Breaking Bread : Puck Deal Indicative of American Express' Renewed Efforts

By DENISE GELLENE

May 8, 1996 12 AM PT

TIMES STAFF WRITER

The Chef has decided to take The Card--at his Wolfgang Puck Cafes, anyway.

Puck’s change of heart is only a small victory for American Expresss, since its card still isn’t accepted at Puck’s famous Spago and Granita restaurants. Puck dropped American Express from those restaurants in 1994 when he formed an alliance with the card’s rival, Visa, to save money.

In the war among the credit card companies, apparently even small victories are worth celebrating. American Express is announcing details of its alliance with the small cafe chain at a special press luncheon today to be attended by Puck and his wife, decorator Barbara Lazaroff. Local TV has been invited.

The hoopla surrounding the business deal shows how badly American Express wants to repair its image with merchants. Led by a band of vocal restaurant owners in Boston, several prominent companies stopped accepting the American Express card, complaining about fees.

American Express greeted merchant defections with hardball tactics. When Puck dropped the card, American Express took out newspaper ads advising readers to “consider the thousands of other fine restaurants in the Los Angeles area that gladly welcome American Express.”

The ad caused some hard feelings within Puck’s organization, said Tom Kaplan, managing general partner of Spago.

“It was nasty,” he said. “We expected it to a large degree because that is how they react.”

But at the same time, he said, the assault drew attention to Spago and helped get the word out that the card was no longer accepted.

“I guess on some level, any publicity is good publicity,” Kaplan said.

Kaplan said he and American Express are in discussions over accepting the card at Spago, but it is not clear that any deal will be reached. Since dropping the card, he said, Spago has saved $30,000 annually in credit card fees and Granita has saved $15,000.

“Those are significant amounts when you are operating on thin margins,” he said.

To win back former customers, American Express has been shaving the fees it assesses merchants to process purchases charged to the card. The company has also been more aggressive about offering promotional support; it is experimenting with a reservation system for restaurants.

In 1995, the card made significant gains with merchants, including a deal with Wal-Mart and further inroads with gasoline stations and grocery chains. In its annual report, it stressed that the four rebellious Boston merchants have rejoined the fold.

But some Wall Street analysts believe that American Express will have to cut its fees further to build its merchant network. According to the industry newsletter Credit Card News, American Express assesses merchants 2.77% of the amount charged to the card, compared to 3.11% in 1992. Visa and Mastercard assess a fee of about 2%, the newsletter said.

Visa is accepted at more than twice as many locations worldwide as American Express--a point the San Francisco-based card company stresses in its TV commercials.

Visa wasn’t too impressed with American Express’ agreement with Puck involving the cafes. A spokesman said that Visa still has a relationship with Puck’s tony restaurants, where a meal can cost three to four times as much as at the cafes. Visa continues to help promote the restaurants and support Puck’s meals on wheels program.

Naomi Pollock, marketing vice president for Wolfgang Puck Food Co., said that the cafes decided to add American Express to its roster of credit card companies to give its customers more choices. Not to mention the promotional package American Express is offering.

Now there’s a chef who can have his credit card cake and eat it, too.

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An Appetite for Plastic

Although the number of American Express cardholders has increased since 1991, the amount charged to the card in relation to Visa and MasterCard has decreased. A look at the number of American Express cardholders and the dollar volume of credit card purchases for Visa, MasterCard and American Express:

Number of American Express cardholders

(in millions)

1995: 26.7

Dollar share of credit-card purchases

1990

Visa: 43.0%

MasterCard: 26.0%

American Express: 24.0%

Other: 7.0%

1995

Visa: 47.3%

MasterCard: 26.5%