MORE CREDIT CARD GROWTH EXPECTED

MARC MILLSTEIN

RIVERWOODS, Ill. -- Credit card use in supermarkets has never been higher. But that doesn't mean there's not a lot more growth to come.

Within the next couple of years the percentage of supermarket sales involving credit card transactions should jump to 7% or 8%, a considerable increase from today's 5% figure, according to Dane James, vice president of supermarket industry at Discover Card Services here.

The challenge to boosting credit card use in supermarkets in the near future is education, James said in an interview with SN.

To reach consumers, more emphasis needs to be placed on alerting shoppers -- both at the point of sale and in strategic store locations -- that they can use credit cards for all of their grocery purchases, including higher-ticket items.

For some retailers, too, the message still needs to be communicated loud and clear that credit cards are not just an optional convenience to offer customers, but rather, are a cost of doing business in today's retailing environment.

Here's what James had to say about these and other credit card issues:

SN: How would you characterize credit card use in supermarkets today?

JAMES: The three major credit card companies -- Discover Card, MasterCard and Visa -- all boast about the same number of supermarket outlets, which together represent about 50% of the market today. I think the next couple of years will be a strong growth period for supermarkets as the 20,000-outlet range is approached.

SN: Is the pace of credit card acceptance by retailers and consumers what you might have expected?

JAMES: We are pleased. The task of educating people about credit cards may be proceeding at a somewhat slower pace than we would like, but I think most retailers are happy at this point. Credit card purchases now represent 5% to 6% of sales, and we are still in an education phase. Remember, credit cards have only been used in this industry for a few years. It is still new. In the next couple of years, I think we will be able to boost that percentage of sales into the 7% to 8% range.

SN: What type of education programs are required to increase that figure?

JAMES: The point of sale is the most important spot for marketing credit cards. Many consumers don't think about how they are going to pay for their groceries until they are in the lane. So we are concentrating on ensuring that point-of-sale material is in place.

SN: What sparks a consumer at the checkout to use a credit card? Are there any key variables you look for?

JAMES: Some studies indicate males tend to use the cards more than females. But what we are finding overall is that the user of credit cards in supermarkets is no different than in any other industry. It is mainly a matter of convenience. Most people who use credit cards in supermarkets, 60% to 70% of them, are paying off their bills each month. That shows the convenience factor.

SN: What about promoting the use of credit cards in other parts of the store?

JAMES: It is very important, especially for stores that carry more luxury-type items, such as fine wine selections. But even with meat departments, bakeries and floral departments, it is extremely important and effective to remind customers they can use their credit card for higher-ticket items.

SN: Is the industry doing enough when it comes to using these types of merchandising or educational tools?

JAMES: For the most part, yes, especially at the bigger chains where retailers have made the decision that credit cards are a cost of doing business today and they understand the need to educate their customers.

But there are still retailers who are apathetic. They take credit cards because their competitors take credit cards, but they prefer customers not use them. As a result, they do not promote them sufficiently. Yet some of the studies we see in the industry show an increase of $190 to $200 in incremental sales per year per household among credit card users. And the average sales total are anywhere from $10 to $25 higher than with cash transactions.

SN: From what you see, is credit card acceptance opening up opportunities for increased sales of higher-ticket items?

JAMES: I definitely think so. In terms of product mix, retailers can start looking at some different types of products. I go back to the wine selection. You are now seeing some nice wine selections displayed in supermarkets, whereas before it was very limited. You can certainly drive incremental sales that way.

SN: When you look at the supermarket industry, what other challenges do you see to achieving wider success?

JAMES: The overall competition in the credit card industry right now is a challenge. What we are seeing are more and more niche products, which I think is a result of Discover Card's success. We're the ones that came out with the initial idea of a cash-back bonus, and now we're seeing a lot of similar products, such as the GM card or the Citibank air-miles card. Debit, of course, is also growing fairly quickly.

So competition is going to be one of the bigger challenges as time goes on. We are going to be seeing, I think, more and more of those co-branded cards that offer various types of rebates.

SN: How will Discover Card meet that challenge?

JAMES: You know, there's still nothing better than good old hard currency, so the cash-back bonus we offer is something that is going to remain very popular. The people we speak to are adament about the continued use of the Discover Card, and they like to see that check coming once a year.

SN: Could you talk about your goals as far as supermarket credit card penetration goes over the next few years?

JAMES: I can't tell you a specific goal we have in mind for total percentage of sales figures, but we are still growing at a fast pace. I did mention a 7% to 8% figure for credit card sales in general in supermarkets, and we are already seeing some supermarkets in the high teens as a percentage of sales. Much of that depends on market area, though. In tourist areas or college campuses, the percentage of sales is higher. But overall, I think the average right now is about 5%.

SN: How quickly do you think the industry can get up to that 7% to 8% range?

JAMES: I think it would be safe to say that within a couple of years we'll be reaching the 7% range as an industry average. And that, I believe, is a conservative estimate.

SN: When you look at the potential for credit card growth in general, and Discover Card growth in particular, how does that compare with other retail segments? Are supermarkets a hot category right now for you?

JAMES: Yes, very much so. And Discover Card was one of the leaders in getting credit cards into the industry and getting it started. We have other industries that we're targeting, but supermarkets are one of our strategic priorities.

SN: How many supermarkets are signed onto your program today?

JAMES: We have around 14,000 supermarkets signed onto our program, compared with about 11,000 at the end of 1992, a 25% to 30% growth rate. We're very pleased.

SN: Is there anything new about the Discover Card program retailers should be aware of?

JAMES: One of the new features of our card, introduced last year, was our Smart Rate Program. This offers a lower interest rate, which is currently running around 14.9%. So that was a reduction from our initial 19.8%. Our card members are seeing a benefit there.