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Gift cards have hit critical mass and are now an important revenue stream for supermarkets. Cincinnati-based Kroger demonstrated this earlier this year when it offered a 10% bonus to shoppers who converted their economic stimulus checks or tax refunds into Kroger gift cards. One analyst said in a research note that Kroger stood to add 1% to 3% in same-store sales in the second quarter through its

Gift cards have hit critical mass and are now an important revenue stream for supermarkets.

Cincinnati-based Kroger demonstrated this earlier this year when it offered a 10% bonus to shoppers who converted their economic stimulus checks or tax refunds into Kroger gift cards. One analyst said in a research note that Kroger stood to add 1% to 3% in same-store sales in the second quarter through its stimulus-check-to-gift-card conversions.

According to a Packaged Facts report, the gift card market is expected to grow 5%, exceeding $52 billion in annual sales by 2012. Consumer concerns about fees, expiration time constraints and those who might be left holding the cards of bankrupt retailers have not curtailed demand for this form of prepaid plastic.

Retailers gain float money until the actual sales are redeemed. When the cards are redeemed, 53% of gift card holders often or always spend more than the card value, and most likely over two store visits rather than one, noted Packaged Facts, Rockville, Md. There also is a percentage of gift cards that are never redeemed due to loss and to expiration dates.

“I don't think they have peaked yet,” said Terry Cerwick, senior category manager, non-edibles, Bi-Lo, Greenville, S.C. “They are doing extremely well, but we're still waiting to see the top-out for gift cards, and we haven't seen it, at least not in our stores.”

Cerwick said Bi-Lo scatters gift cards throughout its stores. Those mixed in with greeting cards and floral sell particularly well. So do the selections stashed by the pharmacy and up front near the checkouts.

Supervalu, Eden Prairie, Minn., which also offered a gift card bonus to tax rebate recipients, has experienced similar results. According to Supervalu's Lanny Hoffmeyer, corporate director, hardlines, photo and lobby, Center Store merchandising and GM/HBC, sales of gift cards have increased exponentially in recent years. “Our program has seen double-digit growth, high-double-digit growth,” he said. “There are a lot more products out there that can be offered on gift cards that I think we'll see evolve and develop in the near future.”

Along with increased sales, the past five years have brought about significant shifts in consumers' perceptions of gift cards. Most consumers compare gift cards to money, noted Robert Passikoff, founder and president, Brand Keys, New York. Both are quick and convenient, but one has become much more acceptable.

“Giving cash can seem so impersonal, but when someone takes the time to choose a gift card from a brand that best fits the person's interests, it becomes a ‘specially selected’ present,” he said.

That said, convenience is probably the biggest factor driving purchases, said Dewayne Rabon, vice president, GM and HBC procurement and sales, Winn-Dixie Stores, Jacksonville, Fla. Rabon and other retailers and wholesalers were interviewed during a recent conference of the Global Market Development Center, Colorado Springs.

“Time-starved consumers still want to make sure that the gift they give is something that an individual actually wants to receive,” he said. “Gift cards have become a quick and easy way to fill that need.”

Indeed, being able to find gift cards at the local supermarket saves shoppers precious time. It also saves them money, said David Lowe, senior director, GM/HBC/seasonal, C&S Wholesale Grocers, Avenal, N.J.

“Think about fuel,” he said. “You don't have to go anywhere else to buy a gift card. You walk in to buy groceries, and there's the rack with cards for Red Lobster, Chili's, Bed, Bath and Beyond, and the Wawa store.”

Conserving gas is particularly important to consumers during times like these, when a recession has an impact on the day-to-day decisions people make, added Lowe.

Big-box chains, drug stores and even gas stations have wide assortments of prepaid plastic. Most carry everything from reloadable debit cards to gift cards of other merchants and restaurants, digital music downloads and mobile phone minutes.

While merchandising other retailers' gift cards might seem like a conflict for supermarkets, most food retailers indicated the rewards can far outweigh the loss of any sales to others.

