PROMISED LAND

Supermarkets have become a promising growth venue for prepaid phone-card suppliers as they attempt to burst out of an over-reliance on convenience stores and gas stations.But the effort to make supermarkets a mainstream venue for phone cards is testing the marketing and merchandising mettle of what is still a young industry, and the companies admit that the food-market environment presents some formidable

Supermarkets have become a promising growth venue for prepaid phone-card suppliers as they attempt to burst out of an over-reliance on convenience stores and gas stations.

But the effort to make supermarkets a mainstream venue for phone cards is testing the marketing and merchandising mettle of what is still a young industry, and the companies admit that the food-market environment presents some formidable obstacles to their success.

"The prepaid phone card is slowly but surely becoming a standard product, and a mainstream product, and that's why marketing it through supermarkets is an ideal situation," said Cory Eisner, vice president of marketing for Global Telecommunication Solutions, a phone-card provider based in Philadelphia.

"They're incredibly important for us as a distribution point," said Marlene Waltz, director of the prepaid cards group for Sprint Corp., Westwood, Kan. "They're really a cornerstone of our business."

To make progress within the supermarket channel, these and other executives said, phone-card companies are working with retailers to display and merchandise their products effectively amid the vast clutter of products offered. Suppliers are tackling the challenge by providing significant promotional support, allaying concerns about pilferage and, most importantly, convincing management that phone cards can be effective merchandise that consumers want and expect supermarkets to carry.

Among the specific ways this is happening:

Providers are coming up with a variety of endcap and stand-alone displays as well as clip strips and other mechanisms that allow cards to be merchandised at the checkout.

Some are tying in supermarkets more tightly with promotions, such as discount offers in weekly freestanding inserts and Sprint's current campaign with Food Lion, Salisbury, N.C., a National Association for Stock Car Auto Racing sponsor, featuring the three-generation Petty family of drivers.

The phone-card industry is unveiling new prongs in its efforts to penetrate supermarkets, such as sampling initiatives, private-label cards and programs for using the cards as rewards in supermarkets' customer-loyalty programs.

For security purposes, more card companies are providing dummy display products that supermarket clerks electronically activate at the checkout.

Even more fundamental than all these tactical issues, card providers admit, is that they still have a way to go in persuading Americans to view their products as legitimate and purposeful, whatever the selling environment.

"People still don't know what prepaid cards are and why they need them," said Waltz. "To plunk down hard cash and pay for one is still a challenge for some people."

One reason for Americans' ambivalence is that some phone-card providers have fizzled and left card buyers with worthless pieces of plastic because telecommunications carriers won't recognize them as forms of payment, said Mark Welton, vice president of enhanced services for LCI International, a McLean, Va.-based provider of cards.

Another reason is plain ignorance: Many consumers aren't sure how to use the cards or decide that they don't offer a compelling rationale for purchase.

Supermarkets are crucial to card providers in large part precisely because they can play a key role in the process of educating consumers about phone cards and in getting used to them as a regular retail category.

"Supermarkets give consumers a better chance to see what our product is, at point of purchase," said Waltz. "In gas stations and convenience stores it's such a quick in-and-out."

Card providers, in turn, say their products offer supermarkets incremental sales and profits without cannibalizing other merchandise and that phone cards can help supermarkets round out their offerings at a time when many mass discounters are expanding their turf and selling groceries.

Yet providers are working against a few major obstacles in supermarkets.

For one, they're having a tough time obtaining real estate. "It's like any other product," said Welton of LCI. "If it's on your shelf in the same place all the time, people will know where to come and get it. If it's not seen regularly, sales will go down."

"The shelf-space issue is an ongoing challenge, as is being able to get point-of-sale materials properly positioned in supermarkets, because they always have lots of things to convey to the consumer," said Eisner of Global, which is supplying such chains as Genuardi's Family Markets, Norristown, Pa., and Wawa in Pennsylvania and New Jersey. It also is discussing a supplier arrangement with A&P, Montvale, N.J.

"Our particular product needs lots of visual support. It is not the kind of thing where you don't need to remind the customer that it's there. It's just the opposite. It's small, and most people still need to be educated about it too,"commented Eisner.

With a chain like Vons Cos., Arcadia, Calif., for example, Global has succeeded in obtaining significant placements on end-aisle displays, he said. But Eisner would like to be placed on clip strips at checkouts. "It's more easily noticed there," he said. "Plus, you'd like consumers to be able to pick up the card package and read it. It's different from jars of peanut butter or boxes of cereal."

Waltz said that Sprint "would like to work ourselves into the checkout lanes to be planogrammed there. But the items that you typically see planogrammed are only those that consumers feel comfortable just grabbing. And the category isn't ready to go there yet."

One way to advance the category, Waltz said, is a promotion like the current stock-car-racing campaign. Food Lion sponsors NASCAR; Sprint sponsors the Pettys.

Food Lion stores sell Sprint's cards, promoting them with a 6-foot standup that features Kyle, Richard and Adam Petty and tying into the national sweepstakes that will make the winning consumer a pit-crew "chief" for one race -- and pay him $1 million if a Petty team wins.

The availability of private-label cards also is engaging growing numbers of supermarket outlets. "They're usually more competitively priced, depending on the margins they require," said Welton of LCI, which provides retailers with private-label cards.

Global is developing sampling programs in which consumers who bring in a circular get a free phone card or a discount. And GTE Card Services is working with supermarkets to make phone cards part of their customer-loyalty programs.

"The typical customer in a supermarket may not ever have tried using a prepaid card," said Joe Mistretta, national sales manager for the Irving, Texas-based unit of GTE Corp., which counts Albertson's, Tom Thumb and Kroger Co. among its chains. "So there's some benefit to giving them as a reward some amount of minutes, to allow them to see the benefit of having the card. It's something else that may give an incentive to the customer to want to use and buy minutes."

Card providers also believe that handholding is important to building their relationships with supermarkets. Sprint touts its well-developed inventory management program. LCI has an implementation program that includes training videos, information guides for cashiers and a hotline for store managers.

Security issues cause supermarket operators and card providers alike the most discomfort. Because cards are small and activated ones are an easily used currency for phone charges, retailer executives are concerned about their vulnerability to theft by customers and employees, card providers said.

Some retailers put the cards in vending machines. But the display of dummy cards that are activated at checkout is the most common approach so far to dealing with this problem; or some supermarkets merchandise the cards only at the service counter, like lottery tickets. In either case, the clerk rings up the card and then swipes it either through the existing charge-card-verification system or through a dedicated box provided by the phone-card company.

U.S. South/InComm's approach, for example, was to create an activation system called Instacard. "It activates within seconds; there's no need to record information: the machine already knows by the code and the magnetic strip on the back of the card what has taken place," explains Timothy Barkley, advertising and marketing director for the Atlanta-based card provider.

Yet retailers' continuing conservatism about pilferage seems to remain an irksome issue in the relationship between them and card providers. "I don't blame them" for being fearful, said Sprint's Waltz, who also counts Food Lion and Hy-Vee, West Des Moines, Iowa, among its major supermarket retailers.

But Eisner of Global is combative. "Our No. 1 feeling is that they should be sold 'live' like any other product. How is our $10 phone card any different than a $10 pack of film? You don't have to be any more concerned about a phone card being stolen than about any other item of equal value. But worries have gotten out of hand because everyone is feeding the frenzy."