SAFEWAY: PREPAID FUTURE IN FINANCIALS 2004-08-16 (2)

Liza Casabona

NEW YORK -- While continuing to grow in gift cards and phone cards, Safeway also sees potential in prepaid financial services, such as bill payments, insurance and utilities, said Walter Paulsen, vice president of Safeway Marketing Services, Safeway, Pleasanton, Calif., at the Prepaid Markets Expo here this month.

"Gift cards have a lot more room for growth, and certainly telephone has a lot more room for growth. We're absolutely going to continue to innovate [these areas]," Paulsen told SN after speaking on a panel titled, "Incorporating Prepaid Cards Into Future Marketing Strategies -- What Do You See as the Next Big Opportunity?"

Safeway began its prepaid offerings with an offering of prepaid gift cards for retailers in other channels like Toys "R" Us, The Home Depot, Barnes & Noble, ski resorts and amusement parks.

After that, the chain moved into prepaid wireless and long-distance phone cards, followed by prepaid financial services, Paulsen explained.

The direction of prepaid offerings in recent years has moved increasingly away from products and toward services -- everything from bill paying and utilities to insurance and financial products, Paulsen noted.

There's been a noteworthy push in financial products, he said, but he cautioned retailers not to neglect the traditional telecom and gift card areas of the business, where Safeway started its prepaid efforts.

Prepaid innovations should not be approached as the Internet first was, Paulsen said, pointing out that not all things new prove successful. With carefully thought-out, disciplined innovation, retailers can take advantage of the higher margins on gift cards and prepaid services.

Safeway tried and then pulled back in some areas, such as digital content that did not have a broad-enough brand appeal, he said. Digital content offerings in the prepaid industry currently range from screensavers to music downloads and other Internet offerings, and some have enjoyed great success elsewhere.

Paulsen declined to comment on Safeway's specific plans. He did say he anticipates a development of entrepreneurship across the prepaid services segment that will be similar to Internet development.

"We are just getting started, or maybe we're at the end of the beginning," Paulsen stated.

Because of their reach and frequency of contact with consumers, grocery store operators are well-suited to meet prepaid product needs, he added.