Retailers are increasingly offering a diverse array of financial services, adding to the one-stop shop and the bottom line
Supermarket customers have started doing a lot more with their money than just shop.
In a quiet trend that only recently got noticed, supermarkets and retailers in other channels have started to offer financial products and services in their stores. Technological advances at the front end and on the Internet have helped enable this.
Wal-Mart Stores' recent attempt to start its own bank, and then its subsequent retrenchment to other financial services, called national attention to this trend, which has been developing over the past couple of years and is expanding at a steady pace.
For example, Wal-Mart, Bentonville, Ark., introduced a reloadable debit card along with a host of other financial services. Kroger Co., Cincinnati, has its own Personal Finance Product line. Meijer, Grand Rapids, Mich., offers a variety of credit and a debit card, while H.E. Butt Grocery Co., San Antonio, sells a range of insurance through its H-E-B Insurance Agency. Smaller retailers also are taking advantage of financial-service opportunities.
Meanwhile, a large number of supermarkets have long partnered with outside companies to offer such services as coin counting, money transfers and ATMs.
While some of these services can be rendered at banks, many of which have branches in supermarkets already, U.S. shoppers want and sometimes need to access them at retail.
“We have financial-service activities in the store as a convenience and as an offer of security,” said Jack Brown, chairman and chief executive officer of Stater Bros. Markets, Colton, Calif. “Our stores are bright and secure, and customers can come here rather than go someplace less safe or inviting.”
For example, Stater Bros. offers Coinstar coin-conversion machines since it operates in Southern California where “many people work in restaurants, cocktail lounges and airports. They get tips that amount to a lot of change,” he said.
Area banks, savings and loans, and credit unions also operate out of some stores, Brown said. He finds that of the three, credit unions are “coming on very strong with customers.”
Designated as not-for-profit institutions, credit unions tend to charge lower interest rates on loans and provide higher interest rates on savings accounts than banks, making them ideal for customers looking for better service or trying to grow a limited income.
Their popularity, as opposed to that of traditional banks, falls right in line with the emergent use of other retail financial services.
For some of the population, those who are able to procure checking accounts and credit cards, it's all about convenience and one-stop shopping. For others — known as the “unbanked” and “underbanked” — factors like low incomes and bad credit keep them from gaining access to mainstream financial services.
“[Retail] financial services add convenience for the non-banked consumer, with benefits to the retailer in traffic flow,” said Frank Bucciarelli, director of management support services, Binghamton Giant Market, Binghamton, N.Y.
Binghamton Giant Market recently upgraded from a dial-up transaction terminal to a faster Internet-based electronic bill payment service. At the customer-service counter, shoppers can walk in and pay off their bills with cash, and the new system makes the process much quicker.
“It adds convenience and another aspect to one-stop shopping,” Bucciarelli said.
According to figures from Wal-Mart, Americans spend at least $13 billion on over 340 million alternative transactions at check-cashing centers, money-wiring stores and payday loan outlets per year.
LEADING THE WAY
Among the retailers and partnering financial institutions that are meeting this need at every angle, the most aggressive and largest examples are, predictably, Kroger and Wal-Mart, with Meijer not far behind, industry sources said.
“Leading players such as Wal-Mart and Kroger will continue to push the boundaries of what their customers will allow them to be,” said Sandy Skrovan, senior vice president and manager of the Food Drug Mass Program of the Retail Forward Intelligence System at market research firm Retail Forward, Columbus, Ohio.
The Kroger Personal Finance product line launched in all Kroger stores in February and includes home equity loans, mortgages, credit cards, identity theft prevention and pet insurance. “Kroger teams with financial institutions to offer these kinds of services,” Skrovan noted. “It would be difficult for a retailer to do this on its own.”
The retailer partners with Jeffersonville, Ind.-based PetFirst Healthcare for pet insurance. Its life insurance partner, Garden State Life, League City, Texas, plans to be represented in 2,000 Kroger stores by October, according to an Associated Press report.
Wal-Mart had unsuccessfully attempted to start its own banking entity by applying for an industrial loan company charter in July 2005. The Federal Insurance Deposit Corp. derailed Wal-Mart's request in January of this year by continuing a moratorium on applications for industrial loan companies that would be owned by commercial companies that expires on Jan. 1, 2008. Wal-Mart withdrew its application in March, saying that it would continue to expand the financial services it offered in stores. Home Depot, Atlanta, still has a similar application pending before the FDIC.
Wal-Mart then announced in June that it would aggressively roll out a financial services program aimed primarily at lower-income customers. It planned to install 1,000 MoneyCenter departments by 2008 and offer a co-branded prepaid debit card.
However, last week Sen. Sherrod Brown, D-Ohio, told the Wall Street Journal that Congress will likely pass legislation he introduced that would prevent retailers and other non-financial services companies from owning banks.
Still, in launching the MoneyCenters, Wal-Mart said that it will continue to develop and test many different financial-service products.
The MoneyCenters include check cashing, money orders, bill payment and money transfers. With them comes the introduction of the Wal-Mart MoneyCard, a reloadable prepaid Visa debit card that works much like a portable checking account. Customers can even have their paychecks directly deposited into the card, according to a Wal-Mart fact sheet.
