A Restaurant Survival Tool for Inflation: Cash Discounting

Restaurants and food service businesses of all types are facing difficult times. On the heels of the pandemic, inflation is impacting practically every expense in running a business, including labor, food, transportation costs and utilities.

At the same time, the use of credit cards for payment has increased dramatically over the past 20 years. According to Nilsson Reports, credit card sales in the US have grown from over $500B to well over $900B and are expected to grow another 50% by 2026. At an average cost of 3% to 4% per transaction, the cost to a business is $30,000 to $40,000 per $1,000,000 in credit card sales and even higher if the credit card is tied to a loyalty program.

Consumers have also come to accept fees for the benefits and convenience of paying by credit cards. In the restaurant industry, consumers have accepted fees charged by online ordering and delivery apps. While cash discounting may seem new, it has been around for years, as gas stations have been using it for decades. While credit card surcharge programs are not legal in some states and carry complicated compliance rules, the Dodd Frank Consumer Protection Act made clear that cash discounting is legal in all 50 states, and is easy for merchants to comply with simple disclosure by using signage and customer receipts.

One way consumers are able to fight inflation is by using their credit cards for the rewards tied them. For example, a consumer receives 3-5% cash back on all gas or dining charges. This is how consumers can off-set the rising costs in those areas. Various studies have shown that more credit cards will be used during inflationary times, ultimately costing merchants more in processing costs.

Cash discounting is also ethical and fair and being more broadly adopted without any significant impact on business sales. Why should the merchant have to absorb the cost of the consumer’s credit card based rewards program (such as frequent flyer miles)? Consumers have also come to accept the fact that they will be charged a fee for using their card.

Cash discounting is growing in acceptance with more than 30,000 restaurants and businesses adopting cash discounting programs. Even large corporations like Hilton and Starbucks are coming on board. While a small number of consumers will opt to pay cash, there has been little to no negative effects on consumers choices or loss of business by the merchant. In fact, in most cases overall sales by businesses adopting a cash discounting program has grown sales.

Finally, most existing POS systems can easily integrate a cash discounting program seamlessly for employees and customers.

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