Supermarkets are seeking ways, mainly through greater exposure, to breathe new sales into prepaid telephone cards.
Spurred on by rapid sales growth experienced in a young, emerging industry and some consumer demand, many grocery chains began merchandising prepaid phone cards or telecards over the last two years.
Although real numbers are lacking, sources in the prepaid phone industry estimate that between 200 million and 250 million phone cards were produced and sold last year. Sales are expected to hit between $1 billion and $1.4 billion by the year 2000.
While supermarkets have reaped promising revenues from the industry's initial spurt, many chains report disappointment in achieving consistent sales over a longer period of time. "Phone cards haven't experienced all the growth we thought they might when we initially got into the category. And the customer base is a lot narrower than I had envisioned when I first started looking at the category," said Nick Borze, director of nonfood merchandising for Abco Foods, Phoenix.
Until now, most prepaid phone cards sold at grocery have been from secured locations, either from the cash register drawer or the service counter, to prevent shrinkage of an item considered highly subject to pilferage.
Retailers interviewed by SN agreed that one of the things they can do to boost impulse sales is to make it easier for customers to see and examine phone cards on the sales floor.
Copps Corp., Stevens Point, Wis., initially merchandised its phone cards from behind the service counter for security reasons.
"We hardly moved any cards," said Wayne Gresl, director of nonfood, who admitted it was a losing proposition because the product was out of view.
Copps, therefore, shifted to a vending machine program a year and a half ago. "This has become our silent salesman," he added.
Sales from the vending machine have been "very good, without any labor or investment in inventory," said Gresl, who confirmed it is a profit area for stores.
Carr Gottstein Foods, Anchorage, Alaska, is interested in a nonlive phone card that can be merchandised at high-visibility areas and then activated at checkout. In the next couple of months, the chain may go to a new private-label nonlive phone card that can be merchandised on the selling floor, said Gary Schloss, vice president of general merchandise. "Displaying phone cards off the shelf is the way to go. Customers can actually examine them before taking them to the checkout for activation, which is good both for security and sales," he commented.
Equally important as high-visibility merchandising is promotional support, said the executive. The chain plans to launch its private-label card by running newspaper, television and radio ads and a buy-one-get-one-free merchandise offer.
"Phone cards must be promoted very aggressively or else they sit there at the checkstands," said Schloss.
For the past six to eight months, Harding's Friendly Markets, Plainwell, Mich., has offered an MCI prepaid phone card from behind a service counter. "They can't be seen due to poor visibility," complained Dave Lynam, nonfood buyer.
He added that such prepaid card programs need strong point-of-sale materials to spur higher shelf turns and motivate consumers to head for the service counter and ask for the cards.
"Point-of-sale materials such as large signs can spark life into the program and build shopper awareness," he said.
Lynam believes the phone-card industry can do more by providing ads, couponing and point-of-purchase aids to alert customers that retailers carry prepaid phone cards at the courtesy counter.
Associated Wholesale Grocers' Value Merchandisers nonfood division, Kansas City, Kan., is working on a slightly different arrangement with its phone-card supplier.
Instead of buying cards for one set, upfront fee per minute, some 250 supermarkets pay for their phone cards as the cardholder uses up the minutes on the card. Under this payment arrangement, retailers are billed when the minutes on a card are used.
The program has worked favorably since it was introduced two years ago, according to Jim Colyer, director of merchandising. "If this wasn't working well, I wouldn't be doing it that way," Colyer assured SN.
Stanley Rosen, vice president of sales at Global Communications Network, Studio City, Calif., the card supplier, pointed out that most supermarkets pay up front for their phone cards, or as soon as they are activated.
The phone-card program was set up for Associated's retail accounts using cards priced from $10 at 29 cents a minute to $25 at 25 cents per minute.
phone-card sales have grown steadily at Associated's retailers as customers have become more familiar with the merchandise, said Rosen.
"The retailer doesn't pay for unused time left on a card, or if the card is never used," said Rosen. Retail margins are in the 45% range, he said.
Associated's retail accounts use fliers, ads, window signs, posters and danglers to get the message out that phone cards are in their stores. Checkout employees also wear buttons to remind shoppers that phone cards are available.
Running a buy-one-get-one-free sales campaign also stimulates new sales, Rosen said. Baker's Supermarkets, Omaha, Neb., experienced a tenfold increase in phone-card sales when it ran a buy-one, get-one-free promotion about six months ago, he added.
Rosen said his firm has begun a phone-card program in which the cards can be displayed at the checkouts and scanned for activation on equipment similar to a credit-card reader.
For too many years supermarkets, because of security concerns, have merchandised phone cards using "a benign sales tactic" by hiding them in registers or behind the service counter, Rosen commented.
In a move to take the flatness out of its private-label phone-card sales, Abco Foods, Phoenix, will begin to review its phone-card program, said Borze.
"We've been happy with sales, which were new sales, since we first introduced phone cards, but it's time to review our marketing approach," he stated.
Vending is being considered as one way to give phone cards a fresh look and greater visibility. Presently, phone cards are being sold at the checkout.
Abco has found demographics an important factor in phone-card sales at various stores. Higher-volume sales are coming from stores in lower economic areas, he said.
Although Abco's phone-card sales have been consistent, they haven't grown. While phone cards are a handy convenience, consumers still use regular major telephone company cards like AT&T, said Borze.
"There is no question prepaid phone cards are a value over normal long-distance fees. But I don't think people are concerned about the savings since most don't use long distance that much," he said.
Despite the flurry of various collector phone cards like Michael Jordan's to spur people into buying, "I don't see that any of that has translated into sales," said Borze.