In It to Win It

Convenience stores can hit the jackpot by making lottery a priority

In early August, it was hard to turn on the news without seeing a reporter standing outside a corner store talking about the rising Powerball jackpot. It didn’t matter the city or the store, the $488-million payday was big news everywhere. And regardless of what winning numbers were drawn on Aug. 7, it all added up to success for convenience store retailers.

The $488-million prize was the third largest in Powerball history. This year also saw the largest-ever Powerball jackpot: a Florida woman claimed a $590.5-million prize in June. Even with these eye-popping numbers, however, the title of largest lottery jackpot belongs to the March 30, 2012 Mega Millions drawing, which paid out $656 million.

Both Powerball and Mega Millions are part of the Multi-State Lottery Association. Tickets are sold in 43 states, Washington, D.C., and the U.S. Virgin Islands. The seven “unlucky” non-lottery states are Alabama, Mississippi, Wyoming, Nevada, Utah, Alaska and Hawaii.

For retailers in lottery states, the game of chance can lead to big numbers not only in customer count, but also in sales.

For The Pantry Inc., operator of Kangaroo Express c-stores, lottery is the biggest subcategory within its services category, according to Robin Vaughn, category manager. With nearly 1,600 locations across the Southeast, the Cary, N.C.-based convenience retailer sells lottery in all its stores in 11 of 13 states, with Mississippi and Alabama stores left out of the lottery craze.

“It is a big player, and we feel it is very important to our stores. It does drive traffic,” Vaughn said, noting that convenience is the No. 1 channel for lottery players. “They come to a c-store and they expect to play lottery.”

Richmond, Va.-based GPM Investments LLC also sees lottery as a key driver in bringing customers through the door. Even though the retailer does not account for lottery in terms of sales but as other income, it does bump up customer counts, explained Lucy Meidinger, financial planning and analysis manager for GPM. “About 6 percent of the transactions that come through the door are lottery transactions,” she said.

THE JACKPOT IS NOW…

Both Vaughn and Meidinger agreed that large jackpots, like the Aug. 7 Powerball drawing, do have a positive effect on their lottery business.

“Large jackpots definitely drive traffic and with increased traffic, we definitely see an increase in sales,” Vaughn said. “From what I am seeing from reports, when a jackpot hits $200 million or greater is when we really see the traffic start spiking and sales start increasing most significantly.”

An increase in lottery sales starts around the $100-million prize point, but she said the largest jumps come when it reaches $200 million or more.

“Fortunately with big states like California and Florida joining the lottery, jackpots are growing faster than ever and we are seeing larger jackpots more often,” she explained. “That is great news for convenience stores or anyone who sells lottery.”

At GPM Investments’ stores — which include Fas Mart, Shore Stop and its newly acquired GPM Southeast LLC holdings (formerly the Southeast division of VPS Convenience Store Group) — the 6-percent transaction figure more than doubles to 13 percent when jackpots grow, according to Meidinger. Transactions start to increase a couple of days before the drawing, she said, but the real spike occurs on the day of the drawing.

That is not to say that smaller jackpots don’t bring in customers, but evidence shows this is more the everyday lottery customer coming in and trying their luck.

“If it’s a smaller lottery jackpot, you do see an increase in customer counts and transactions, but they generally have the same market basket and the behavior of the customer is the same, which leads us to believe it’s a regular lottery customer coming in and purchasing tickets,” said Meidinger.

Oddly, when the jackpots grow, the average market basket dips, she noted, because it is being diluted with customers coming into the store just to buy lottery tickets. For the GPM Investments customer, the No. 1 companion purchase with lottery is cigarettes, followed by beer, packaged beverages and foodservice.

The Pantry is just starting to dive deeper into its lottery basket data. Early statistics show the per-customer ring is higher for lottery customers than other customers.

“Beer and cigarettes seem to be attached. We also see snacks and carbonated drinks increase — your main players in the c-store,” Vaughn explained. “Anecdotally, the large jackpots [attract] our core customer who is coming in any way to play, but we also see additional customers come into the store to play. To me, it’s a win-win all around.”

CATCHING LOTTO FEVER

Convenience store retailers can hit the jackpot with lottery, but it doesn’t sell itself.

As a c-store operator in Long Island, N.Y., for 18 years, Jeff Sinacori knew that if he sold a lot of lottery tickets, he would make money despite lottery only paying out 6 percent. Now as vice president of retail development at Scientific Games, a provider of lottery tickets to 43 states and 72 countries, he works with retailers to build up their lottery business. He said the No. 1 complaint he hears is that lottery margins are too small.

Sinacori quickly pointed out, however, that when comparing lottery margin to other margins in the c-store business — like tobacco and fuel — “lottery doesn’t look that bad.”

“As a retailer, I [looked at] lottery as a product that was going to bring everyone into my store. I used lottery as a ticket to my success,” he said, adding that an increase in lottery sales led to an increase in other sales like newspapers, beer and soda. “I used lottery as my draw.”

Another bonus with lottery is that it is a free product to offer. Retailers only pay when they sell it, according to Sinacori. “All we have to do to make money is sell it,” he reasoned. “We don’t refrigerate it, we don’t package it, we don’t ship it, we don’t cook it and we don’t throw it away. All you do is sell it and make 6 percent.”

PLAY HERE

There are several best practices for making lottery a priority. As the agency of record for the Arizona Lottery, E.B. Lane has employed marketing, advertising, digital initiatives and social media tools to push the state’s lottery to a record-breaking year in fiscal 2013.

“It behooves retailers to promote lottery because they make a commission from sales,” said Joe Ray, vice president of multicultural marketing for E.B. Lane.

A key driver in increasing lottery sales is displaying proper signage and not hiding it among the clutter. “Lottery can either be a planned buy for people or an impulse buy,” he said. “If you put it in front of them, it entices them to go in. Once inside, it is about making it easy for them to play.”

The Arizona Lottery has found success by posting “Play Here” signage on doors, windows and pump-toppers. Having a video monitor that displays lottery information — such as available games and jackpot figures — is also a plus.

“Video monitoring works very well, especially when the jackpots get larger,” he noted. “There is a certain fervor with the buzz of a high jackpot. People who don’t normally play all of a sudden play.”

Retailers can also draw in lottery players by holding second-chance drawings for losing tickets, selling all the games the lottery offers and giving customers a dedicated place to play.

“C-store chains are realizing that by focusing on lottery, customers are passing by other stores to come to their store because they carry more games, because they have nicely lit jackpot signs, because they have an area where people can play their tickets,” Sinacori said.

Advertising a location as a “lucky store” helps bring customers in as well. “Some players, especially Latino players, have stores that are good luck. If someone had a $1-million winner, that is an advantage that a store can use. People will drive miles out of their way because that is a ‘lucky store,’” Ray said. “Stores that have multiple winners feed that notion. Lottery is a game of chance and when you start talking big bucks, it’s no holds barred on superstitions. Whatever works.”

ADVANTAGE: C-STORES

Large jackpots aside, lottery is a repeat business. People don’t buy tickets just on jackpot days.

“When somebody smokes a pack of cigarettes and they are out of cigarettes, they need to go to the store to buy them,” Sinacori said. “Lottery [likewise] becomes a destination. People buy lottery every single day, the same people, and buy it several times a day.”

Lottery currently ranks No. 2 in dollar sales among the top 10 c-store categories, according to Sinacori. In addition, it is something big-box and dollar stores do not offer.

“If a convenience store doesn’t focus on that, they are leaving a lot of money on the table,” he said.