There's no turning back now. Transaction fees may be on the rise. Processing costs may be higher than with cash. And the benefits in terms of higher average sales may be hard to prove.
But credit and debit card use in supermarkets is soaring, with retailers rolling out new programs to offer customers the convenience of paying by plastic.
Although accepting credit and debit cards has not increased store profits, most retailers said, it provides a valuable customer service. For many, the bottom line is simple: Accepting the cards is an added customer service and, increasingly, a competitive necessity.
"We started a chainwide rollout in late 1991 because we wanted to offer our customers another convenience," said John King, vice president of information services at Hughes Family Markets, a 52-store chain based in Irwindale, Calif. "It's becoming an accepted form of payment, and we felt that offering it would
help keep our customers happy.
"A lot of customers like the cards because they are less bulky than cash and they don't have to be replaced constantly," King said.
If there is any doubt about the role credit cards are playing in terms of usage, King pointed out that the cards now generate a striking 19% of store sales.
Bob Sands, director of financial services at Seaway Food Town, Maumee, Ohio, said the 44-store chain began testing credit card acceptance in two stores about 18 months ago.
"We view it more as a customer service than a revenue generator. We're probably absorbing a slight cost, but accepting the cards is becoming a competitive necessity, and I'm sure we'll eventually accept both chainwide," Sands said.
"Our major competitors are accepting them -- and that's another reason we'll probably do the same," he said. "After all, why double the cost of a transaction if you don't have to?"
Keeping up with competition was the main reason Minyard Food Stores, a 77-store chain in Coppell, Texas, began rolling out a credit and debit system chainwide about a year ago after testing credit in 10 stores for several years, said George Spears, director of retail information systems.
"The biggest factor that got us into this was the decision to compete with the other supermarkets in our area," he said. About half of Minyard's stores are now on line, and the remaining stores should follow suit by next February.
"We were seeing an increase in customer demand for the cards, which I think was and is being fueled by all the incentives being offered by the various companies. I think we would lose customers if we didn't accept them. They'll help us maintain our customer base."
Carr Gottstein Foods, a 21-store chain in Anchorage, Alaska, has accepted debit cards since 1989 and it added a credit program last October.
"I think our primary motivation was customer convenience," said Larry Walsh, director of management information services. "We also wanted to be the first supermarket company in Alaska to offer the service -- and we were."
It was also industry competition that prompted Seessel Holdings, a 10-store retailer based in Memphis, Tenn., to accept MasterCard, Visa and Discover Card at its stores, even though the 136-year-old company had always offered customers their own Seessel charge accounts, said Fred Bowman, chief financial officer.
"We began accepting them because we felt we had to create an even playing field with our competitors," he said. "If nobody else was offering them, we probably wouldn't be either."
If any doubt remains about the value of credit cards in the supermarket environment, it has everything to do with their success in generating higher sales, and their processing or transaction fees -- and not with customer convenience or competitive necessity.
"I think the jury is still out on whether consumers purchase more when using credit and debit cards or if they purchase higher ticket items," said Seaway Food Town's Sands.
"As for the recent rate increases by Visa and MasterCard [from 1.0% to 1.1% on April 1], we've accepted them, but they're giving us second thoughts about where the credit card companies are heading with their rates," Sands said.
"Are they just teaser rates that will continue climbing, and are the increases really justifiable on their part, or are they just trying to make more money? We tend to be more cautious. With [our industry's] thin margins, you have to be very alert," he said.
Bob Gowens, executive vice president of administration and electronic services at Randall's Food Markets, a 125-store chain based in Houston, said accepting credit cards is a well-established part of its supermarket operation. The chain has accepted both debit and credit cards for years.
But he questioned the value of the cards in spurring higher-ticket sales.
"We have a lot of high-ticket items in our stores -- $100 bottles of perfume and caviar -- and we haven't noticed any impact in sales," Gowens said.
Gowens, who served on a committee formed by the Food Marketing Institute, Washington, which studied the issue, said the average credit card transaction costs about 81 cents -- but only generates 24 cents more than the average cash transaction for the retailer.
"Now, you tell me why grocers would want want to offer this," Gowens asked. The answer is clear, he answered. The cards offer greater customer convenience. "That's why we carry them."
"We haven't noticed consumers buying more since we started accepting credit, but we have noticed a slight increase in the average sale," added Carr Gottstein's Walsh. "Still, as the rates increase, the margin dwindles.
"The cost of accepting credit is definitely difficult to swallow. It's very disconcerting to us that the credit card companies may have more rate increases down the road," Walsh said.
Spears of Minyard Food Stores is similarly concerned about the recent rate increases, and the possibility of further increases. "We weren't too happy to hear about the rate increases. They're really going to hurt us, but I don't know what we can do about it."
Charlie Roach, assistant vice president of MIS for Basics/Metro Markets, a 23-store chain in Randallstown, Md., estimated that credit and debit card purchases account for as much as 15% of company sales, and he said he believes they have prompted additional consumer spending.
"We haven't done any studies, but I think consumers using the cards are purchasing more," he said. "When you're out of cash, you're out of cash. But when you've got a debit or credit card, your options increase."