7-ELEVEN RINGS BIG PREPAID SALES

STEPHANIE LOUGHRAN

NEW YORK -- Prepaid telecommunications, Internet and wireless products are one of the fastest-growing categories for 7-Eleven, Dallas, said a speaker at the recent Prepaid Markets Expo here.

The convenience chain's services segment, which also includes ATMs and photocopies, grew 50% last year after the company brought its prepaid products from behind the counter and rolled out three-foot, prepaid sections a year and a half ago, said Tim McCallum, director of services, 7-Eleven, and former associate of H. E. Butt Grocery Co., San Antonio. The segment now comprises 7% of the company's overall business, he added.

The new displays showcase a single "home" for its prepaid items to capitalize on convenience for the chain's prepaid customers, McCallum said.

"It's one of the key factors in our growth," McCallum said. Educated sales associates are another "crucial link" to 7-Eleven's prepaid success, he noted.

Creating convenience, value and excitement in the category is just as important as providing competitive prices and higher sales margins, McCallum said. "Do not compromise margin for customer value," he said.

While some analysts said supermarkets could realize similar success, McCallum was skeptical. Supermarkets are convenient locations with large consumer bases that might purchase prepaid merchandise, but their size and layout do not make them convenient destinations to buy these impulse purchase items, McCallum said.

"Supermarkets are tremendous merchandisers, but checkstands are not a destination for prepaid," he told SN after his presentation at the conference. "It's not convenient to walk through a large parking lot into a 100,000-square-foot store, wait on line with consumers carrying bags of groceries to buy a new prepaid card after [your minutes] have run out."

However, supermarkets can effectively sell prepaid products because of their "huge audience every single day," said Dennis Sax, vice president of sales, RNK Telecom, Dedham, Mass. RNK recently created point-of-sale-activated, private-label cards for 16 stores of a Boston-area supermarket chain, he said. "The challenge is how retailers and vendors can work together so products don't get lost among supermarkets' many SKUs."

Overall, supermarkets' commitment to the prepaid category and their potential to create incremental sales success depend on several factors, including the ability to network the vendors with the retailer's point-of-sale system, said Bob Bell, product strategist, Convergys, McLean, Va.

"There are opportunities in supermarkets. I just don't think they've been realized," he said.

Moreover, elderly consumers are a source of potential sales for these products in supermarkets, industry sources said.

"The elderly are a golden opportunity for these products, being that many are on fixed incomes," Sax said.

Prepaid business among seniors has tripled at 7-Eleven, noted McCallum.

Other market drivers in the prepaid telecom industry include cards that offer flat rates, cards that tout low international rates to draw niche ethnic markets and, most significantly, prepaid wireless products.

"Wireless is dominating the telecom industry," said Tom Miezejeski, senior consultant, The Pelorus Group, Raritan, N.J. Cell phone subscribers totaled 118.4 million last year, up from 28.1 million cell phone subscribers in 1995, Miezejeski said. Additionally, 3% to 5% of mobile phone subscribers rely on their cell phone as their only phone, and 18% of wireless users regard their mobile phone as their primary phone.

The international phone card market will also continue to grow, ballooning to a $2.3 billion business in 2005, according to The Pelorus Group.