CALLING ALL CARDS 2003

Dan Alaimo

SAN DIEGO -- Despite the proliferation of cell phones, phone cards are still doing well at retail. Executives at this month's General Merchandise Marketing Conference of the General Merchandise Distributors Council identified two opportunities: low-priced cards, and cards tied to other prepaid services through a consolidated point-of-sale program.

"Phone cards are part of the larger category of prepaid services that represents a world of opportunity," said an executive with the West Coast retailer, who asked to not be identified. "You have phone cards, prepaid wireless, prepaid Internet, gift cards and prepaid Mastercard. The real growth is in prepaid wireless, but I think there's a lot of potential for the prepaid Mastercard and the other opportunities," he said.

The key to making it work is having one vendor for all of them to keep things simple for all levels of the retail operation: the store, the category manager and the information systems department. "A lot of people have to be involved in it," he said.

Save Mart Supermarkets, Modesto, Calif., is seeing diminishing sales for phone cards and is looking at adding other prepaid services, said Tony Pooler, director of GM/HBC. "There are a lot of people in the convergence business pulling programs like phone cards, prepaid wireless and prepaid Internet together," he said.

POS activation of prepaid cards of all kinds is the key to their success as they will not sell if kept behind the counter, said Charles Yahn, vice president, Nonfoods Division, Associated Wholesalers, York, Pa. Some retailers don't understand this yet. "We in the supermarket business really have to make up our minds whether we should educate the retailers on how to sell them, or get out of it," he said.

Phone cards represent "a huge market for whoever wants to get in and do it," said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. "There are billions of dollars of opportunity that grocery doesn't go after just because you can't eat it," he said.

Mass merchandisers are doing a much better job than supermarkets in offering cards at low costs, like 3.7 cents per minute on an AT&T card, merchandising them from pallets and other locations, he said. "Grocery just kind of dabbles in it. They will have a peg or two and aren't really that big in it. But it could be a big category if they wanted to make it grow in partnership with some of these card companies," Manning said.

Ingles Markets, Asheville, N.C., does a good business in private-label phone cards, noted Dan Spears, director of nonfoods. "We keep them right at the front checkout counters. They are activated when they are scanned through the registers, and it is a pretty good market." Ingles plans to bring in prepaid wireless cards within the next three or four months, he said.

Gristede's Foods, New York, has just put a prepaid phone program into its stores, said Bob Schwartz, executive vice president. "If you look at our customer base in certain areas of New York City, the demographics require prepaid phone cards because those customers are not into cell phones, especially for making international calls," he said.

It's a similar story for Affiliated Foods, Amarillo, Texas. "We do a tremendous business in phone cards because we are so close to Mexico," said George Satterwhite, director of nonfoods.

So, too, for a Texas retailer who asked not to be named. That chain does not have a POS activation system, but does a good business out of a vending machine that offers 1.1-cent-per-minute cards, the nonfood executive said. "People who know phone cards are going to use them to make a few calls and talk for a long time," he said. Many of these customers are Hispanics making calls to Mexico, he noted.