Operators turn to 'plastic' bartering

Nation's Restaurant News, Jan 9, 1989 by Richard Martin

Operators turn to 'plastic' bartering

NEW YORK -- Thousands of restaurants across the country are conserving cash and protecting their repurations by using "plastic" as a discreet means of bartering meals for advertising.

After being enlisted by specialized middleman firms that buy media space and time with meal credits, the restaurants pay for their advertising by accepting plastic charge cards issued to the firms' discount-dining club members and media contacts.

Establishments bartering with these specialized brokers are as varied as Carmine's, a traditional Italian restaurant in Los Angeles; Cinco de Mayo, a trendy Mexican dinner house here; and Regine's, a swank Park Avenue operation, also in this city. Houlihan's, Magic Pan, and Beefsteak Charlie's are among chains linked to the barter-charge plans.

Cash is generally exchanged only when the club members pay the barter broker for meals less a menu-price discount of between 20 percent and 30 percent, depending on the broker.

Restaurants affiliated with certain barter outfits agree to swap meals for ads or other services at a dollar-for-dollar exchange rate. Because of typical menu-price markups, other brokers command $2 in meal credit for each dollar in advertising yet still offer operators savings that are theoretically about 20 percent below direct, out-of-pocket expenditures for advertising.

Most operators believe the plastic route to trading meals for media exposure helps them avoid the cut-rate stigma of scrip or coupon exchange, two more common and obvious models of meal-credit redemption.

"You can't be careful enough; I don't wan may cash customers to feel like fools," explained New York restaurateur Peter Aschkenasy, whose Charley O's in the Park Avenue Atrium pays for advertising with meals through a discount broker. "I won't allow [Charley O's] to be listed in an ad [for the dining club]," he emphasized.

In theory restaurants and brokers both profit from favorable exchange rates: The restaurant gets advertising value pegged to menu prices, not to the actual costs of providing payoff meals.

The broker, in turn, charges the restaurnts full rate-card fees while actually getting a typical 15-percent agency discount on the bartered media buys. Advertising placed in a broker's self-published dining guide makes for even higher margins of credits for the broker to spend or sell.

Meal credits are also used by brokers to buy supplies or other goods desired by the restaurants at special prices below those available to the operator.

"I'm working with a restaurant in Florida that is bartering for equipment, supplies, and advertising," said Perry Silver, chief executive of New York-based Reciprocal Merchandising Services, the 30-year-old firm whose Travel World Leisure Club card is held by some 20,000 members. "But [the goods exchanged for meals] can be anything; we try to give you what you need," added Silver, who lists tablecloths, uniforms, chemicals, even vacation cruises among the possibilities.

Because of rate breaks extended to barter brokers, they are able to derive the "excess inventory" of meal credits that are sold at discount to dining club card users. Card holders typically pay a $50 annual fee and agree to have their Visa or Mastercard accounts billed at full prices if they fail to pay their monthly bills promptly.

Although barter brokers are assured of payments from cardholders, they are occasionally stung by the demise of a restaurant, resulting in credits that can no longer be redeemed.

Such cards as Reciprocal's Travel World Leisure Club and the In Good Taste card, issued by New York-based IGT Services to 87,000 cardholders, are good at a total of about 2,000 affiliated restaurants from coast to coast.

New York's Citibank, whose CitiDining Card is still accepted at 1,000 restaurants in 16 cities, recently decided to phase out the card as its memberships expire. A spokesman said administrative "problems" prompted the decision to scuttle the program.

However, two other barter brokers, with a few hundred New York-area restaurant clients, have plans to expand their operations to other major markets: the Transmedia Executive Savings Card (14,000 cardholders), from Transmedia Network, and the ACT card (2,000 cardholders), from Advantage Charge Trading Corp.

The clientele of Reciprocal, regarded as a pioneer of the restaurant-barter field, is predominantly higher-end independents, including such exclusive operations as Regine's in New York. About 10 percent of the restaurants accepting the Travel World Leisure Club card are branches of such chains as Magic Pan, Houlihan's, and Beefsteak Charlie's.

"We have had Burger Kings and McDonald's, too, but generally we want a tablecloth restaurant," Silver explained.

SEasonal slowdowns in business tend to motivate many of Reciprocal's high-end clients to barter meals for advertising promotions. "The January-through-March period is slow, so a lot of three-star restaurants will want to do something to conserve their cash, and that's smart," Silver said.