Lottery Sales: ‘Flat Is The New Up’

Creative promotions proven to boost profits in stagnant category

With little chance of commission rate bumps, c-store lotteries can best boost lottery profits by strengthening partnerships with state lotteries and creating proprietary promotions, according to industry players.

Lotteries rang up $59 billion in sales in the United States during fiscal 2010, ending in June, according to the North American Association of State and Provincial Lotteries (NASPL).

In 2009, the average c-store saw net lottery/lotto commissions of $1,468 per store per month in 2009, NACS reported. With average commissions in the 5.5-percent to 6-percent range — 5.5 percent being the low and 7 percent being high — and overall sales hurt by the recession, retailers and lottery commissions must rely on ingenuity to increase unit sales and commission dollars, according to Margaret DeFrancisco, president and CEO of Georgia Lottery Corp. and immediate past president of NASPL, anonprofit professional association representing 52 lottery organizations based in Geneva, Ohio.

“My standard response to retailers who want to see commissions increase is: ‘Tell us how we can help you sell more, because the more you sell, the more you make,’” said DeFrancisco, who characterized recent lottery sales performance as “flat is the new up” and advised retailers that suggestive selling can make a significant difference in total sales. “We are confined by the states' financial plans.”

NASPL Executive Director David Gale agreed: “Retailers will make much more money by selling more tickets than they would if the commission rate was increased a quarter of a percent.”

Of the 200,000 lottery retailers in the United States, some 55 percent are c-store/gas outlets. In some states, such as Georgia, the percentage of total lottery retailers that are c-store outlets is much higher. “To say that c-stores play a critical role is a gross understatement,” DeFrancisco said. “We have to consistently reignite, reinvigorate our customers and c-stores do the same thing. It's key to have flexibility and openness on the part of the lotteries and the retailers. What is the next thing we can do to get people to pay attention?”

Bottom Line

• The sluggish economy has negatively impacted lottery sales.
• Suggestive selling can boost transactions.
• State lotteries vary greatly in level of retailer engagement and satisfaction.

At Jacksons Food Stores, operator of 214 stores, proprietary lottery promotions and creative store displays have motivated customers and increased lottery sales in Idaho, Washington and Oregon. One 2010 success: a partnership with Idaho Lottery and Boise State University, which awarded lottery customers a chance to win prizes, including Jacksons' gas cards. A grand prize winner received a September trip to Washington D.C. to watch the Boise State-Virginia Tech football game.

In Washington state, Jacksons' stores offered a promotion that awarded one free Match 4 ticket to any customer who bought a Powerball, Mega Millions, Lotto, Hit 5 and Daily Keno ticket. “I'm personally passionate about lottery and these proprietary promotions are making us different from the competition,” said Richard Levin, vice president of marketing of the Boise, Idaho-based chain.

In a study of its front counter space, Jacksons' management team recently found lottery is the chain's most profitable item per square inch of counter. “They generate more gross profit dollars than candy displays, novelty racks, lighters — almost anything on our counters,” Levin said. “They are second behind energy shots.”

According to NACS figures, lottery commissions generate more gross margin dollars per store than cold dispensed beverages. “Think about how much time category managers spend on promotions, bundling, cups and other aspects of cold dispensed beverages relative to the time they spend on lottery,” Levin said.

The largest lottery retailer in Idaho, Jacksons saw 2010 tickets sales in the state increase 1 percent over the year prior. Sales were helped during the last few winter holidays by a display-building contest. Jacksons Food Stores employees in Oregon and Idaho participated, working with voided holiday tickets provided by the state lotteries. Each year, district managers take and submit photos of the displays, which are judged by corporate employees and state lottery employees. Employees responsible for winning displays win lottery tickets, also supplied by the state lottery organizations.

“It's not an expensive contest to run and the displays get customers and employees talking about lottery,” Levin said. “The more excitement, the more we sell.”

The chain takes great care of its lottery customers, he added. “We don't have a lottery-only line and we pay out all winners up to the amount we are legally allowed.”

When addressing the NASPL convention of lottery directors last year, Levin offered state lotteries this advice: Understand what the retailer is bringing to the party, which is real estate on prime corners with trained people behind the counter, and establish a good relationship with a chain's upper management, as any other vendor would.

Still, Levin noticed significant differences in each state lottery's willingness to partner with retailers and level of efficiency. “Sometimes states with bigger overall lottery sales have more bureaucracy,” he noted.

Richard Mione, senior director of merchandising, 380-plus-unit VPS Convenience Store Group based in Wilmington, N.C., also rates individual lotteries differently. “States that have a strong retail sales team, such as Indiana and South Carolina, are great assets to growing lottery sales and effective implementation of programs and new games,” he said.

Like most retailers, Mione would prefer to make more than the standard single-digit commission rate in each of the five states the chain sells tickets. “I believe the key to a successful lottery is motivated retailers, and commission rates and incentives always seem to motivate us.”

Still, Mione agrees with DeFrancisco on the role of the store-level associate. “Lottery is a traffic builder that, if managed properly, can be a small money maker. Customers expect the offer, but customer experience with lottery transactions plays a major key to success.”

For her part, DeFrancisco acknowledges service and competencies vary by lottery organization. “Although lotteries are sales and marketing organizations, we're also very highly regulated and legislated, and we don't always have the exact flexibility to make improvements we'd like to or be as retailer-friendly as we'd like to be,” she said.

To boost efficiency, especially for chains who operate in many states, NASPL worked to establish an XML standard to settle all locations' sales through the same mechanism, rather than meeting each lottery's state's requirements. “It's a growing activity,” Gale said. “Use of the standard has grown over the past few years, and I expect it will grow at a faster rate over the next few years.”

In Pennsylvania, Jeffrey Leedy, senior vice president, chief customer officer for Rutter's Farm Stores has had a number of conversations with the lottery commission about integrating online games with the stores' point-of-sale system. “We scan all instant tickets so our ability to track and generate data about that part of the business is strong — online games are another issue with much room for improvement,” he said.

The 50-plus store chain's lottery sales through the first 50 weeks of 2010 were 2.5-percent ahead of last year's figures. “That sales increase is smaller than it has been in past years, and I do believe that lottery sales are a leading indicator of economic issues,” Leedy said.

The retail executive believes customers expect to find lottery tickets in the stores and credits them with generating additional traffic. “Our market basket analysis indicates that there is an incremental market basket value to that lottery customer, albeit lower than our average incremental basket sale,” he said, adding the tickets create “customer service issues that we attempt to mitigate.” Some retailers, such as Wawa Inc., which recently began selling lottery tickets in Pennsylvania, are using or piloting self-serve kiosks. Wawa's 210 Pennsylvania stores are expected to grow state lottery sales by as much as $37 million annually.

Wawa and others also are lessening the lottery burden on associates by installing self-check scanners that allow customers to find out if their ticket is a winner without the help of store personnel.

“We would invite any and all c-store partners to share any ideas they have to increase efficiency,” DeFrancisco said. “We want to work together. It's absolutely a two-way street.”