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Is the Restaurant Gift Card Still an Okay Gift — And Was It Ever?

It’s like money, but with more rules!

Getting a gift card isn’t always the treat it’s intended to be. Say, for instance, you’re given a $50 gift card for a chain restaurant. Let’s call it Lasagna Mansion: It’s not necessarily a chain you really love, but a gift is a gift, so you and your partner arrange to go. That 50 doesn’t cover both of your meals and drinks, plus there are additional costs — getting there, babysitting (if applicable) and so on — and somehow you end up $100 of your own money down for a meal you didn’t really want. Should a gift really end up costing you money? 

And maybe you don’t really want to show off about going to Lasagna Mansion, but feel guilty, and you are on a night out after all, so you post a picture, and the only comment is the person who gave you the gift card going “You’re welcome!” even though you paid for most of it, and nobody else puts anything on it, and you feel bad, and the person who gave you the gift card feels bad, and it’s just awful.

And you think about why it’s awful, and while you don’t want to be thought of as someone who sees themselves as too good for Lasagna Mansion, you also don’t want to be thought of as someone who sees Lasagna Mansion as the pinnacle of luxury and sophistication, and you wonder what that says about you, and you don’t get any sleep, and argue with your partner, and FUCKING CHRIST.

And that’s if you even go. You might never get round to it, or lose the card, or forget you have it. You might not like lasagna. You might love it, but not know anyone else that likes it and not wish to visit Lasagna Mansion solo. Also, there’s a pandemic on, meaning it might not be open, and if it is, you might not really want to go and sit in a restaurant with a bunch of unmasked diners.

The only winner in this situation, really? Lasagna Mansion.

Why Are Restaurant Gift Cards So Popular?

There’s a reason gift cards are so popular (and they really are — Americans spent $171 billion on them in 2018, and they make up 55 percent of the average shopper’s annual gift budget). They feel like a great thing to buy someone, especially if you don’t know them particularly well — it’s less gauche than handing over cash, plus comes with a kind of guarantee that they’ll be used for something nice. And, importantly, they’re really easy to buy. There’s no worry of getting someone a book they already have, a shirt the wrong size, a necklace they absolutely hate, etc.

Cash, as well as feeling a bit soulless as a gift, can easily end up just getting absorbed into everyday life, and even a fairly generous sum can disappear on simply existing without anything really to show for it. Giving someone a gift card for a restaurant, you’re giving them an experience — better than a physical gift, say Stanford academics — but allowing them to make the actual nuts-and-bolts decisions of when they go and what they eat.

And yet, isn’t a gift card pretty much the same as cash, but a shitty, not-as-good version?

Cash v. Cards

You can absolutely see a gift card as an expression of a lack of trust. It involves the same lack of imagination as giving someone cash, but comes with rules. At the risk of stating the glaringly obvious, money — actual cash money — can be exchanged for a range of goods and services, while a gift card ties you to one company. You can’t pay your electricity bill with a Lasagna Mansion gift card (or become every grandparents’ nightmare — a crisp $50 bill that goes straight from birthday card to drug dealer). Money accrues interest — tiny amounts at the moment, but still — while the best a gift card might get you is your twelfth coffee on the house (actually, in case of that one particular coffee chain, it works out to a 3 percent return on investment, which is pretty good, but that’s beside the point). Money also, crucially, doesn’t expire.

Gift cards generally aren’t held onto for very long. Seventy percent of cards are redeemed within six months of purchase, or they were in 2019 when things were slightly different. That goes up to 80 percent by the one-year mark, and kind of peters out after that — the people whipping out gift cards from three birthdays ago to pay for a meal are few and far between. Generally, the longer you have a gift card, the less likely you are to spend it. Right now, with the whole pandemic going on, going to restaurants — if that’s even an option where you live — isn’t as appealing as it used to be. Are those gift cards going to end up expiring, forgotten and unused? 

Ideally not. 2009’s Credit Card Accountability Responsibility and Disclosure Act (known as the CARD Act, which someone was presumably really pleased with themselves about) says gift cards can’t expire before five years from the date of purchase — realistically, if we’re still not going to restaurants in five years, there probably won’t be restaurants anymore, so it’s all kinda moot.

