When it comes to winter, we look to the noble groundhog to tell us how long it will last. When it comes to the stock market, many people look to pin-striped prognosticators on TV to tell us whether it's heading up or down. And when it comes to credit cards, we all look to Waffle House to tell us whether they're here to stay.
Right?
OK, I'm joking -- but just a little. You may have missed this important news story, but Waffle House, a 51-year-old major dining chain sprawled across some 25 states in 1,500 locations, has made a big change.
It had a long-standing tradition of just accepting cash for the meals it provides. A 2005 USA Today story, for example, noted that, "There are no plans to end the cash-only policy (credit cards would be too slow, [company head] Rogers said) or to change the menu."
Well, flash forward to 2006 and voila -- a big announcement. Beginning in 2007, credit cards will be accepted at all of the company-owned locations (which number more than 700). Waffle House V.P. Walt Ehmer explained the change, saying, "We wanted to make sure credit cards were here to stay before we started accepting them."
So there you have it! The future is looking good for credit cards. (Learn how to make the most of them in our Credit Center -- instead of getting taken for a ride by card-issuing companies.)
On a more serious note, though, Ehmer was joking. A more realistic reason for a business to not honor credit cards is that it can save money that way. Merchants are generally charged a little money each time you hand over your plastic to buy something, and the fee is often around 2%, a not-insignificant sum. That's the bad news.
The good news is that by accepting plastic, merchants can accommodate more customers, as many people keep little cash on them. In addition, they can hike their prices by, say, 2%, in order to cover their credit-card expenses. And one more advantage is that by dealing with plastic, they'll end up with less cash in their registers and will have less for thieves to steal. (This is a real concern for many businesses. Many gas stations, for example, welcome the use of plastic.)
If you're now interested in possibly investing in Waffle House, I've got some bad news for you. The company is privately held. (But hey -- things change over time, remember?) Still, you can make money off the credit card industry, even as it makes money off others. The four big names in credit cards are Visa, which is planning to go public in late 2007 or early 2008; MasterCard (NYSE:MA), which recently went public; American Express (NYSE:AXP); and Discover, which is owned by Morgan Stanley (NYSE:MS), and which is expected to be spun off into an independent unit, probably in 2007.
Our own Inside Value newsletter recommended MasterCard back in the summer and the stock has surged more than 100% since then. (Test-drive the newsletter for free, and you can see all its other recommendations.) The company is facing some legal questions, though -- see what Stephen Simpson had to say about that.
If you'd rather just invest in waffles, then look into Denny's (NASDAQ:DENN) or IHOP (NYSE:IHP).
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
