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    Tennessee Retailers Gearing Up for Lottery

    Merchants hope ticket traffic boosts sales of other items.

    KNOXVILLE, Tenn. -- Tennessee's lottery will be a new revenue source for hundreds of convenience stores that choose to participate. The question for retailers is whether the lottery is going to boost their bottom lines during a time of declining profits, or whether it will be just another break-even item that's not worth the trouble.

    Tennessee last week became the 39th state -- plus the District of Columbia -- to approve the sale of lottery tickets. The games are expected to begin in January.

    Albert Nelson, owner of Fountain City Chevron, expects new income -- possibly enough to let him keep his store open 24 hours a day, according to The Knoxville (Tenn.) News Sentinel.

    "It would be an enhancement," Nelson said. "The longer people stay in your store, the more likely they are to buy more things."

    U.S. convenience stores saw per-store profits fall for the second consecutive year in 2002 despite a slight increase in overall sales, according to the 2003 Convenience Store News Industry Report.

    Jeff Lenard, a spokesman for the National Association of Convenience Stores, said increasing competition from big stores like Wal-Mart that have begun selling gasoline, as well as the increase of online cigarettes purchases, has cut into convenience store profits. Retailers usually break even on gasoline sales, Lenard said, but have higher profit margins on sales of food and other items.

    Lottery participation gives retailers an extra edge, he said. A study by the association found that lottery customers purchase at least one other product during 95 percent of their store visits. "It is another tool in the tool kit," Lenard said. "The key still needs to be to maintain speed of service. That is the one area where convenience stores excel."

    Tennessee retailers successfully lobbied for compensation of 6.5 percent on the sale of lottery tickets. The state has 3,726 convenience stores, and more than half are independently owned.

    Emily LeRoy, associate director of the Tennessee Oilmen's Association, said the stores will receive a minimum of 6.5 percent compensation, but the lottery corporation ultimately will decide how much retailers will earn. Certain games could have a higher compensation rate than others. "It's really early in the game," she said. "The majority of the mechanics of how it's going to work will be set up by the lottery corporation. There is still quite a bit of work to be done."

    LeRoy said that while the lottery has both good and bad points, her association is hoping it will bring extra business into stores. Drawbacks for retailers could include:
    * The extra time it takes employees to process lottery tickets.
    * The need to hire additional employees to help with ticket sales.
    * The risk retailers take by handling more cash.
    * The extra accounting the lottery would create for stores selling tickets.

    "Each individual store will have to decide whether or not it's worth it to carry the tickets," LeRoy said.

    Dan Fleming, director of operations for Knoxville-based Pilot Corp., which operates travel centers in 38 states, said competition will make lottery participation necessary to stay in business. Pilot will sell Tennessee lottery tickets just as it does the tickets of other state lotteries, he said.

    "It's just another aspect of our business that will give the customer a reason to stop at us," he said. "If we don't have it available, they will go to our competition, which is usually right around the corner."

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