Brian Galbrecht moved to Las Vegas about seven months ago and has since been a frequent Smith’s shopper.
He usually pays with his debit card, but he’ll occasionally use his Visa credit card at the grocery store. But starting Wednesday, Galbrecht and all other Smith’s shoppers no longer have that option.
Smith’s said the decision to no longer accept Visa credit cards was made to avoid excessive fees and keep prices low, but retail analysts say this move could turn customers away. Galbrecht said he’s now more inclined to visit other chains like Albertsons.
“It will affect me,” he said. My visits to Smith’s “will slow down. I won’t go as often.”
Impact on business
On March 1, Smith’s announced that it would no longer accept Visa credit cards at any of its 142 supermarkets, including the 45 in Nevada, beginning Wednesday. The Salt Lake City-based division of The Kroger Co. will still accept all other forms of payment, including Visa debit cards.
According to Aubriana Martindale, the division corporate affairs manager for Smith’s, the company made this decision to “keep prices low for customers” as interchange and network fees from Visa and its partnering banks drive up food prices.
“Visa has been misusing its position with its excessive fees,” she said. “To keep prices low, we have to control costs.”
According to industry publication The Nilson Report, merchants paid about $64 billion in Visa and Mastercard credit and debit interchange fees last year, 77 percent more than in 2012.
Retail consultant Bill Bishop, co-founder of Chicago-based research firm Brick Meets Click, expects Smith’s will lose customers who depend exclusively on Visa.
“I think this is pretty bold,” he said. “It’s probably a relatively small payoff for what they’re trying to do.”
But Bishop said if shoppers do have an alternative credit card, switching payment methods will be much easier than switching supermarkets.
Doug Koontz, research director at data company Edge by Ascential, said Smith’s will likely feel a hit.
“Smith’s is likely assuming most shoppers will just use an alternative credit card or debit card, but for shoppers loyal to a specific credit card or rewards program, this could drive them to switch outlets altogether,” Koontz said through email. “For those that are forced to pay with cash, it will also decrease basket size.”
But there are still loyal customers in Las Vegas. Lina Juzenaite has been shopping at Smith’s for 20 years, and said she understands the company’s move to skirt Visa’s fees.
“I think it’s Visa’s problem, not Smith’s.” Juzenaite said. “I don’t think Smith’s going to lose business.”
Transition for customers
To keep customers in good favor, Smith’s is offering incentives such as double rewards points toward fuel purchases through May 21. It’s also working to make sure shoppers are aware by having employees discuss the change with customers when they enter and check out.
While signs warning shoppers of the change have been up at Smith’s locations for weeks, the decision still came as a surprise to some.
“I just heard about it last week. … I was shocked. Credit cards are supposed to be used all over,” said Las Vegas resident Luciel Piteo outside the Smith’s off Southern Highlands Parkway. “There were quite a few people yelling in there. They were upset, you can’t blame them. I think they should go back to using (Visa credit cards).”
For shoppers who do check out with only a Visa credit card on hand, Smith’s stores will hold their order long enough for the customer to get another form of payment and return.
“We want to help ease the transition for customers,” Martindale said. “We want to make sure they understand our decision because it was a tough one to make.”
A Visa spokesperson told the Review-Journal that Smith’s decision negatively impacts both companies.
“Our goal is to ensure that every cardholder can use their Visa card wherever they wish to shop. When consumer choice is limited, nobody wins,” Visa said in an email to the Review-Journal.
According to data from the U.S. Census Bureau, about 22 percent of all credit cards in the U.S. in 2012 were Visa. And not every American has enough access to credit to have more than one credit card, according to Nick Egelanian, founder and president of retail real estate consulting firm SiteWorks Retail.
“I’m sure Kroger has accounted that into this, but it’s very odd,” he said.
A long-term battle
Smith’s is the second Kroger banner to stop accepting Visa credit cards; California-based Food Co. Supermarkets made its policy change in August 2018.
Martindale said she couldn’t disclose what the fees are, but said Visa’s credit card fees are significantly higher than any other card accepted at Smith’s, and exceed its grocery store profit margins, which fall anywhere from 2 to 3 percent.
“It’s not a fair playing field,” she said. “We’re not able to keep accepting the fees charged by Visa while maintaining prices. … We’ll evaluate all partnerships to make sure they fit our business model.”
A Visa spokesperson told the Review-Journal that the company’s amenities — security and fraud protection, access to customers and ongoing technological innovations — add a certain level of costs to their services.
“We continue to work toward a resolution so our cardholders can use their preferred Visa credit cards at Foods Co. and Smith’s without Kroger-imposed restrictions,” Visa told the Review-Journal.
Bishop said credit card fees are a significant operating cost for supermarkets and are some of the fastest-growing internal expenses for retailers.
Kroger will “probably will continue to exert more and more pressure over (credit card) brands until they get some changes,” Bishop said. “This is a long-term battle.”
Contact Bailey Schulz at firstname.lastname@example.org or 702-383-0233. Follow @bailey_schulz on Twitter.