ONTO THE FAST LANE

JOEL ELSON

Thanks to advanced technology, this is expected to be the breakout year for prepaid calling cards through the food channel.

After lagging behind other distribution channels due to complex merchandising challenges, supermarkets have begun to pay closer attention to the potential of this high-impulse segment.

Stores associated with Supervalu, Minneapolis, and Piggly Wiggly Carolina, Charleston Heights, S.C., are quickly moving onto the fast lane of prepaid because of newly introduced point-of-sale activation systems.

Starting next month, Supervalu will begin installing a newly launched POS-activated prepaid card program for its 3,500 supermarket accounts and 470 corporate stores. The prepaid cards will be merchandised in dedicated racking space on fixtures set up by Supervalu retailers after a revamping of their front-end display stands.

The wholesaler expects a large number of its retailers to embrace the prepaid card program, according to Lanny Hoffmeyer, corporate general merchandise director, "since half of our supermarket accounts have so far not carried phone cards.

"Supermarkets are in the early stages of what the potential is going to be," he said. "Point-of-sale activation at checkouts is making it easier for retailers to tap into this industry."

And the prepaid card market has topped $4 billion, industry sources told SN.

POS activation through a credit card terminal at checkout presents new sales opportunities and security features not found in batch-activated live cards, speeds prepaid card transactions at checkout registers and allows retailers to ring up these sales quickly and without the shrink problem of handling live cards, observers said. "Anytime you have live phone cards, you are susceptible to shrink," Hoffmeyer noted. "With POS activation you can build prepaid card sales and improve net profit from the savings realized from the shrink factor that's no longer there."

Activation of the cards at checkout also allows the flexibility of cross merchandising and promotion in high traffic areas, Hoffmeyer explained, such as pharmacy, greeting cards and books as well as the baby aisle and teen health and beauty care. Retailers can "display actual phone cards around the store and expose them to many new customers," he said.

Citing the advent of "point-of-sale swipe activation," Mark Welton, vice president of enhanced services at Qwest Communications, Arlington, Va., also acknowledged the benefit of merchandising "these high-ticket prepaid cards in many areas -- especially at checkouts -- and exposing them to new users." Qwest supplies phone cards to Supervalu's noncorporate retailers.

"Swiping POS activated cards through a credit card terminal at checkout is faster than working with dead cards, which is slower when someone has to take the cards to an office for activating," said Welton.

Prepaid phone cards with POS activation typically are sold on consignment, with no inventory investment by the retailer. "It's structured in a way that charges the retailer for the cards on activation," Welton said. Although prepaid card packaging is often around the same fit as film or batteries on display racking, "phone cards are a higher ring and can be more consumable," Welton noted.

Retailers with POS activation at checkout can focus more on sparking sales and using phone cards as a springboard to building customer traffic, said Jennifer Gannon, marketing director of Hollywood, Fla.-based Phone Card Express. "With prepaid cards so high impulse they can be made part of a public relations or goodwill campaign, with a portion of the proceeds going to a charity, which plays on the heartstrings of customers shopping in the stores," Gannon explained. Supermarkets can also promote prepaid cards with premium calling time like 'get the first ten minutes on the card free,' she said.

At Piggly Wiggly Carolina, a prepaid phone card program using a just-in-time inventory system and existing point-of-sale credit card terminals for phone card activation has tripled prepaid card sales, said Craig Massey, the chain's direct store delivery category manager. Phone card volume for the 117 Piggly Wiggly stores started climbing soon after the program began last year, he said. The chain uses the FastCard prepaid system supplied by Atlanta-based InComm, a division of U.S. South Communications.

Massey said the program has eliminated excessive shrink, over-stocked inventory, low turn rates and slow reimbursements on cards not sold. Dave DeMeyer, sales director for Bell South, said Piggly Wiggly's "prepaid phone card sales have grown rapidly." Over the next few months, Piggly Wiggly will begin to focus on its prepaid card point-of-sale materials and product displays.

Mark Lees, director of prepaid at Cable and Wireless, Vienna, Va., said the company has begun testing a host-to-host scanner-based system at a New England food chain he declined to identify. Although a host-to-host system, which, while scanning a prepaid phone card into the checkout system simultaneously activates it, is more costly than swiping through a credit card terminal, "it speeds up the checkout process," Lees said.

To assist supermarkets in capturing a larger chunk of the phone card business, Cable and Wireless has started to work with an outside firm to provide merchandising assistance to supermarkets. "During the past three to four months, we've been working managers at Shaw's and Ukrop's, trying to guide them in attracting customer interest in prepaid cards," Lees explained. Supermarkets, he added, "increasingly ask their phone card providers "'what can you do to help us drive sales?"'

Some retailers supplied by Sprint, Kansas City, Mo., keep batches of live cards in registers but are joining the POS activation movement, said Tom Murphy, director of sales and marketing for prepaid cards at Sprint. "We're working toward launching a POS activation system sometime this year."