CALL TO ACTION

KAREN RAUGUST

Sales of prepaid long-distance calling cards in supermarkets are growing as the products are increasingly accepted by mainstream consumers. Supermarkets remain behind drug stores, mass merchants and other retailers when it comes to merchandising and promoting the category, however.

Individual chains vary in their level of commitment to prepaid phone cards. Minneapolis-based Nash Finch, which owns and operates 119 Econofoods, Sun Mart, Family Thrift and other stores in the Midwest, carries three cards of 40, 80 and 200 minutes, according to Gary Spinazze, senior director of procurement. The cards are branded under the company's private label, Our Family, and feature the logo of long-distance carrier Sprint. Blanks are merchandised throughout the store, with batches of live cards stored in the register drawer.

Penn Traffic, Syracuse, N.Y., operates 220 stores in the Mid-Atlantic states and New England under the trade names Big Bear, Big Bear Plus, Bi-Lo, Quality Markets and P&C. It offers AT&T prepaid calling certificates, generated through its Catalina point-of-sale system, in all of its chains, according to spokesman Marc Jampole. Four certificates are available, including 15 minutes for $4.99, 30 for $8.99, 60 for $16.99, and 120 for $29.99.

Minyard Food Stores, Coppell, Texas, which owns Minyard, Sack 'n Save, and Carnival Food outlets, has carried phone cards for four years. It opted for a vending solution, offering MCI's Express 5-cents-a-minute card at the front of the store. "We felt [vending] was the way to go at the time," said Charlie Burns, senior vice president of marketing. "At the time, we didn't want to carry a live card. And it really cut down on labor." Minyard is currently reviewing its program, looking at whether to continue with vending, implement a point-of-sale activation system or merchandise dummy cards, with live cards kept in the register.

Some chains do not carry phone cards or certificates at all. Lowe's Food Stores, Winston-Salem, Mass., and Brookshire Grocery Stores, Tyler, Texas, are among the chains that currently do not merchandise prepaid cards. Brookshire, which operates 135 stores under the Brookshire's and Super 1 names, plans to implement a program as soon as this June, with Qwest Communications, Denver, as its supplier.

In its February 2001 report, "Prepaid Calling Cards: Market Dynamics & Forecasts 2001-2005," Boston-based researcher Atlantic-ACM estimated that providers' revenues from prepaid products will reach $3.6 billion in 2001 and $5.1 billion in 2005.

Sales in supermarkets are growing, according to experts, but lag behind those in other types of retailers. A study by The CPR Group, Westfield, N.J., found that 15% of customers purchased a prepaid card in a grocery store in 2000, vs. 26% in discount stores and 25% in convenience stores.

Supermarkets' share as a purchase location fell seven percentage points since 1999, when 22% of consumers reported purchasing in grocery stores. Meanwhile, the share for discount stores rose four percentage points from 22% in 1999; drugstores' share rose from 5% in 1999 to 7% in 2000; and warehouse stores' share rose from 3% in 1999 to 8% in 2000.

Debra Wolfe, president of the CPR Group, said the study did not track the reasons behind the drop this year, but she theorizes that newer customers may think of discount stores and drug stores rather than supermarkets when they think of prepaid cards. "Supermarkets may need to promote them better, so people know they can find them there," she said.

"In general, we have some consumers that are very loyal [purchasers of phone cards], but it's not milk or eggs," said Jampole. "There's consistent use and growth, but we're not going to get rich off of it."

Vendors stress the need for a point-of-sale activation (POSA) system to maximize sales potential. Industrywide, POSA is growing slowly; Atlantic-ACM estimates 33% of all phone cards purchased in 2000 were activated at the point of sale, vs. 32% in 1999. (The percentage at supermarkets is thought to be lower.)

"Supermarkets will benefit [from POSA] as they can track the types of cards sold and improve sales," said Atlantic-ACM analyst Imke Mensah. POSAs also offer the benefit of expanding the number and types of cards sold -- such as prepaid calling cards, prepaid local and prepaid wireless -- without the need for extra space, Mensah said.

"You need seamless point-of-sale activation in the lane," said Randy Cherkas, president of GTS Prepaid, Marlton, N.J., whose company is rolling out POSA systems at Montvale, N.J.-based A&P, for which it is the exclusive phone card provider, as well as in Kings Super Markets, some Shop-Rite outlets and Foodtown. The cards are activated upon purchase, using existing debit/credit terminals, which allows the display of actual cards, rather than dummies, throughout the store.

Qwest Communications, Denver, offers a point-of-sale swipe system called SAFER (Secure Activation For Every Retailer), also tied to the store's banking network. "[Cards] are moving very nicely in stores with POS swipe activation," said Mark Welton, vice president of stored value services.

AT&T is about to implement a host-to-host POSA system (not tied to the debit/credit swipe) at Ahold stores. "[Phone cards] are high ring, high margin and have a small footprint," said Michael Jagacki, national sales director, AT&T Prepaid Services. "Once you go to POSA, there's no inventory. Who wouldn't want it?" He pointed out that the main barrier to implementing a POSA system, in the eyes of supermarkets, is the initial investment.

Tom Murphy, director of prepaid products and services for Kansas City, Mo.-based Sprint, said the company has implemented POSA systems in most of Safeway's stores. Meanwhile, Dave Skogen, director of marketing and operations at the MCI division of Worldcom, which sells to Kroger, Albertson's, Giant Eagle and other supermarkets, reports that less than half of grocery outlets currently have POSA, although the number is growing. MCI offers both host-to-host and bank card-tied systems; which alternative it implements depends on customers' existing systems.

One industrywide movement with significant ramifications is the transition from traditional PSDN (Public Switched Data Network) phone systems to lower-cost IP (Internet Protocol) systems. Imran Kahn, senior analyst at the Yankee Group, a Boston-based researcher, pointed out that most end users will not notice a difference in the cards -- especially now that IP quality has improved -- but will see lower prices. Kahn cited providers such as GTE/Verizon and Blackstone as among those moving toward IP delivery.

Another trend is the added competition from wireless, which Kahn estimates has 41% to 42% penetration in the United States, adversely affecting sales of long-distance calling cards. "Suppliers have to reduce their costs to be competitive in the market," said Kahn. Fraud is still an issue, with some resellers overcharging, providing poor service, or going out of business. Kahn counsels supermarkets to choose established brands such as Sprint, AT&T, MCI/Worldcom, Qwest or Southwestern Bell.

Welton agreed. "If you don't go with a reputable carrier, you open yourself up to problems down the road," he said, pointing out that 20 to 30 prepaid card companies have gone out of business in the past year.

Suppliers and retailers alike believe grocery stores are underutilized as a channel for prepaid sales. Cherkas of GTS noted that customers spend a long time in the store and that the price of a calling card is relatively low. "I think [supermarkets are] missing out," he said.

"There's a tremendous potential for [prepaid]," agreed Spinazze of Nash Finch. "It's a trend. You've got to be there."