FMI RETAIL ELECTRONIC PAYMENT SYSTEMS CONFERENCE

DAN ALAIMO

ATLANTA -- A collections system that has led to dramatic improvements at numerous Fred Meyer divisions may be adopted at other chains operated by Fred Meyer's corporate parent Kroger Co., Cincinnati, a company executive said at a meeting here.

The system, which got its start in 1994 at Smith's Food & Drug in Salt Lake City, has been spread through consolidation to other chains. The system began when Smith's established an in-house department and has since succeeded in cutting bad check expense as a percentage of sales from 0.55% to 0.03%, said Liz Quealy, director of corporate collections, Fred Meyer Stores, Portland, Ore., a division of Kroger Co. She spoke here at the Retail Electronic Payment Systems Conference of the Food Marketing Institute, Washington.

In 1996, when Smith's merged with Smitty's Super Valu, Phoenix, Smith's collections system was applied at Smitty's, and the bad check expense went down from 1.5% of sales to 0.04%.

In 1998, Smith's merged with Fred Meyer, and Fred Meyer brought its collection into Smith's Salt Lake City collections department.

As a result, the bad check expense went from 0.12% to .09%.

Quealy noted that Fred Meyer's broad range of products results in a higher percentage of bad checks than the company's other divisions. Last year, two other divisions were added to the Salt Lake City-based collections department: Fry's Food Stores, Phoenix, saw bad check expense decrease from 0.34% to 0.05%, and Quality Food Centers, Bellevue, Wash., experienced a drop from 0.05% to 0.03%. This year, King Soopers, Denver; City Market, Grand Junction, Colo., and the Kroger division in Atlanta were added, but results are not available yet.

Collection rates are currently 78% for the Smith's stores, 73% for the Fred Meyer stores, 70% for Quality Food Centers and 67% for Fry's Food Stores.

"We are seeing what divisions within Kroger my department can be of benefit to, and if we can maintain those kind of service levels," said Quealy. The company centralized check collection in an effort to reduce labor at the store level and reduce bad check expense, she said.

Quealy outlined five factors that have contributed to the department's success:

An effective check-cashing policy that addresses two-party personal checks, finance company and insurance checks, payroll checks older than seven days, hand-typed or handwritten payroll checks.

Negative and positive databases integrate with the point-of-sale system. "You need to have a negative database for your bad check information and then you need to have a positive database for your velocity information," Quealy said.

Analyze results and provide information to the operations staff. "You need to have someone working with you at that operational level who will support and enforce your policies," she said.

Make changes based on the information gathered.

Take advantage of the latest advances in technology, whether from third-party collection agencies or developed in-house.

Recently, the company changed from offering customers the option of authorizing a check by phone to an automated clearinghouse funds transfer. "We are now processing much cheaper than cutting checks and putting them through the bank, and customers get a descriptive message on their bank statement. That is working out really well," Quealy said.

Among future enhancements to the program is an interactive voice response system for phone calls, which the company is testing now, she said, acknowledging that many people dislike such systems. "But 60% of our callers are repeat customers and they know the drill. They are the ones who are going to use this."

The company will use check imaging in the future for each check upon data entry."That is going to eliminate our physical check files and each person in our department is going to be able to bring up those checks at their PC on-line, so when they are talking to a customer they are going to be able to bring up that image. Also, we are going to be able to send electronic files to our collection agencies," she said.