Nicole Barrick, director of marketing and public relations for Grill 23 & Bar, Harvest and Excelsior. "Gift cards are very good for your bottom line. It's an incremental sale - you get the money upfront and there's a percentage of cards that are never redeemed for various reasons." She explained that it makes it a more attractive gift when there are several restaurants in your group. "We created a gift card that would work in all of our restaurants, because it's a good cross marketing plan. It also increases your marketability for the card, especially during the holidays when companies purchase cards for employees."

Though it's a benefit to be able to use the card at three different restaurants, she noted since the three restaurants have varying price points, a $50 gift card might buy lunch or drinks at one restaurant, but it might not buy dinner at another. And Barrick, too, echoed the notion that gift card redemption usually encourages additional spending. Their gift cards are sold through a service with the company paying a minimal administrative fee. Customers aren't charged for purchasing the gift cards and can order them online with free shipping by regular mail or at any of the restaurants. Recipients can register gift cards online, and if the card is lost or stolen, it's deactivated and a new one issued.

For marketing purposes, the company will mention gift cards in their usual advertising around the holidays since it's their biggest selling season, noted Barrick, though they do see substantial sales of gift cards throughout the year. They promote that they can be used in all three restaurants. "We see a solid stream of redemptions all year. Because of the style of our restaurants, people may save them for a special occasion," she added.

"You can think of a gift card as just a one-time sale, when someone buys a card for $50 and redeems it for that amount. But the real goal here is to build loyalty and your customer base," said Simon. Even if the majority of gift cards are purchased during the holidays they can still help to fill tables throughout the year.