UNTRIED CONNECTIONS

KAREN RAUGUST

Emerging prepaid products offer supermarkets the chance to offer grocery shoppers new services.

Although few supermarkets have experimented with prepaid products aside from traditional long-distance calling cards, most are keeping an eye on developments as they consider how to build their prepaid sales.

Betsy Turgeon, health and beauty care/general merchandise category manager, Big Y Foods, Springfield, Mass., said she thinks that prepaid accessories such as cellular phones and beepers will grow in supermarkets and that these products represent a key trend in the prepaid category. Big Y currently carries four stockkeeping units of prepaid long-distance cards but -- like most other grocery chains -- no other prepaid products.

Although sales of prepaid products are growing in supermarkets, they lag behind those of other retailers, according to a recent study by the CPR Group, Westfield, N.J. Of all the consumers who purchased prepaid calling cards last year, 15% did so in supermarkets, vs. 26% in discount stores and 25% in convenience stores. In 1999, 22% of customers in the survey said they had purchased prepaid calling cards in supermarkets.

In addition, supermarkets so far have not embraced prepaid as a category, said Randy Cherkas, president of GTS Prepaid, Marlton, N.J. Anecdotal evidence suggests that no more than 5% of supermarkets carry any prepaid products other than long-distance calling cards, he said, vs. at least 35% of convenience stores that do so.

"It's primarily because of the challenges of the multilane environment," he said.

The fastest-growing segment of the prepaid product industry is prepaid wireless, which includes prepaid cellular and prepaid paging. Cherkas pointed out that prepaid cellular has a higher ring than long-distance calling cards, with refill cards for cellular service retailing for $25 to $200.

"People are more comfortable paying for something of that price in supermarkets" rather than in lower-ring outlets such as drug or convenience stores, he said.

Prepaid wireless is attractive to customers with poor credit and with those who do not wish to enter into a long-term agreement with a wireless provider. Prepaid costs somewhat more per minute than postpaid wireless, but may be cost-efficient for infrequent users.

Point-of-sale activation, which many vendors stress is critical to success in prepaid cards, is even more important with wireless, because of the heavy inventory requirements. A store might need $500 to $800 in inventory of prepaid cellular products, much higher than for prepaid long-distance calling cards. POSA allows retailers to merchandise the products on the floor without fear of theft, because the products cannot be used until they are paid for.

In addition, stores must carry refill cards from every provider, unlike in prepaid long distance, where one brand is adequate.

"It's tied to the handset," Cherkas explained.

While prepaid wireless is a fast-growing segment and has a high ring, it is currently better established in electronics, convenience and gas stations than in supermarkets.

"It's a tough fit, I think," said Michael Jagacki, national sales director for AT&T Prepaid Services, Basking Ridge, N.J. "As cell phones become more part of everyday life, they'll sit better with supermarkets' strategies."

He envisions a day when supermarkets will display prepaid telecommunications kiosks featuring long-distance cards, prepaid cell phones, and beepers and other prepaid products.

Prepaid Internet is another segment that has potential in supermarkets.

Tom Murphy, director of prepaid products and services for Sprint Corp., Kansas City, Mo., which is in the midst of introducing a prepaid Internet product, believes this sector will be "huge" in supermarkets. "It reinforces whatever [supermarkets are] doing promotionally on the Internet," he said.

Sprint Prepaid Internet was scheduled to roll out this month. Targeting infrequent to average Internet users -- those who are on the Internet 10 to 12 hours per month or less -- the card works like a prepaid calling card, allowing users to connect to the Internet and e-mail from any personal computer or phone line, including pay phones. The card, which comes in three- and 10-hour values, is also positioned for travelers, who can use the cards to access the Internet from a hotel or airport; for parents who want to track their children's Internet use; and as a temporary alternative or backup to a monthly Internet account.

Prepaid dialtone, or prepaid local service, is a more specialized product that applies to customers who have credit problems and have no home phone connection. Most vendors believe the segment has limited potential among mainstream consumers, but will be viable in certain markets.

Some providers already offer a prepaid dialtone product, while others are looking into it. Murphy of Sprint, which is exploring prepaid dialtone, said the product might be sought by customers who pay for local phone service by the minute rather than through a monthly fee. One of the challenges for national vendors, Murphy said, is negotiating the necessary agreements with local phone companies across the country.

While prepaid wireless, Internet and dialtone are the trends being watched most closely, vendors cite other untapped niches that may apply to the supermarket environment. Cherkas, for example, believes that linking prepaid calling with frequent-shopper programs represents one such opportunity. Customers could earn minutes rather than points or dollars, with the same card serving for both calling and loyalty. The purchase of a 12-pack of Pepsi would automatically credit 10 minutes of phone time to the card upon scanning, for instance. Cherkas points out that this mechanism would be cost-effective for retailers, since $5 worth of phone time costs the store less than $5, whereas a $5 cash reward costs $5.

Gary Spinazze, senior director of procurement for the Minneapolis-based grocery operator Nash Finch Co., which currently carries three SKUs of prepaid long-distance cards, said that chains must evaluate each prepaid product on a market-by-market basis. Prepaid cellular might work in some stores located in neighborhoods where safety is a concern, or where there is a high proportion of customers with poor credit, but not in other stores where in-store security issues outweigh the benefits of the products.