Digital gift cards provide an opportunity for convenience stores to improve customer service, appeal to a younger demographic and add to in-store sales.
By Howard Riell, Associate Editor
With more emphasis on speed and convenience, customers increasingly enjoy being able to pay on the go, with a swipe of their phones.
According to a report by the National Retail Federation (NRF), gift cards overall are growing at a rate of about 6%, but digital cards—e-gift cards—are growing at around 200%.
In addition, Mercator Advisory Group’s most recent Insight Summary Report from its CustomerMonitor Survey Series reveals that 56% of U.S. adults bought prepaid cards in the year preceding the 2014 survey, up from 53% in 2013.
Convenience stores are in line to benefit not only from increased sales, but also because product displays can take up less space than the classic plastic gift card rack.
In addition, there are no out-of-stocks, and customers needing to send a gift before they arrive at the party can do so when they pull in for gas or merchandise.
INCREASING DEMAND
“I have used them,” said David Crawford, vice president of operations for the 49-store Green Valley Grocery chain based in Las Vegas. “We sell some gift/prepaid products that do not require a physical card, usually just a code, to redeem.”
Crawford said he believes digital gift cards can, indeed, prove to be a growth area for c-stores.
“My guess is, it will be in urban areas where you have a lot of retailers in a small area that sell gift cards, and a large percentage of your customers have smartphones that they can use to buy most cards.” That growth, however, he added, will be limited.
To make the most of gift cards’ potential, Crawford said he recommends strong merchandising and promotion. “Give them a decent footprint and good display, and if you can, tie them to a loyalty program. It gives people a reason to buy them at your outlet versus at a competitor or online.”
A study by InComm Digital Solutions, an Atlanta-based product and transaction services firm, found retailers can extend the holiday shopping season by offering Instantly Delivered Digital Gift Cards (IDDGCs), which have risen in popularity across all age demographics. Smart phones continue to contribute to the increasing demand for consumers to purchase, store and redeem digital gift cards all from their mobile devices.
According to InComm, digital gift cards are an increasingly important component of successful holiday strategies, permitting retailers to extend the holiday shopping season by offering instantly-delivered digital gift cards, which have risen in popularity across all age demographics.
While gift cards remain an important part of holiday strategies, 2014 saw a greater portion of digital gift cards sold during the holiday season. Also significant is a growing preference for mobile delivery, storage and redemption of digital gift cards. Highlights from the holiday survey include:
• 67% of total sales in December 2014 were digital gift cards (compared to 57% in 2013);
• 88% of total sales were digital gift cards (compared to 80% in 2013) in the six days leading up to Christmas;
• 72% of survey respondents had purchased a gift card online or through mobile means;
• 50% of respondents agreed they preferred to have a digital gift card scanned from their mobile device than to carry an email printout;
• 53% were interested in storing and using gift cards on their phones; and
• 80% of total respondents (and 89% of Millennials aged 18-35) said that they were more interested in purchasing digital gift cards now than they were three years ago.
The Washington, D.C.-based Retail Gift Card Association makes the case that mobile and e-code gifts are still emerging. About 54% of consumers have not heard of mobile gift cards or e-codes, the group’s research found, and only 17% of shoppers are “very comfortable” using them.
However, 62% of the respondents chose mobile/e-code gift cards when they needed to use them immediately.
Indeed, a key differentiator between physical gift cards and digital gift cards is instant delivery.
When U.S. consumers were asked in the association’s survey why they have purchased digital gift cards rather than physical, the most common response was instant delivery, cited by 62% as a driving factor.
TRENDING FORWARD
Crawford also recommended finding the right partner at the outset.
“Work with a good vendor that helps you, and make sure you have the right product mix,” Crawford said. “Keep in mind it is a low-margin, high-dollar category that can be prone to fraud, so you need controls on the category.”
C-stores also have the option of expanding the number of gift cards available to in-store customers without adding floor space by including a scanable bar code to the rack.
Doing so allows shoppers to scan the card with their smartphone and select from a much broader set of brands. They can then walk up to the point of sale, have the bar code scanned, and pay with cash to have that digital content delivered to their phone immediately.
THINKING YOUNGER
Tony Bonnell, director of retail for Feather Petroleum Co. in Grand Junction, Colo., which operates 16 Stop-N-Save locations, said that his company has chosen not to get into the digital gift card space, but that might soon change.
“I just don’t think we’ve been in the loop on it,” he explained. “I’m just now starting to see things coming through, at least from my perspective, that tell me this is the new thing coming. I’m starting to hear advertisements for it, but I haven’t been approached by any vendors about it.”
Feather executives are now watching to see how the category performs. Indeed, Bonnell added, vice president Kathy Schoenfeld, who oversees the company’s marketing and advertising, is currently examining that space in connection with an overall interest in reaching out to younger consumers.
“We’re looking at that younger-generation thing,” Bonnell said, “that whole smartphone (phenomenon) that is driving so much (business). I am sure they will be (a growth area) as we go forward. I have just started hearing about them in the media.”
According to Bonnell, digital gift cards are a natural part of retailing to consumers in that younger demographic today and, just as importantly, the future.
“I think we’re always trying to target that. Really, we’re more focused on the 30- to 50-year-old range because it seems they have more expendable cash,” Bonnell said. “But, if you don’t capture some of that younger generation now to keep them coming into your stores, then they’re going to go to the more hip kinds of places.”
That mindset is increasingly coming to pervade store merchandising in general, he adds.
“When I am doing my buying and we’re putting stuff out for display, I’m trying to keep in mind that ‘Hey, this might be a younger-generation thing,’” Bonnell said. “Maybe it’s Mountain Dew, maybe it’s Kickstart from Mountain Dew. Maybe it’s something that the younger generation is looking for more than the other (age groups).”
The realization—that c-stores can also make money from e-gift card acceptance because redemption is the beginning of a retail relationship with that customer—may prove the greatest benefit of all.
Mobile is the Thing
Smartphones continue to contribute to the increasing demand from buyers to purchase, store and redeem digital gift cards all from their mobile devices. A recent InComm Digital Solutions study indicated:
• 72% have purchased a gift card online or through mobile means;
• 50% of respondents agree that they would prefer to have a digital gift card scanned from their mobile device than to carry an email printout; and
• 53% of respondents are interested in storing and using gift cards on their phones.