OAK BROOK, Ill. -- Credit cards are the ultimate business paradox. They've become one of the convenience store industry's greatest blessings in that they boost speed of service and tend to inch up how the amount customers spend per visit. But some would argue that they're also the industry's most debilitating curse due to the associated fees that have spiraled into a thorny, multi-billion dollar crisis.
As detailed in the September issues of CSP and CSP Independent magazines, the crushing weight of credit-card fees is felt by every retailer in the business, [image-nocss] from mom-and-pop island marketers in the Southeast to 1,000-store goliaths in the Midwest. Rising fees, they say, have forced them to miss annual profit targets, terminate expansion plans, consider digging up their fuel tanks and even stick a for-sale sign on the window.
To be fair, credit cards provide a tremendous benefit to all retailers. While card acceptance does come at a costfees totaled $6.6 billion in 2006, more than total industry profits of $4.8 billionit's a consumer convenience that has become standard procedure for most Americans. It's a competitive necessity for retailers in a hypercompetitive battlefield, according to Peter Madigan, executive director of the Electronic Payments Coalition, Washington, D.C.
Because of electronic payments, a countless number of retailers have been able to expand their businesses by offering their customers convenient, secure and reliable payment options, Madigan told CSP Daily News. Opting for electronic payments greatly reduces the threat of theft associated with hard currency, increases protection against fraud and ensures store owners faster payment.
He added, The important thing to remember is, like rent, electricity or the telephone, there is a cost associated with using these services and maintaining a global electronic payment system that offers significant benefit to both the customer and the retailer.
While some have simply absorbed the expense and accepted it as just another cost of doing business, albeit an extremely painful one, others have sought relief by taking matters into their own hands. Some have moved to two-tier pricing at the pump. Some have opted to handle their own card processing. And still others have moved to nascent, alternative payment systems that circumvent credit and debit cards entirely. One thing is certain, however: There's no perfect fix, no silver bullet.
Michael Hyde, CEO of Pit Stop Convenience Stores, Peachtree City, Ga., implemented a two-tier pricing system for gas purchasesone for cash, another for creditat two of his five direct-operated locations more than a year ago to limit the draining effect plastic fees had on his bottom line. The move did have an almost immediate effect in one regard: consumer backlash.
Fuel volume dropped 40% at the two locations after the new policy went into effect, but margins changed significantly, too. Margins that had been nonexistent climbed to as much as 8 cents per gallon, according to Hyde. At the same time, thankfully, inside sales did not suffer. We did see [fuel] volumes fall off, but we did not see an appreciable change inside, he said. That's a big, big highlight there. I suspected quite some time ago that we have evolved to have two sets of customers, and almost anybody would agree that 70% to 80% of customers buy gas and nothing else. Volume we had inside held steady.
Another highlight: Gallon volume that had slipped away began to creep back. I'm pleased with what we've done so far, but what happens next is sort of out of my hands, he said. I hope this [idea] expands to others than just on the interstate. On one hand I'm hopeful, but on the other I'm not too optimistic. There'll definitely be some backlash, but like anything else in lifeno pain, no gain.
Look for more on this issue in the September 2007 issues of CSP and CSP Independent magazines.
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