Charles Yahn, vice president of sales, retail development, customer service and pharmacy, Associated Wholesalers Inc., Robesonia, Pa., thinks that retailers should look at the big picture when addressing the category.

“You can't be afraid to sell Lowe's, Home Depot and Applebee's. I see gift cards of national brands as an added service to the consumer, who is going to go to those places anyway,” he said.

Executives at Winn-Dixie have the “conflict-of-interest conversation” quite a bit, according to Rabon. “People are going to buy these cards for other companies, so we might as well be the company that sells them,” he said.

The list of retailers and brands currently available to retailers is long and growing. Blackhawk Network, the prepaid and payments network subsidiary of Safeway, Pleasanton, Calif., offers a wide array of options to its retail customers. These include electronic cards for Sears,,, Nordstrom, Starbucks Coffee, iTunes Music Store, American Express, Visa and MasterCard, to name a few.

Ted Zittell, partner, McMillan Doolittle, Chicago, was involved with the creation of Blackhawk. The company helped pioneer the concept of gift cards in supermarkets and continues to offer creative solutions today.

“The network brought lifestyle categories and great brand partners together, putting their cards into stores and aligning other retailers to benefit from the offering as well,” said Zittell.

Another provider, InComm, was recently acquired by Denver-based First Data Corp. The company doles out everything from gift cards, software, bill payment and prepaid wireless products to reloadable debit cards, digital music downloads, content and games.

Scolari's Food & Drug Co., Sparks, Nev., uses InComm for all of its gift card needs. “InComm does all of our small electronics, like iPod accessories and cell phone accessories, along with our gift cards,” said Nick Barainca, director of nonfoods there. The retailer merchandises every InComm item on a single endcap in each store, keeping tiny tech products together so shoppers can easily locate them.

A new third-party gift card distribution company, GiftClixx — a spinoff of SmartClixx, Boca Raton, Fla. — started shaking things up a bit recently. The peer-to-peer transaction routing and hosted service enables retailers to communicate and negotiate gift card transactions directly.

According to Gary Dinkin, chief executive officer for the company, the main improvement over existing systems is the significantly lower per-transaction cost.

“Instead of charging retailers a few percentage points or more based on the face value of the card, GiftClixx is only charging pennies per transaction activation,” said Dinkin. “This could represent a savings of 90% or more over what competitors charge for their service.”

Figuring out when to put promotional weight behind a gift card program is one common concern among retailers. Where to put the plastic pieces is another.

Jon Hauptman, managing partner of consulting firm Willard Bishop, Barrington, Ill., suggests merchandising gift cards as part of an overall seasonal/holiday program.

“Placing them beside greeting cards, floral displays or in special seasonal sets can position the store as a one-stop solution for all seasonal needs,” he said. “Given that one of the strongest growth areas in supermarkets today is seasonal products, retailers should be looking for new and creative ways to plan and merchandise things like gift cards.”

For chains with smaller-footprint stores, a single site may be the only option. One location highly suitable for gift cards is on an endcap near the front of the store. At the checkout is equally appropriate, Barainca told SN.

“Every store in the country used to have an endcap with batteries and film, but those items are shrinking, and gift cards are now popping up there,” he said.

If retailers are going to focus their efforts on prepaids during any season, it should be Christmas, said Dan Spears, director of nonfoods, Ingles Markets, Asheville, N.C. He encourages chains to stack 'em high and let 'em fly from Thanksgiving on.

“Gift cards are always going to be heavy in the fourth quarter,” Spears told SN. “It's awful easy to mail a gift card across country if you can't send a package to someone you want to share an event or holiday with, so they are extremely convenient.”

Other holidays and seasonal events can rake in profits in this category as well. Buehler's Food Markets, Wooster, Ohio, sets up a special display of gift cards several times each year. On average, there are four displays annually.

“We will be bringing in special holiday-themed displays for the Christmas season,” said Christina Melillo, merchandiser of grocery and nonfoods for the retailer. “We also push a special display for Mother's Day, Father's Day, graduation and other times.”
Additional reporting by Dan Alaimo