Compact displays of plastic cards are greatly broadening the offerings of many supermarkets.
The prepaid cards, often bought as gifts and usually positioned near the checkouts, also are a loss-prevention officer's dream as they have no value until scanned.
The category got its start at retail with long-distance telephone calling cards and has recently evolved with the many prepaid wireless phone services on the market. Prepaid cards for cell phone ringtones and games as well as music downloads also are available.
There's more. Beyond gift cards for the host retailer itself, many chains now offer prepaid cards for such diverse merchants as home improvement, electronics, department, toy, book and clothing stores as well as restaurants, movie theaters and hotels, among others. Wal-Mart Stores, Bentonville, Ark., even ties proprietary cards to its gas stations, offering an additional three cents off per gallon when a customer uses the Wal-Mart card to make a gas purchase.
Sales numbers are significant and growing. Tower Group, Boston, reported that consumers bought more than $48 billion worth of cards in 2004. Coinstar, Bellevue, Wash., predicts the prepaid gift-card market to grow to $90 billion by 2007. The Coinstar National Currency Poll showed that gift cards are most preferred by young adults, ages 18 to 44.
"It's doubling every year," said a nonfood executive with a Northeastern retailer. "It's a very important category, and it's a gifty item. It will probably be one of the top three gifts in this holiday season." Cards are merchandised in multiple locations, although there is one primary rack, the executive told SN.
Prepaid cards also are growing for Bashas', Chandler, Ariz., said Bryon Roberts, vice president, GM. "This year we are expanding the program." Along with Bashas' own cards, "we're going into another program that allows us to have outside partners, like the Home Depots, the Starbucks, the Sears, all those types of cards. We'll have merchandisers in all of our stores with those cards on them," he said.
"Everything that we've been shown indicates that there is an opportunity for a potential of half a million to a million dollars in sales in the first year from those cards, so we are going to try to capitalize on that business," Roberts said.
Stop & Shop Supermarket Co., Quincy, Mass., started a prepaid gift-card program earlier this year and will emphasize it during the upcoming holiday selling season, said Peter Hettinger, who until recently was vice president, nonfoods for the chain. He is now with Meijer, Grand Rapids, Mich.
While still with Stop & Shop, he said, "it's providing us another solution for our customers in terms of an overall one-stop shopping convenience. People are looking for solutions that are easy." Cards can also appropriately be merchandised with greeting cards, he noted.
"You are going to continue to see prepaid cards grow, and we're going to continue to look for ways to market them to our consumers just because they do so well," said a nonfood executive with an east Texas retailer. Noting how mass merchants took advantage of the cards during last year's holiday season, he said, "if you don't have a nice card program out there and promote it, then you are going to lose some sales dollars."
Long-distance phone cards remain important to some ethnic groups, said Gordon Thompson, district manager, Rosauers Supermarkets, Spokane, Wash. "I think you will see an increase in the cellular phone cards and an increase in ethnic cards, such as those for the Hispanic shopper," he said.
"The gift, loyalty and membership industries continue to be on the rise as more and more companies embrace the power of plastic-card programs to bring new business through their doors and keep customers coming back," said Eric Blank, executive vice president, Arthur Blank & Co., Boston, which supplies card programs.
"Consumer demand for stored-value cards has not only increased retail revenues, but also created a natural marketing channel for companies. Gift-card programs attract new customers, while loyalty programs retain them," he said.
"I think gift cards make a lot of sense in supermarket retailing," said Lee Zukor, customer experience technologies manager, Accenture, Richfield, Minn., which runs the outsourced Best Buy Technologies Group. "For instance, a prepaid Thanksgiving dinner would make a great gift; prepaid groceries make sense for a consumer on a budget; and offering a prepaid option to consumers is a strong branding strategy."
Fedor Smith, director of strategy, Atlantic ACM, Boston, said, "Prepaid cards have mass market appeal. Box stores sell them, and there is no reason not to at supermarkets."
For example, "they place an affinity toward the store and add store value from the customer's point of view," he said. "If a supermarket developed a joint venture with Visa to develop its own card and offered benefits to using the card at the store, like a loyalty card that also carries money -- that has both loyalty and credit functionality -- that would be an interesting venture. The added affinity toward the store would make the card functionality all the better."
Supermarkets also present a valuable location for prepaid refill kiosks because of their foot traffic and repeat visits, Smith said. "Kiosks are successful in day-to-day shopping locations and local points of commerce. In many areas supermarkets serve as those places," he said.
"It would be smart for supermarkets to make themselves players in the use of this product," Smith added.
However, supermarkets also need to be aware of the legal ramifications of prepaid cards (see sidebar). "Supermarkets should take care to ensure that gift cards they issue comply with the applicable laws in the states in which they sell the gift card," said Debbie Thoren-Peden, who heads the Consumer and Retail Practice at the Los Angeles office of law firm Pillsbury Winthrop Shaw Pittman.
Although this may seem obvious, it is not easy, she noted, as there are about 100 state laws applicable to gift cards. Such laws include prohibitions on expiration dates, specific disclosure requirements regarding fees, and other terms and conditions, she said.
