So far, prepaid phone cards aren't selling as often as milk and eggs in supermarkets. But retailers are looking to get their fair share of this booming business.
To stimulate sales in food stores, they say several obstacles have to be overcome. They include:
The market needs to be greatly expanded beyond those consumers with limited incomes who represent a large percentage of the current card users. "These cards appeal to a limited group of people," said Larry Hage, regional supervisor and buyer at Ray's Food Place, Brookings, Ore. "In a big sense, they tend to be more popular with younger people, college students and such. Parents can send their kids one at college and be assured that they'll phone home." Tom Styers, director of general merchandise at Seesel's Supermarkets, Memphis, Tenn., said, "The cards appear to sell better in ethnic neighborhoods, areas with lots of people from other countries, and where there are lower to middle incomes." He said Seesel's stores are not located in such areas. · There should be greater awareness among consumers of the value of debit cards as opposed to credit cards. More education is needed.
"People still don't know what debit cards are and once they find out, they will start to purchase them," said one industry source, who believes this mind-set can be changed. "It's an education process."
The industry is still experiencing growing pains. It has been plagued by small under-financed companies that have gone bankrupt and some unscrupulous operators looking to make a quick buck. It's still in the process of settling on firm ground.
Meijer Inc., Grand Rapids, Mich., was one of several retailers burned earlier this year by selling nonworking phone cards it procured from a supplier that went out of business.
"Many of the smaller players have dropped out of the phone card business because they don't have the marketing or service infrastructures to maintain any kind of customer service focus," said a supplier executive. · More advertising and promotional efforts at retail will help to further expand sales.
Don Mitchell, category adviser at the Kansas City, Mo., division of Fleming Cos., based in Oklahoma City, admits that IGA Telecards have been slow getting off the ground. "It's a big job getting consumers aware of what the cards are, what you can do with them and their overall value. They're not like hula hoops were everyone out there is trying to buy one as soon as they come on the market," he said. Ray's Hage sees an open road ahead for phone cards -- but only if the right direction is applied. "They [suppliers] need to get some awareness going on them before we're going to have any kind of success. It's like anything else," he said.
Until some of the above issues are resolved, retailers surveyed by SN said the prepaid phone card market could struggle along at less than anticipated expectations. "I still have my initial order [of prepaid cards]. I don't know why they are not moving," said one puzzled supermarket buyer in Virginia, who merchandises phone cards at the service desk. "Maybe we're too early. Maybe there's not a clear understanding of how they work. We've tried, however, to pass the message through store advertising. It's an odd thing," he told SN.
Seesel's is just starting to test prepaid phone cards in two of its 10 stores, said Styers. Although it's too early to make any judgments on the cards, he added, early sales returns don't indicate they are a winner. Styers is merchandising the cards from a vending machine. This way, the retailer doesn't have to invest dollars in inventory. "We have no investment at all in the cards. We just take a percentage of the sales."
Sak 'n Save, owned by Galatian, Houston, also uses machines to dispense telecards. These machines communicate in both English and Spanish. "They're just there," said Bill Liesenfeld, nonfood buyer. "I see them disappearing in the future."
The John C. Groub Co. in Seymour, Ind., is just starting to sell the cards. "I don't know what to anticipate," said Tom Bollinger, vice president of promotion. "I think it's something that will be enticing to customers, because customers like to have something in their hand that they've already paid for and doesn't cost them anything to use." Prepaid phone cards have been sold in the United States for only six years. Originated in Europe, they are widely used there. Today, some 500 phone card companies expect sales to reach $2 billion by the end of 1996.
Over the last 12 months, major supermarket chains such as Albertson's, Food Lion, Kroger, Abco Foods, A&P, Grand Union and Shaw's Supermarkets have entered the phone card market. Not all retailers are reporting slow sales, however.
"We have a private label card that's been out for six months and sales are doing well," said Dan willows, category manager at Associated Grocers, Seattle.
At Ray's Food Stores, the prepaid phone cards are tied in with Western Union, which is entering into exclusive arrangements with many chains. Western Union also connects its phone card service with other services and offers substantial volume discounts. The phone card company also introduced cards that are activated in batches to cut down on theft. "Our cards have to be activated through Western Union by our personnel so that really closes the door on theft," said Hage. While phone card companies publicize the product's high-tech marketing benefits, as a commodity, telecards will only fly with promotion and advertising, retailers said. "We're doing fairly well with phone cards," said Dick Sizemore, merchandiser of nonfood at Pay Less Super Markets, Anderson, Ind. "We probably need to promote them more and do more advertising and make them top of mind," he added.
"At IGA stores, we're offering them more as a service than a commodity on the shelf," said Fleming's Mitchell. "The stores have just started advertising in their newspapers that they now have IGA Telecards available." Fleming is promoting the cards in-store with flyers and point-of-sale displays. A store manager acknowledged that he had seen promotional displays but hadn't checked his stores to see whether any material was being used.
One A&P store in New York had miniature Sprint brochures at each checkout counter that explained the cards. The brochures were in Spanish, and although the service center said English brochures were available, SN observed that none could be found. Most retailers welcome the promotions that companies like Nabisco, Pepsi, Kraft and Tropicana have been doing with the cards. "Hopefully, these make the public more aware of the cards," said Fleming's Mitchell.