Interchange Second Only to Energy Costs on Grocers’ Worry List

With credit and debit cards accounting for nearly 46% of supermarket payments, card-acceptance fees now rank No. 2 behind energy costs among the top concerns of grocery-store executives, the Food Marketing Institute reports in its latest financial review of the grocery industry's financial health. In its 2005-2006 Annual Financial Review released last week, the Washington, D.C.-based trade group asked respondents to rate the anticipated impact, with 10 being the highest, of five major issues in 2006-2007. Energy costs came in highest at 7.8, followed by credit/debit card fees and competition, both averaging 7.6. Health-care costs closely followed at 7.5 and staffing, hiring, and retention rated an average of 6.1. Similarly, asked to assess the impact of those factors in 2005, respondents rated energy costs at 7.3, health-care expenses and credit/debit card fees tied at 7.2, competition rated a 6.8 and staffing, hiring, and retention averaged 5.8. The survey specifically asked about interchange for the first time in its 37-year history, according to FMI director of communications Bill Greer. Some 95.6% of respondents reported paying higher interchange, and the average increase was 14.9% over 2005. “We decided to add a question about interchange because this is a cost that is now becoming a major factor in industry operations,” says Greer. An essay in the report by Jennifer Hatcher, the FMI's senior director of government affairs, says some members have seen their interchange costs increase by 700% over the past decade. Greer says industry profit margins averaged 1.47% in 2005 while card-acceptance costs averaged about 2% of the transaction. “The credit card company, or bank, is getting more out of it than the retailer is,” he says. “We're seeing an increase in the average fee as more people migrate to [higher-cost] rewards cards.” The FMI is not a party to a major retailer class-action lawsuit challenging Visa USA and MasterCard Inc. interchange, but many of its members are. The FMI, however, is lobbying Congress and the Federal Reserve for interchange regulation. Grocers are increasingly worried about cost control because of rising competition from discount chains that sell groceries, especially Wal-Mart Stores Inc. By payment type, the survey breaks down supermarket transactions by the following averages: cash, 30.7%; credit card, 23.7%, debit card, 21.9%, check, 17.6%; and other, 5.5%. On a related note, MasterCard, following through on a promise it made in September, has now posted its interchange rates on its Web sites. Visa posted its own rates on its site earlier this month. The MasterCard rates can be found at www.mastercard.com/us/merchant/how_works/interchange_rates.html. The FMI's report is based on mail surveys of members as well as public financial documents. This year's report has data from 155 companies representing 19,558 stores and accounting for $380 billion in sales.