For about the past 10 years the Pleasanton, Calif.-based Blackhawk Network has been a provider of prepaid cards with its beginnings in grocery. That ties into the company's background as a subsidiary of Safeway. The company moved from gift cards in grocery to other types of cards—prepaid telecom, prepaid reloadable debit— that still bring prepaid to the mass-market, but in a much broader way. The company now represents products from such companies as Best Buy and Home Depot as well as its own reloadable prepaid debit cards and open Visa gift cards and similar products. During that same time the growth of such products, both in the United States and overseas has been significant. NPN interviewed Teri Llach, CMO of Blackhawk Network to discuss the prepaid market in convenience and the Blackhawk Network approach to business.
NPN: Where is Blackhawk at as a company today?
Llach: We have a great mix of reloadable products and we've expanded to the point where we're in over 90 percent of the groceries in the U.S. and we’re also in mass-market convenience stores, some drugstores. We’re really excited about the growth in the third-party arena. We usually use (payment research provider) Mercator as a good benchmark in the gift card market. They say that gift cards themselves were growing at about 6 percent, but now they're growing at about 12 percent. We’re growing at about three times that, which shows that people are really looking onto the convenience of buying these prepaid products at third-party locations.
NPN: You got your start in grocery – how are you approaching the convenience sector?
Llach: We started in grocery so we were a little late to the party in convenience, but we are really excited about some of the new products that we have in the convenience market and some of our exclusive gift card content. We have a lot in digital content and gaming, which can be very exciting in the convenience market, along with some of the prepaid telecom products and some of the reloadable debit products, which I know 7-Eleven and some of the other players have done a very exciting job with.
The consumer at the convenience store is different than the consumer at the grocery store, so we really developed a whole internal team focused exclusively on convenience stores, developing products and promotions. Our convenience store task force is really going all out, and they want to treat this market uniquely.
Convenience stores are destinations for busy families—it's not just that you're in your car and you want a Snickers bar. With that new audience comes, I think, a responsibility to give them things like a convenient place to reload their debit cards or top up the phone or to choose from a selection of gift cards and in some cases you get gas discount with the purchase. With the fuel stations at Giant Eagle, if you spend $50 on gift cards you get $.50 off on the gas. That's a great deal.
NPN: What would be your company perspective on serving the convenience industry?
Llach: One of the things that sets Blackhawk apart is the marketing. We don't just hang it on a peg and walk away. We know that it's not “you build it and they will come.” Sure building a nice rack and good signage and having the right products are very essential, and we have a great team that will focus on that and convenience. But we also know that communication to the consumer through advertising and promotions are other ways to really give value to the consumer and increase awareness of these types of products. It wasn't so long ago, two to three years ago, that people really didn't understand what a prepaid debit card was. Now you have three companies, including Blackhawk, that are doing great business helping the consumer out.
NPN: How are the prepaid debit products holding up? We know they are useful for the unbanked, but what other opportunities exist?
Llach: There are teenagers out there that could not balance a checkbook if their lives depended upon it. The $35 insufficient fund charges were killers and then when they went away and you got fees like $10 for low balance and $5 for using a debit card and pretty quickly that $5.95 monthly fee for a prepaid debit card looks pretty good. With a prepaid debit card, you put money on, it can be an allowance, and it is straightforward. It's not going to change or if anything, it might go lower. These products are really serving a need and then it makes sense to reload them in convenient locations and what is more convenient than a convenience store?
NPN: How important is the card mix at different retail sites?
Llach: The mix of the cards and the denominations have to vary depending upon the demographics of the specific location. I might sell a $200 Nordstrom’s card in a premium community, but they are not necessarily going to sell that and a convenience store. You have to develop a program that's going to win with the site’s customers. That's exactly where we come in. We have a really robust research department and we spend a lot of time talking to our retail partners and doing research with their consumers. We really try to develop custom racks custom signage custom communications, custom promotions and the right product mix.
NPN: The economy remains pretty rough and some of the retailers you partner with are being hit pretty hard. Yet, card sales themselves, as you pointed out earlier, are strong and growing. How does this work out?
Llach: We've done a lot of talking to consumers and the economy has actually affected us in a positive way. The consumer has less and less time and is feeling more and more stressed. So anything they can do to alleviate that threat stress is a good thing. And if that involves picking up a present quickly, that's a good thing. A second point is that people are sick of their money being wasted. If I try to buy any kind of clothes for my teenage daughter—even if it is something she would've picked out herself—because I picked it out, she will hate it. I wasted my money. And I can go into her closet sometimes and see things I bought her with the tags still hanging on them. So people are sick of wasting their money and buying gifts that they don't know that somebody is going to like, especially if you do not know that person really well. And now here is a situation where you can go buy a prepaid card and you know it's going to be used.
NPN: Breakage (money on the card that remains unredeemed) has been an attractive feature for your retail partners. What are their thoughts on that today?
Llach: It used to be that everyone thought the retailers wanted the breakage off the card, but it's not that way today. Every retailer I've spoken with would trade breakage many times over for a customer in the store. So you are finding now I think, that as gift cards are becoming even more popular that people are becoming very efficient at using every single penny, which is what the retailer wants. The retailer wants you walking in the store and shopping with them. (Gift cards) are not only becoming easier to buy they are becoming easier-to-use and that is important.
NPN: What is happening with gaming products?
Llach: Gaming is a natural for prepaid. You have lots of games and games are trying to find ways to monetize themselves. In a prepaid situation, you can really control how much time a child spends online by how much is paid for in the game, but with a credit card, there is no control and it is really hard to gift. With a prepaid card, you can gift gaming and put controls on the spending. The demographics of the convenience particularly play well here compared to, say, those of the grocery store.
NPN: In general, what type of retail volume do you see happening this holiday season?
Llach: I'm very cautiously optimistic, but then I was cautiously optimistic for the past two years. We are having a very good year and studies have shown gift cards have been the number one requested gift and that'll probably hold true this year.