The MoneyCard is being issued by GE Money Bank, Stamford, Conn., but does not require any type of bank account for use. It is backed by the Green Dot Financial Network, a large cash-acceptance network from Green Dot Corp., Monrovia, Calif.
GETTING MORE SHARE
“Retailers increasingly are looking for ways to drive traffic, raise same-store sales, and in general gain more share of wallet and share of life from shoppers,” said Skrovan.
Meijer, too, has been slowly developing and expanding its service offerings since it introduced a Meijer private-label credit card in spring 2004, also with GE Money Bank, spokeswoman Stacie Behler told SN. One year later the company introduced a Meijer Platinum MasterCard and recently launched a Meijer-branded prepaid debit MasterCard.
“We offer forms of payment that have lower transaction fees and pass along the savings to our customers, such as our current 5 cents off a gallon of gas with use of a Meijer card,” Behler said.
The retailer also offers a commercial credit card for businesses and has a partnership with Coinstar, Bellevue, Wash., providing coin-counting kiosks in all locations. For the retailer, it boils down to differentiation: “More reasons to shop Meijer,” Behler said.
According to data from Coinstar, about 46% of customers who receive cash from the Coinstar Center spend all or part of that money in the store, spokeswoman Marci Maule told SN. “Obviously, this is a benefit to the retailer as nearly half of the Coinstar users are spending their ‘found money’ in the store.”
Retailers with this and other money-related offerings maintain that making the customer happy means piling on the services. For example, Bloom, a Food Lion banner, is another Coinstar partner and also offers prepaid Visa cards, bill payments, Western Union money transfers and money orders, all in its guest-services area. “We feel that our guest-services area provides these conveniences in order to enhance our customers' shopping experience,” spokeswoman Karen Peterson told SN.
At Publix Super Markets, Lakeland, Fla., “We realize that most of our customers are pressed for time. Convenience is a top priority for shoppers when planning their activities,” said spokeswoman Maria Brous. The retailer offers Western Union, coin counting, money orders and calling cards, as well as in-store bank branches in some locations.
Publix extended its long-time partnership with Western Union for another five years last November.
For the future, some of the more significant offerings, like home loans, will likely remain the province of the largest retailers, like Wal-Mart and Kroger, Skrovan said. “I would imagine that economies of scale and efficiencies are critical in partnerships like this. Wal-Mart probably has one of the biggest opportunities in terms of reaching and serving the unbanked population, many of whom are Wal-Mart's core customers. If shoppers are receptive to this kind of offer, then I anticipate we'll see more exploration and experiments of other services in the future.”
Although Peterson of Bloom told SN it does not have any new financial services in the pipeline, it's likely to keep an eye out for new opportunities.
Retailers are offering financial services such as credit, stored-value debit and gift certificates with one thing in common, a wallet-sized piece of plastic.
For example, Wal-Mart Stores, Bentonville, Ark., launched the Wal-Mart MoneyCard, a reloadable prepaid Visa, in June. Meijer, Grand Rapids, Mich., has its own debit and credit MasterCards and Kroger, Cincinnati, has its own credit card. All have partnered with established financial institutions.
Also in June, CVS/pharmacy, Woonsocket, R.I., became the first retailer to offer its own gift cards as a choice for customers wanting to convert their change with the use of a Coinstar counting machine. Customers who use the “coin-to-card” services inside of a CVS/pharmacy can choose a CVS gift card worth the amount of their change, instead of cash or a gift card to an outside retailer, minus a commission.
Originally the Coinstar program did not include cards from the host retailer. “The machines allow the customer to produce a gift card for up to 10 other retailers like Starbucks,” said Frank Bucciarelli, director of management support services, Binghamton Giant Market, Binghamton, N.Y.
In August, convenience store chain Cumberland Farms partnered with Coinstar, Bellevue, Wash., to carry the vendor's full range of pay-as-you-go products. The line includes prepaid wireless programs, prepaid MasterCard and Visa stored-value debit cards, gift cards and money transfers.
“There is high consumer demand for prepaid products both from the unbanked and immigrant communities as well as other consumers looking for convenience and control such as teens, parents of teens, travelers and seniors, to name a few,” said Coinstar spokeswoman Marci Maule. “As retail channels continue to blur and retailers compete for the same dollar, becoming known to shoppers as a destination for these types of products is important in helping maintain a competitive advantage, driving new traffic and ultimately increasing the shopping basket.”
In addition, the small size of the cards means virtually no inventory cost for retailers while checkout activation seriously lessens the potential for theft, she said.
In a related development, Safeway, Pleasanton, Calif., began doubling the amount of display space for prepaid gift cards in more than 1,000 stores last month.
Blackhawk Network, a subsidiary of the retailer, provides the cards and the prepaid network for a number of chains, including other supermarkets. Some of those other chains plan to expand their gift card displays, but Blackhawk would not release the names.
When asked if Blackhawk planned to expand the scope of its cards beyond just gifting, Teri Llach, vice president of marketing at Blackhawk told SN, “Blackhawk Network is always looking at new and innovative products to address customer needs.”