NEWS & SOLUTIONS 1997-07-07

MARTY SONNENFELD

NEW YORK -- Debit cards inspire a range of reaction from retailers -- from enthusiastic support to grudging acceptance.

Whether positive or negative, feelings are likely to intensify as more states move to issue benefits electronically, raising the pressure for supermarkets to accept electronic payment options at the front end. Some retailers hope simplified processing of such benefits will offset transaction costs associated with electronic payment options.

"The current interest in electronic payment processing is driven primarily by electronic benefits transfer," said Hank Shields, information systems director at C&K Markets, Brookings, Ore. "In Oregon, EBT will be on-line very shortly, so we had to get ahead of it."

C&K Markets introduced electronic payment in some of its stores about three years ago. By last year, all 35 stores were on-line.

All of Valu Food's 17 stores are now equipped to accept plastic payment. Stu Denrich, vice president of MIS at Valu Food, Baltimore, said, "Maryland implemented new regulations that make electronic payment of public assistance recipients' benefits mandatory."

Denrich said that Valu Food was "very surprised that debit- and credit-card sales had risen to over 12% at some locations." Its system, which has been in place for two years, was established as a competitive necessity. But with Maryland's new EBT policy, Denrich expects a substantial increase in its electronic sales.

The recent experience of Roundy's, Pewaukee, Wis., may serve as an indicator for other retailers. Eric Wiltgen, manager of support services, said, "EBT is clearly forcing an increase in the debit/credit-card system."

EBT will begin soon in Illinois, and Missouri just started it in a few counties, he said. "I got a call from a store in Missouri last week," Wiltgen recalled. "He said 'The state went on-line last week. Help me!' "

Roundy's began accepting credit-card payment 15 years ago, and later added debit-card payment. In Wisconsin, about 80% of Roundy's 120 stores are on-line. The sales rates vary widely by neighborhood. Credit- and debit-card sales represent about 20% of sales at one store, and average approximately 12% chainwide.

"Our experience has been pretty positive," Wiltgen said. He thinks the company will do well with the new EBT policies. "There's a lot of paper that has to be shuffled around when you're taking Women, Infants and Children benefits and food stamps, so we think it will be a good change."

Supermarket companies that don't already have all their stores equipped to handle electronic payments expect to complete the transition very soon. But some retailers are not enthusiastic about the technology.

"We see debit- and credit-card payment more as providing a customer service," said Al Van Luvender, vice president of MIS at Riser Foods, Bedford, Ohio. Echoing many industry sources, Van Luvender said, "If you don't offer card payments, it's going to be a problem."

Most Riser stores -- 31 of 35 -- are equipped for card transactions. But Van Luvender said, "We don't see any clear benefit of the cards. We don't really think it's helped us increase sales. The benefit is that it's helped us prevent losing customers."

Although Riser Foods, like many supermarkets, has not offered any special promotions to encourage card usage, debit-card sales now account for about 10% of total sales, with credit cards accounting for 9% of total sales. Van Luvender added that cards are now used by approximately 11% of Riser's customers.

Pay Less Supermarkets, Anderson, Ind., is decidedly more enthusiastic about plastic -- particularly debit cards. Paul Nicholson, vice president of finance and MIS, declared, "We like debit cards. The fee structure is much more favorable than for credit cards, and tender time at cash registers makes it one of the fastest payment methods. You don't have to worry about signature capture -- customers just enter their Personal Identification Number."

Pay Less has accepted plastic at all of its eight central Indiana stores for more than six years. Its experience has been primarily with credit cards, because Indiana banks did not form their own networks to enable debit transactions until about three years ago.

"Debit evolution has been late blooming in Indiana,"

Nicholson said. He figures that although credit cards now account for about 75% of Pay Less' card transactions, debit sales will grow significantly. Nicholson is also encouraged by the EBT shifts. "EBT will be everywhere in two or three years. From my perspective, an EBT card is a debit card. They have an account. The money is right there."

There may be more to be gained, however, from offering electronic payment than customer retention. C&K Markets' Shields believes that "the biggest benefit of accepting electronic payment is the communications network that goes with it. We now use T-1 transmission lines to provide direct connections to our stores. It's helped us in transferring point-of-sale information and payroll data between the stores and our home office."

As supermarkets implement new payment technologies, questions will persist about the value of such substantial investments. Pay Less' Nicholson contends that "We are to a certain extent hostage to the MasterCard/Visa dualopoly. Our industry is struggling to afford a 1.1% credit processing fee."

He said that the credit giants want to bring supermarket card sales up to the same levels as other retailers. "Our cost structure is so different from department stores and other retailers -- we just can't afford that. We've got to find a way to get together with them," said Nicholson.