Smart Cards

JEFF WELLS

Greeting cards signify a celebration, but for supermarkets the celebration has died down a bit. That's because the recession and a new generation of e-cards, including greetings for mobile phone and Facebook users, have turned up the heat on retailers selling traditional paper varieties.

Faced with such stiff headwinds, supermarket operators are starting to take a closer look at their gift cards and how they sell them. And what they're finding are some hard truths.

“I think in the greeting cards section, retailers are starting to look at making sure they're not just filling up a bunch of pockets of dead inventory,” said Nick Barainca, director of nonfoods at Scolari's Food & Drug Co., Sparks, Nev. “It doesn't do the greeting card companies any good, and it doesn't do us any good, to tie up a bunch of money in a rack.”

Reports show that the $7.5 billion greeting card industry has seen better times. According to the research firm Mintel, retail sales in the category have grown 34% since 2004. That growth has tapered down to a trickle, however, with sales in 2008 growing an estimated 3.9% and down to 1.5% in 2009.

Part of what has hurt the category is consumers' shift toward value and lower prices. Before the recession hit, manufacturers and retailers were focused on selling pricier paper cards that featured recordable greetings, holiday music, and other bells and whistles.

“Retail sales of greeting cards had experienced healthy growth during 2004-2007, thanks in part to specialized and more expensive cards,” stated a recent report from Mintel. “However, greeting card sales growth has since been tempered by the poor state of the economy and a heightened value focus on the part of consumers.”

The game changer for supermarkets, though, has been the impact of e-cards, which are often free and customizable, and are now available on a variety of digital platforms. Last year Hallmark, for example, introduced mobile phone greetings, which allow users to send one of more than 500 greetings from their phone to friend's or family member's phone. The company also introduced greetings for Facebook users, as well as DVD greetings.

Hallmark and American Greetings, the two largest paper card manufacturers, have diversified by offering a wide variety e-cards. And there are those who claim the two formats complement rather than compete with one another — that paper cards are keepsakes, whereas e-cards are quick and casual.

Barbara Miller, spokeswoman for the Greeting Card Association, the industry's trade group, said the data she's seen doesn't indicate e-cards are taking sales away from paper cards.

“You'd send an e-card for Groundhog Day, but you'd never send a paper-based card,” she said. “They're just very different kinds of mediums.”

Others point out, however, that people are increasingly communicating in the digital world, and that e-card manufacturers are evolving rapidly to cater to them.

“It's a dramatic threat, and probably the best analogy is if you think of what happened with film sales with the advent of digital cameras,” said Jim Wisner, president of Wisner Marketing Group, Libertyville, Ill. “I don't think it will be quite that bad, but I think e-cards are going to change things very significantly. They're easier, less costly and kind of fun and cool.”

Barainca, of Scolari's Food & Drug Co., certainly sees the growth of the e-card industry as a threat. To stay competitive, he said he's cross-promoting more with outpost displays, like this past Easter when his stores featured a card display next to the eggs. Barainca said he's also offering more low-priced cards and offloading them with giveaway promotions like “buy three, get one free.”

“Those seem to still be working, especially if you have a customer sending cards to four or five family members,” he explained.

Whole Foods Market, Austin, Texas, is competing with a range of greeting cards printed on recycled paper, and by promoting a “green” message within the category. On the company's blog page, Jill Velez, a project manager, encouraged consumers to reuse their cards as gift tags or as decorations, pointing out that more than 2.5 billion cards are sold each year.

“And what happens to most of those cards?” she wrote. “That's right, into the landfill.”

Retailers like Hy-Vee and Meijer, meanwhile, have started dabbling in e-card formats, offering programs on their websites that allow customers to create their own card, then mail it to them or have them pick it up in the store. These range from basic 28-cent cards all the way up to $6 recordable greetings.

On its website, Hy-Vee outlines the wide range of cards available for major holidays and events: “We have photo greeting cards for any and all occasions. From special occasion cards that include Valentines, Easter, weddings, graduations and more. We also have cards for any occasion, such as a new baby, a new address, or even just to say thank you.”

For their stores to truly excel, retailers may need to rethink their card sections entirely. That's what Barainca said he's doing right now. He's going through inventory to see what's selling and what's not, removing underperformers and trimming the display down to the top picks.

Too many retailers, Barainca admitted, keep their greeting card sections static year after year, assuming it's a mature category with no room for innovation. Developing a strategic marketing plan, he said, could provide a surprising sales lift.

“I think everybody's trying to get their inventories in line as well as the turns of the whole department, and increase those by not tying up money in just saying, ‘OK, we'll have eight of every card,’” said Barainca. “In actuality, you might need one of a certain kind, and six of another. So if you have dead pockets in there you really need to get them out and put in something fresh, and keep doing that until every pocket is basically pulling its weight.”

Wisner agreed with that assessment.

“Everybody can say that, ‘Yeah, we have a card section,’” he said. “But the question is, do you have a strategic merchandising plan for it? I would wager that most supermarkets out there don't.”

Beyond figuring out what's selling and what's not, Wisner said retailers should think about how they market their cards. Too few retailers play up the event the way they should. They don't reflect the excitement that comes with a birthday, he said, or the romance that comes with Valentine's Day.

Before customers buy a card, Wisner said, they have to first buy into the event.

“Supermarkets are doing a good job within the context of having somebody there to buy the product,” he explained. “The decision of whether or not to buy a card in the first place is where some emphasis needs to be placed.”