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Why Credit Cards Are Serving Big Restaurant Rewards

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Why Credit Cards Are Serving Big Rewards at Restaurants

Finding a credit card that offered big rewards at restaurants used to feel like ordering vegetarian at a barbecue joint: There weren’t many options, and they often weren’t appetizing. But with consumers spending more on dining than ever before, that’s quickly changing.

In recent years, Chase, Citi, Capital One and PNC have all launched cards with an effective rewards rate of at least 3% on dining, a step above the 2% that was once the maximum dining reward on many cards. These are similar to the rewards on gas, groceries and travel that cardholders have enjoyed for years. And for many users, they’re just plain practical.

“Everyone has to eat. You end up with a lot of people who say, ‘Look, I may not go to New York every week, but I certainly go to restaurants every week,’” says Robert Hammer, CEO of R.K. Hammer, a bank card advisory firm.

Spending on dining out is rising

When deciding what credit card rewards to offer, issuers try to determine which perks will entice people to apply for a card — and then use it regularly. So they pay close attention to how potential customers are spending money.

“We’ve heard directly from [our customers] how important mealtime is,” Mark Mattern, vice president of U.S. cards at Capital One, said in an email. That’s how the issuer came up with a card, introduced in March 2017, that offered unlimited 3% cash back on dining and 2% on groceries. “We know that these are categories that people are spending more in and are passionate about,” he added.

Consumer spending trends reflect that. In 2015, sales at restaurants and bars overtook spending at grocery stores for the first time ever, according to a Bloomberg report citing Commerce Department data. Consumer spending on food services has also been steadily increasing, reaching an all-time high in 2016, according to the most recent data available from the federal Bureau of Economic Analysis. To credit card issuers, these trends present a business opportunity.

“Chase, Capital One, [Bank of America] — they don’t push things that don’t make money. It just doesn’t happen,” Hammer says.

The young and the wealthy are eating out

Issuers don’t offer bonus rewards on dining simply because they want a piece of dining purchases; they also want to appeal to a specific type of consumer. The two groups currently most sought-after by financial institutions — high-income consumers and young adults — happen to be prolific diners.

Among households with incomes in the top 20% nationwide, 49% of food spending went to food away from home, which includes spending at restaurants and fast food joints and on takeout, according to 2015 data from the Bureau of Labor Statistics. That amounts to $6,040 per year, more than 4.5 times what those with incomes in the bottom 20% spent in that category.

Millennials tend to dine out more frequently than other age groups. A December 2016 Gallup poll found that 72% of 18- to 34-year-olds had eaten dinner at a restaurant once in the previous week, the highest rate of any age group surveyed.

These two groups mean big business to credit card companies. High-income shoppers, of course, have more money to spend. That can generate revenue for issuers in the form of transaction fees and interest charges.

Millennials, meanwhile, bring growth potential, a point underscored in Chase’s most recent annual report. “[Millennials’] wealth is expected to grow at the fastest rate of all generations over the next 15 years,” writes Gordon Smith, CEO of consumer and community banking at Chase. The majority of new cardholders with the Chase Sapphire Reserve℠, which features rich dining rewards among several other benefits, were millennials, according to the report.

Would you like rewards with that?

Credit cards with supersized dining rewards benefit issuers, certainly. But if you use yours responsibly and pay the balance in full every month, they can especially benefit you. If you’re deciding which credit card to use for restaurant excursions, and all of your options offer 3% back on dining, look for these features:

  • No annual fee: It generally doesn’t make sense to pay an annual fee just for dining rewards. Many cards these days offer 3% back on dining — and other perks — and don’t charge an annual fee.
  • Unlimited earnings: If you spend big bucks on dining, choose a card without a spending cap.
  • Other rewards and benefits: Dining rewards might be your main objective, but many of these cards offer other perks. Choose one with the benefits that best fit your spending habits. If you’re a commuter, find a card that supplements your dining cash back with gas rewards. If you also frequent the supermarket, get your dining rewards with a side of grocery bonuses.

Getting more cash back, points or miles on dining purchases is great, but it doesn’t have to be the only useful benefit your card offers.

Information related to the Chase Sapphire Reserve℠ and the AARP® Credit Card from Chase has been collected by NerdWallet and has not been reviewed or provided by the issuer of these cards.

Claire Tsosie is a staff writer at NerdWallet, a personal finance website. Email: claire@nerdwallet.com. Twitter: @ideclaire7.