Rover’s Restaurant is implementing an innovative method of raising capital for their expansion plans. They are offering people gift certificates of $1,000 that are worth $1,305 in food. The core offering:
Pre Purchase Amount: ____x $1,000.00 = __________
You will receive your gift certificates in 3 parts.
Distribution Dates: March 2010/ March 2011/ March 2012
For example: If you pre purchase $1,000 in gift certificate:
March 2010: Receive a $435 Gift Certificate Card
March 2011: Receive a $435 Gift Certificate Card
March 2012: Receive a $435 Gift Certificate Card
Gift Certificate Total: $1305.00, more than 30% added value
*Gift certificates are redeemable at both Luc and Rover’s.
This method has precedent. As one example, a local coffee shops allows me to prepay in to a coffee card. For this I get two free coffees over a certain period, which is different than a “Buy ten get one free” customer loyalty cards which gets a mark on the card every time I purchase over time (can’t recall which company right now, I need more coffee this morning).
This is also similar to how a Community Supported Agriculture (CSA) business operates. A customer commits to pay a certain amount of money every month or week for a certain amount of product every month. This system answers a critical cash flow issue for the farmer and adds stability to their sales as well as helps them determine more accurately what seeds to plant. The buyer gets a stable supply of food and can plan meals around the deliveries.
This ‘pre-pay’ method of raising capital can be attractive to both customer and restaurant. The customer gets more food dollars than they pay, while the restaurant gets to utilize the time value of money (loosely, having money in hand today is worth more than the same amount of money in hand later, same as the old saying “a bird in the hand is worth two in the bush”).
The purchasing power of the dollars will probably decline over time if prices for the products rise. In other words, the $435 reedeemable for food purchase in 2010 will most likely buy more food than the $435 reedeemable in 2012.
Of note: this is $1,000 that you do not have sitting in your bank account gaining interest, or invested in some strategy. According to bankrate.com, the highest national yield rate on a 3 year CD is currently 0.8%.
Time will tell if this is successful in the current market climate.
For more information see http://www.rovers-seattle.com/ and scroll down to “Pre-Purchase Gift Certificates.”