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By Barbara Grondin Francella
Looking to give motorists another reason to stop at their stores and reduce the flow of money to Visa and MasterCard, an increasing number of gasoline retailers are offering per-gallon discounts to customers who pay with cash.
Although Congress is currently considering legislation that might reduce skyrocketing credit card fees, many retailers believe they can't afford to wait for governmental intervention. Across the country, marketers are investing in new signage and other equipment to offer three, five and even 20 cents off per gallon to customers who keep their major credit and debit cards in their wallets.
Nemer Saad, the Phoenix-based co-owner of Two Brothers Distributing, has offered a discount, now eight cents, for cash transactions at his seven Valero stores since late spring.
"If you can do it, why not?" Saad said. "It helps the consumer and it helps us. Anything that helps business is a good thing."
Saad, who at press time was selling regular unleaded gas for $4.07 a gallon, or $3.99 with the discount, said his credit-card fees are close to nine cents per transaction. He invested $3,000 to $5,000 per location in new street signs to meet requirements set by the state's Department of Weights & Measures. He also spends a few dollars every day printing out signage for the pumps, which clearly lists the credit/debit price and cash price.
Since offering the discount at his Valero sites, Saad said the company is averaging 60 percent of sales made with credit or debit cards and 40 percent are cash, with some sites seeing an even 50/50 split. In comparison, Saad, who also is a franchisee of six ampm stores that do not offer cash discounts, said approximately 70 percent of gasoline sales at his ampm stores are made with credit or debit cards. The franchisee's point-of-sale system does not allow for cash discounts, according to Saad. A BP spokesman said branded dealers are allowed to offer whatever payment options they'd like, but corporate-owned ARCO-branded ampm stores do not accept credit cards and charge customers a fee for debit transactions.
Meanwhile, Saad's Valero sites have experienced improved gallon sales due to the cash discount program. Unfortunately, the tactic confuses, and sometimes still angers some customers.
"Despite the signage, people will pull in and expect to pay the cash price for a credit purchase," Saad noted. Also, some creditcard customers get upset because they are paying a higher price.
"We just tell them if they want to pay with cash the next time, we do offer the discount," said Saad. "Some say they don't carry that much cash on them. Others are just upset with the economy in general and some are living on their credit cards."
But tight budgets are luring others into his Valero stores. "There are a lot of people coming in with dollar bills and coins, and are very, very happy to get the discount," he said. "It's been more positive than negative."
Still, Saad hasn't seen a measurable upswing in merchandise sales as the number of cash transactions has increased. "You'd think there would be more," he said. "But most people want to come in, pay for the gas, save the dollar and leave. It may be helping a bit, but nothing to make me say, 'Wow!'"
Nearly all of the gasoline marketers Dan Gilligan, president of the Petroleum Marketers Association of America, (PMAA) has talked to recently are interested in — or already testing — discounts for cash purchases.
"I hope every gasoline retailer does it to some extent," said Gilligan. "We need to send a message to MasterCard and Visa that what they are doing is over the line. It's outrageous to be charging 10 cents per gallon of gas purchased with a credit card. I think they are killing the goose that laid the golden egg."
Bill McKnight, president of Brandon, Fla.-based Automated Petroleum & Energy Co. Inc., a BP, Chevron, CITGO, Sunoco, Texaco and Shell distributor, has offered cash discounts since 2006, when gas prices — and his lessees' credit card fees — began rising significantly. More than 180 of the 300 stations the company supplies and leases offer 5 cents per gallon discounts for either cash or major oil company-branded credit card transactions.
"Why penalize the proprietary cardholder because of Visa and MasterCard's rates?" McKnight said, noting the discounts have helped the company build its proprietary card business.
The major oil companies initially took issue with McKnight's plans to offer discounts, he said, "but they don't have a problem with it now. They won't go out and promote it, but I know some majors are testing discounts with their branded cards."
As of May, the stations' average credit card fee — calculated as the total card fees divided by number of gallons as credit, debit or cash transactions — was 4.6 cents a gallon.
In Florida, street signs displaying a cash price must include the word "cash" in letters at least half the size of the numerals used to post the price, he noted. Clerks in the stores activate the pumps at the discounted price after customers prepay. As Automated Petroleum & Energy replaces its underground storage tanks, it is replacing its dispensers with dual-pricing equipment.
"This way, the customers won't be as confused," the marketer said. "They can see the cash or credit price when they lift the nozzle."
As Saad experienced in Phoenix, McKnight has heard his share of complaints from credit card using customers. "If the operator explains to the customer that he has fees on the MasterCard and Visa cards, and he gives the customer an application for the branded card, everything goes smoothly," McKnight said. "But if the operator just stands behind the counter and collects money and tells them to talk to BP or Chevron about it, it could turn into a customer complaint."
McKnight's employees handle complaints by explaining the discount policy and sending the disgruntled customer a proprietary credit card application and a $10 gas card.
"We've only been getting customer complaints at stations where the employees refuse to talk to the customers," he said. "Those particular locations probably don't have good inside sales either, because they aren't communicating with the customer."
For now, though, offering a discount for cash purchases is taking off. Sometimes, however, there are unforeseen consequences. PMAA's Gilligan told of one truck stop operator who witnessed scores of drivers coming in, putting their plastic into the site's ATM, taking out cash, and using it to pay for their fill-ups.
"His ATM numbers," Gilligan said, "are going through the roof."