Where’s the Money?

Before a gift card is redeemed, it exists in a kind of financial no man’s land. Goods have been paid for, but in a way laden with mystery — what are they going to be, and when, and from which branch? At some point, a branch of Lasagna Mansion is going to need to produce a lasagna without expecting you to hand them any money, and they need to make sure it all works out financially. There are huge sums of money in this hinterland — Starbucks alone has more money floating around people’s wallets in gift card form than many banks (smallish banks, but still banks) have. If you give them $50 for a gift card in 2020 but don’t redeem it until 2022, when did they actually make that $50?

Most big-ass companies use a system known as accrual accounting, under which they only count the money as revenue when the cards are redeemed. However, if they aren’t redeemed within a certain amount of time they get nudged over into the “let’s assume this is free money” column, known as breakage income

Basically, Lasagna Mansion wins whether you redeem the card or not. If you don’t redeem it, they make 50 bucks for doing nothing at all. If you do redeem it, 75 percent of the time you’ll spend extra money of your own, an average of $59. Viva Lasagna Mansion!

Will Gift Cards Keep Small Businesses Alive? 

The titanic conglomerate Lasagna Mansions of the world are likely to be fine, but what about smaller places more reliant on day-to-day income? Will buying gift cards for post-pandemic meals from cutesy artisan family-owned places — Ye Olde Ravioli Hovel — keep them from the chopping block? 

Yes and no. Early in the pandemic, a lot of smaller places turned to selling gift cards as a short-term cash injection. In March, a San Antonio restaurateur told the Washington Post, “Gift cards are like interest-free loans.” In buying a gift card from a smaller business without the mega-assets a huge chain has, you’re basically lending them the cash for a while, to be paid back in deliciously edible form at some point down the line. 

While this has helped in the short-term, helping them pay staff and rent, they’re potentially in a lot of trouble when everyone comes to redeem their cards — if a restaurant ends up full of people chowing down on gloriously undistanced raviolis, but no money is newly changing hands because they all paid months before, that restaurant is not making any cash. 

What should you, an enthusiastic Ye Olde Ravioli Hovel customer, do? If you’ve put a bunch of money into their gift cards, when they reopen, stagger using them over multiple visits — use 10 bucks a go, or a percentage of your bill, or whatever you feel happiest with, in a way that means you’re not losing out on the money you paid, but the restaurant still has plenty of actual cash coming in. Everyone wins. They get you as a repeat customer, and you get to feel both full and generous.

So With the Holidays Coming, Where Are We With Gift Cards?

They’re what people want, right? Fifty-nine percent of people surveyed by the National Retail Federation said they were hoping to get gift cards in some form for Christmas. However, that includes prepaid credit cards, which are much closer to just giving someone cash and can be used for things like bills and gas (and, in this futuristic age, drugs). 

Don’t buy gift cards for big crappy chain restaurants. The money can be better spent elsewhere, and whoever you give the card to will only assume you got it from filling in a bunch of bullshit surveys anyway. Supporting small businesses is incredibly important at the moment. Data from OpenTable suggests one in four restaurants that has shut down will remain that way, and as long ago as July, Yelp reckoned 16,000 restaurants were gone for good. While they have subsequently claimed a surprisingly healthy amount of new catering businesses are opening, a large proportion are of the lower-overhead, donut-truck variety rather than a brick-and-mortar restaurant. That means fewer employees and a lot of people out of work.

When going out to eat becomes part of normal life again rather than feeling like an anxiety-filled flirtation with death, people need to put their money and mouths into keeping interesting, independent, diverse places alive. Sure, in terms of gifting, it might be a bit more complicated than a plastic card in an envelope. It might involve things like trusting each other to spend wisely, or unsentimental real-time Venmo-ing in the absence of that, but if we don’t try, a lot of these places simply won’t make it, and the only places that will survive will be huge, faceless, soulless chains, and where will we be then?

Sat in the goddamn Lasagna Mansion.

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