Convenience stores delvedinto the prepaid categoryyears ago by carrying long distance phone cards, long before the explosion of cellular phones. Today,the category has evolved into a distinctwireless display that caters to customerslooking for a commitment-free way to usethe latest cell phones.
Targeting untapped consumer segments has become the driving forcebehind the changing prepaid wirelesscategory. Suppliers and distributors arefocusing their energies on drawing inyoung people who need instant accessto communication devices such as wireless phones and reloadable calling cards,while retailers are pushing promotions instores near college campuses and in urbancommunities to attract these customers.
Walters-Dimmick Petroleum (WDP), based in Marshall, Mich., operates 58 cstores and supports another 42 dealersunder the Shell gasoline brand throughout Michigan, Ohio and Indiana. Thechain used to carry prepaid cellular cardsthat weren’t refillable, which meant customers could throw them out after oneuse and not return to purchase anothercard. When a customer purchases a cardthat can be constantly reloaded with moreminutes, they are more likely to returnto the original place of purchase, whichgives retailers the opportunity for morerepeat business, a big boost for stores ininner cities and units that target the student demographic.
“Before we started carrying refillablecellular cards, we had a hard time movingthis category,” said Dale Williams, WDP’sdirector of IT and retail systems. “The convenience of purchasing a refillable card really appeals to our customers becausethey can control spending cost.”
With stores situated along the university-populated Northeast, VERCEnterprises sees its fair share of customers looking for budget items. The Duxbury,Mass.-based chain’s biggest selling item inthe prepaid category is a reloadable wireless card provided by Coinstar. The cardscome in a variety of set denominations,ranging from as little as $5 to as muchas $100, allowing customers to customize their calling plans by purchasing a setamount at a time.
“The biggest advantage of these cards isthat they are refillable,” said Dave Proler,district manager for six VERC stores. “Ifyour customer is on a budget and looking to control their spending, the cards areperfect for them.”
Serving the growing demand
Retailers and suppliers both agree thenew prepaid category focus is the ongoing development of refillable wirelesscards. With more and more retail outletscarrying an array of gift cards, or “giftcard malls” to major names such as HomeDepot and Applebee’s, it makes sense thatthe key wireless service providers wouldjump onboard.
Coinstar has contracts with 29 different carriers, some local level and somelarge national players. The wide rangeof carriers allows consumers looking fora particular provider to use the reloadable cards. A unique feature is that severaldifferent wireless providers can be represented on a single card.
“Customers scan the racks and seethat they can choose from several different cellular companies and still use thesame card to pay for their minutes,” saidProler. “The flexibility of these cards hasreally increased the category’s appeal tocustomers.”
Suppliers and distributors approachthe prepaid products market by targeting lifestyle choices of customers—peoplewho seek a specific item to support theirstandard of living. Wireless phones andreloadable airtime cards appeal to groupswho need to control spending, travel frequently, have family in other countriesand whose past credit may not qualifythem for a monthly plan.
Steve Verleye, Coinstar’s senior vicepresident of e-payment services, said thatit’s a natural addition for c-stores to pickup products that serve the underbankedconsumer. Prepaid wireless cards are away for retailers to target a demographicconcerned with credit scores and worrying about monthly bills.
“The convenience channel is the frontrunner in providing an easy solution forits customers,” said Verleye. “The typeof consumer who typically purchasesprepaid wireless items may come fromlower-income places and can’t be tieddown to a contract plan. These are the customers retailers should be targeting.”
Proler agreed that most of his customers that shop the prepaid categoryare looking for an “on-the-go” solution.”The reloadable wireless cards are perfectfor them. They just want to make a quickstop to purchase some talking minutesand don’t want to be bogged down witha plan,” he said.
Staying ahead of the trends
Retailers have not seenthe best results from wirelessphones. The products tendto get outdated fairlyquickly, since wireless companies are always churning out newer models.
” We soldphonesfor a while,but the technology becomesoutdated fasterthan we could sell them,” said WDP’sWilliams. “If there is a demand in a certainstore location, we may supply a few; butthe mainstay for us has been the reloadable cards.”
Wireless provider AT&T still providesretailers with packaged pay-as-you-go phones, which run from as little as$19 up to $129. Most of the company’slower-priced phones sell well, accordingto David Zimmeran, director of marketing for AT&T mobility. He finds that themid-range and upper-end phone models appeal to young males who like tohave the latest technology and differentfunctionalities.
The prepaid wireless category delivers retailers high single-digit margins, butthe minimal investment required to carrythe products makes the category very attractive for retailers. There is very littleinvestment and inventory cost required tocarry prepaid wireless products since thecards sell quickly. The cards don’t requireswitching out old items for new ones everyweek since the same card design can remaincurrent for months.
VERC Enterprises merchandises itscards on a rotating stand right out on thefloor. The display is used to catch the eyeof a customer who may purchase several cards at once for special occasions.Operators can’t keep the reloadable cardson the shelves during peak sell-times suchas holidays and graduations.
Coinstar handles all the merchandisingand store displays in the c-stores it supplies,providing toppers, store decals and merchandise on its own cost. Once a quarter,Coinstar employees are sent out to updatesignage and train with the store staff.
The Hispanic demographic is anotherpotential goldmine for retailers who sellprepaid products. Recent studies indicateHispanics are among the fastest growingdemographic in the U.S. with enormouspurchasing power. More importantly, theimmigrant Hispanic population has a needto make international phone calls to family members and friends in their homecountries. As a result, there is a need to provide phone cards with international callingabilities. Chains in regions with denseimmigrant populations have also profited from carrying bilingual English andSpanish phone cards to meet the consumers’ needs.
“It’s definitely important to have a variety of cards available,” said Proler. “Theinternational community needs as muchselection as possible since their needs aregreatly varied. Also, we try to rememberpeople who are going abroad, as they maywant to purchase a bulk of cards for theirtravels.”
NFinanSe, a financial services companybased out of Bradenton, Fla., provides cstores with bilingual calling cards. Thecards are being embraced in smaller storeswhere there is a large immigrant customerbase. The company also provides generalreloadable wireless cards, which peak insales during the summer months whenconsumers begin to travel.
“We see parents buying these cards fortheir kids going away to camp or for a summer job,” said Jerry Uttner, senior vicepresident of sales for nFinanSe. “The catego
ry has gained a lot of traction with theyounger demographic. The reloadable category is the next really big growth area forprepaid services.”
Smaller c-store chains are embracingprepaid wireless items because of the easeof sale. The cards are instantly issued atthe point of sale, all the retailer has to dois swipe the card to activate it and collect the money. With distributors like Coinstarand nFinanSe handling all the merchandising for the prepaid category, retailers canfocus on garnering more repeat businessfor the category.
“Prepaid cellular products are a lot morepopular now than a few years ago,” saidWilliams. “We have customers always asking for the cards in our stores—it’s an itemthat just draws people in because of its flexibility and freedom.”