Restaurateurs split on utility of new dining-out card.

Customers grow but small eateries lose money with card

A nationwide restaurant promotion recently introduced into L.A. County is bringing new customers into some eateries but causing other restaurateurs to lose both sales and profits.

The promotion is being offered by North Miami, Fla.-based Transmedia Network Inc., a publicly traded company.

In effect, the company buys meals at half-price -- paying the restaurants in cash -- and sells them to cardholders for 75 percent, pocketing the difference. The cash-hungry restaurants get a wad of cash up front and, in theory, a wave of new card-carrying customers; the customers get discount meals; and the card company profits from the difference between what it pays for meals and what it receives for them.

Transmedia is linked up with more than 3,500 mostly upscale restaurants nationwide and in the United Kingdom, and has more than 375,000 total cardholders. In L.A. County, it has hooked up with 200 restaurants and 17,500 cardholders since the program was started here in November 1993.

Transmedia is certainly profiting from its venture. The company posted profits of $2.7 million on revenues of $36.8 million during fiscal 1993 ended Sept. 30, compared with profits of $1.7 million on revenues of $25.5 million a year earlier.

"We do provide to restaurants a healthy and reasonable additional number of customers," said Stuart Pellman, president of Western Transmedia Co. Inc., the San Francisco-based Transmedia franchisee for California, Oregon and Washington.

Several Southland restaurateurs agreed that the program works.

"I think it's definitely helping," said Anita Turkel, controller of West Hollywood-based Citrus.

Cardholders comprise about 10 percent of the restaurant's total sales. About 95 percent of these cardholders are new customers, and many of become repeat customers, she said.

And sales at Bombay Palace in Beverly Hills have increased about 3 percent since the restaurant hooked up with the program, said Controller Tony Sangh.

But not every Southland restaurateur is satisfied with the Transmedia program. Since it was introduced here, about 15 restaurateurs who signed on have subsequently pulled out, Pellman said.

Some who were unhappy with the program own smaller eateries with less than 75 seats, he said. They may believe Transmedia cardholders ended up comprising too big a chunk of their business, he said.

Alan Jackson, owner of Jackson's Restaurant in West Hollywood, said 38 percent of his current sales are to Transmedia cardholders.

"It starts to play havoc with cash flow," he said. Jackson's has 70 seats.

Another Southland restaurateur who recently canceled his agreement with Transmedia and who wished to remain anonymous said, "All my customers are coming in with Transmedia cards. I'm doing 25 to 40 percent per week in Transmedia and I'm getting destroyed. They're just mailing cards to people. They're not charging anything." This restaurant has more than 100 seats.

Transmedia sells cards directly to consumers for $50 apiece. However, it also offers the cards at little or no charge through "third-party endorsed programs" targeted at affluent consumers who dine out a lot, said Ron Kieves, vice president of marketing at Transmedia.

For example, Los Angeles magazine offers its subscribers free cards good for one year. Also, radio station KTWV-FM distributes cards to listeners who receive the station's newsletter, Pellman said.

David Slay, owner of David Slay's La Veranda in Beverly Hills, said he also canceled his agreement with Transmedia after seven months of accepting its cards. "We did not increase our business by having their card. We lowered our profits," Slay said.

Over half of his customers during the weekends, when the restaurant was already busy, were coming in with cards, he said. And the slower shifts during the week weren't getting any busier, Slay added.

One reason the card is successful is because it places no restrictions upon when cardholders can eat at participating restaurants for 25 percent off, Pellman said.

The card-holding customers actually pay Transmedia for the meals instead of the restaurant. Cardholders sign Transmedia charge slips when they eat. Transmedia then has arrangements with VISA, MasterCard and Discover Card to place on the patrons' credit card bills a debit for the bill's total and a credit for 25 percent of the cost of the bill's food and beverage portion. Transmedia reimburses the restaurants for the tax and tip.

But the restaurateurs are actually taking a 50 percent hit because Transmedia pays them cash up front equal to one-half the amount the restaurateurs agree to provide to cardholding customers in discounted meals.