STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of March 28, 2023
TO: Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Tim Rood, Community Development Director
SUBJECT: Yiftee Digital Gift Card Program Guidelines
RECOMMENDED ACTION:
Staff is requesting the Council provide direction by minute order whether to:
Modify the program guidelines to allow Yiftee cards to be used to purchase Hercules Recreation Department fitness and other classes taught by contractors; and/or Modify the program guidelines to reduce the maximum purchase limit per card from $250 to $100, as recommended by staff.
BACKGROUND:
On April 26, 2022, the City Council authorized the City Manager to execute an agreement with Yiftee for a Shop Local/Gift Card program for $65,000. At the February 28, 2023 meeting, the City Council authorized the extension of the program and added an additional $75,000 due to the successful launch of the pilot program. Council also inquired whether the program guidelines would allow fitness and other classes taught by contractors in City facilities to qualify for the program.
The American Rescue Plan Act (ARPA) provides relief to local governments and enables them to lay the foundation for a robust economic recovery. The one-time infusion of funds is welcomed as it will help mitigate losses incurred in the community during the pandemic, which has extended for almost two years. The sooner a recovery plan is developed, the faster the City can stabilize operations, get the local economy back on track, and support those in the community most impacted by the pandemic.
The Yiftee Community Digital Gift Card program is a cost-effective way to stimulate the local economy and assist small businesses in recovery. It also provides additional savings to residents who shop locally.
Yiftee has no set-up or monthly costs, and the additional $75,000 of ARPA monies the Council authorized on February 28, 2023 will pay for:
The $1+5% eDelivery fee (purchaser fee) plus a $1 bonus gift fee per card.
A bonus gift card to incentivize the use of the program and provide a benefit to all community members.
Branding costs associated with the development of the “shop local Hercules” campaign.
Marketing costs for advertisement and promotion of the program and related point-of-sale signage and posters for participating businesses.
ANALYSIS:
Staff is requesting the Council provide by minute order direction whether to:
Modify the program guidelines to include Hercules Recreation Department fitness and other classes taught by contractors; and/or Modify the program guidelines to reduce the maximum purchase limit per card from $250 to $100, as recommended by staff.
Except for swim classes, most Hercules Recreation Department fitness and other classes are taught by contractors. Participants register and pay for these classes through the City, and the contractors receive a percentage of the revenue. Adding these classes to the Yiftee program would benefit consumers of those programs by doubling the value of the cards they purchase, which could spur additional demand. To the extent that inclusion of Recreation Department classes in the Yiftee program spurred additional demand, the program would also benefit the contractors who instruct the classes. The City would also accrue a portion of any additional revenue generated by this change, so the Council may wish to discuss whether this expansion of the program would be consistent with the goal of encouraging residents to patronize local small businesses.
Reducing the maximum purchase limit per card would reduce the potential for an issue that Yiftee indicated had become an issue in some other communities, where certain merchants have accumulated a disproportionately large share of the redemption value. This could occur legitimately due to more effective marketing of the program by certain merchants, but could also occur due to questionable practices, such as merchants purchasing cards on behalf of their customers. The City’s economic development consultant, HdL, worked with Yiftee to outline options to reduce the potential for any one merchant to claim a disproportionate share of the ARPA funding. Options recommended by Yiftee included 1) capping the redemption value for any one merchant and removing that merchant from the list of eligible redemption sites once that value was exceeded, or 2) reducing the maximum purchase limit per card.
In the first phase of the Shop Local Hercules program, a total of 1,681 Yiftee card redemption transactions were made, with a total redemption value of $103,056. The number of redemptions per merchant ranged from 1 to 261, with an average of 66, and the average value per redemption ranged from $15.71 to $215.92, with an average of $76.37.
Based on analysis of the redemption patterns from the first round, staff recommends reducing the maximum purchase limit per card from $250 to $100. This approach would minimize confusion for card purchasers by ensuring that Yiftee cards remain redeemable at all participating merchants, while also reducing the potential for abuse of the program.
The current program guidelines and potential decision points are shown below, with potential changes bracketed and shown in bold.
Shop Local Program Bonus Gift Incentive
Many communities are integrating a bonus gift incentive to the community to encourage the success of their programs, amplify the infusion of dollars into the local economy and provide incentives to shop local. Typically, community digital gift card programs have a resident buy a gift card (for example) valued at $50, with the initial investment from the resident being $25. Then they receive a ‘purchase bonus’ amount of another $25 paid by the city through ARPA funding. In other words, it is ‘buy one and get one free’ for residents. Hercules has adopted the following incentive system to pilot with the Program, which will be available to all purchasers of community gift cards:
Buy a gift card valued at greater than $5 and receive a bonus gift card equal to the value purchased, with a maximum purchase limit of [$250 (current) / $100 (proposed)] per card with the promotion.
A limit of 5 cards per customer.
The Gift Card (original purchase amount) does not expire. Still, the staff recommends that the bonus gift card expire six months (120 days) after purchase (any expired unspent bonus gift funds would be returned to the City for redistribution after a restocking fee).
The City will pay all purchasing and delivery fees during the Pilot Program while funds remain (first come, first serve).
Eligible Businesses
Hercules has adopted the following parameters for business participation in the Pilot Program:
Is a for-profit business [or City of Hercules Recreation Department class taught by a contractor] in one of the following categories:
Retail
Restaurant/Cafe
Personal Services limited to the following only:
hair stylists
barbers
estheticians
massage therapists
gyms
nail salons
dry cleaners
tanning salons
pet groomers
fitness/specialty studios including martial arts, yoga, dance, and music Operates from a physical storefront [or City facility]
(home-based businesses are not eligible)
Maintains a current City business license
Has no open code enforcement actions
Has 20 or fewer full time equivalent employees as of December 1, 2021 Is either independently owned/operated or a locally-owned chain (i.e., local outlets of chains or franchises headquartered outside of Hercules are not eligible) FISCAL IMPACT:
There is no fiscal impact associated with this item. Funds have already been appropriated in the ARPA fund under expenditure account #353-3005-611.90-00 (Project No. ARP218) for the first amendment to the existing agreement. The first amendment increased the total contract amount under this agreement by $75,000, for a total amount of $140,000.