Destination: Prepaid

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Destination: Prepaid

By Michael Browne - 12/09/2002
The never-ending stream of news items tells the story: "Wawa Partners with GTS Prepaid," "7-Eleven Calls on Verizon," "EZ Mart Makes the Call." While key categories such as tobacco, gasoline, foodservice and alcohol continue to give the c-store industry fits, prepaid phone cards and ancillary products are looking more and more like the panacea that retailers have been waiting for.

Less than a decade ago, prepaid phone cards were unheard of in c-stores. But by 2001, the category was generating $418 million in total c-store sales, according to the CSNews 2002 Industry Report.

To get an idea of just how much prepaid means to c-stores, AT&T, which offers calling and Internet cards, as well as other wireless products, is now 7-Eleven Inc.'s ninth-largest vendor. The Dallas-based chain, with more than 5,700 stores, is the nation's number-one c-store in prepaid wireless sales and, according to Tim McCallum, director of services, "We sell more AT&T products than we do Miller beer or Coors beer."

McCallum added that the demographic of the prepaid customer has changed since the cards first came out, noting that it is no longer just the credit-challenged, budget-conscious and very young. Business among senior citizens has tripled in recent years, and prepaid products earn an average transaction of $35, quite a boost considering 7-Eleven's average ring otherwise is $4.

Making a Point of Purchase
"Prepaid products are a planned purchase," said Mark Horne, president of LJT Management Services in San Diego. "It's a destination category, and the category drivers are phone cards." Horne, a former retailer turned consultant, sees the prepaid category as continuing to be a huge opportunity for the c-store channel and spoke about that to an audience of retailers at this year's Prepaid Expo in New York this past August.

"[Retailers] must be proactive," he said. "A majority of retailers are busier trying to chase down rebates from manufacturers rather than serving customers." He pointed to industry leaders like 7-Eleven, Circle K and QuikTrip as retailers that have made superior customer service a priority, and who have succeeded by going beyond standard c-store fare into categories like prepaid.

"Retail is retail," he said, "no matter what the channel. You have to run your business for your customers' convenience, not the convenience of the business or vendors and suppliers. In many stores, customers can't even locate prepaid phone cards.

"Your customers' choice shouldn't be limited by supplier incentives."

Horne suggested that retailers need to create distinct businesses within the store. Just as the typical c-store has destination points such as the cooler or snack aisle, prepaid telecommunications can be a draw for the shopper. "The category must be accessible and visible," he said. "Use kiosks. Think about reconfiguring your store."

The key for c-store operators is promoting the category to their target market. "You should customize the offering to your demographic," he said. For example, retailers can play up their long-distance calling cards in ethnic areas where people make international calls or emphasize the cost savings of using prepaid to attract college students.

"Retailers need to increase their opportunity to increase frequency of visits," Horne added. One way to do this is by offering incentives for customers to reload or repurchase their phone cards at the same location. "Another thing c-store operators need to do is increase the average transaction amount. Two-fers and bundling can help to do this, with the deals prominently displayed on point-of-purchase materials."

Forging Partnerships
As with any category, working closely with manufacturer partners is crucial. 7-Eleven has deals with some of the biggest names in prepaid, including AT&T, Tracfone, Cingular and Verizon. For example, 7-Eleven and Verizon now offer four prepaid phone cards, including one card exclusively for calls to Mexico.

With rates starting as low as 1.9 cents per minute, the cards are designed to give consumers easy options to meet different calling needs. The four 7-Eleven prepaid phone cards by Verizon include: the 7-Eleven Value+ Card, designed for callers who make longer calls, available in $5, $10 and $20 denominations ; the 7-Eleven Flat Rate card, with no connection fee and calls priced at 9.9 cents a minute; the $50 7-Eleven Flat Rate card has no connection fee and a domestic rate of 4.9 cents a minute for a total of 1,020 minutes; and the 7-Eleven Value+ Mexico card, designed for calls to Mexico, can also be used for calls within the United States and is available in denominations of $5, $10 and $20.

"Verizon has worked closely with 7-Eleven to create value-added phone-card products," said 7-Eleven's McCallum. "The combination of a well-known brand and 7-Eleven's scale and selling power enabled the development of higher-quality products for our customers."

Marlton, N.J.-based GTS Prepaid Inc. is another prepaid vendor working aggressively with c-store retailers. The company, which offers prepaid wireless, phone cards, prepaid Internet programs and wireless accessories, has established strong partnerships with chains such as Wawa, Circle K and Sunoco. One of GTS's strongest selling points is that all of its products can be activated from electronic point-of-sale activation terminals provided by the company, or through existing retail POS networks.

Fas Mart Convenience Stores Inc., based in Arlington, Va., signed on with GTS earlier this year. GTS provides the chain's 169 Fas Mart and Shorestop stores with all of its prepaid telecom products, and also provides marketing and merchandising support. GTS's "Get Connected" displays create a visually compelling presentation of the GTS family of products, and the merchandising center allows Fas Mart to prominently display the prepaid items while limiting theft.

According to David Arensdorf, category manager at Fas Mart, the chain chose GTS for a variety of reasons, "but especially for their comprehensive offering and a reputation for outstanding customer service."

Those kinds of retailer-supplier partnerships have contributed greatly to the success of prepaid in convenience stores, and will become even more important as the category takes on greater significance in the stores.

In this new business environment, "change is necessary," said consultant Mark Horne. "The loss of motor fuel and tobacco profits make new products like prepaid necessary. There's tighter competition and increasing capital investment. At zero fuel profit, a store needs a minimum of $100,000 a month in sales just to break even." Making their convenience store the place for prepaid telecommunications pur- chases is one step in the right direction for retailers.