CARBONDALE — Kroger, one of the nation’s largest grocery retailers, made waves last week when it announced that it might consider suspending the use of Visa cards at its stores because of transaction fees — and local business owners say they feel Kroger’s pain.
The news was reported July 30 in Bloomberg that a subsidiary of Kroger, Food Co. Supermarkets, would stop taking the card later this month at its 21 locations on the West Coast. Kroger spokesman Chris Hjelm is quoted in the story, saying that the Cincinnati-based parent company might follow suit if a better deal is not reached between the credit card monolith and the grocery superpower.
Francis Murphy, general manager of Neighborhood Co-op Grocery in Carbondale, said this was a bold statement, and one that he understands as the chief financial officer of his store — however, he said the Co-op would never be able to make a similar decision.
“We don’t want to put any barriers, any friction between customers and our groceries,” he said. While part of this is a philosophy of the store, another part comes down to mathematics — they couldn’t risk going without those transactions while customers made the transition to using cash only.
Looking at a laundry list of credit card purchases in front of him, Murphy said on average grocery stores operate on a slim margin of about 1 to 3 percent — this means for every dollar spent, only 1 to 3 cents stays with the retailer. This is why the flat processing fee — the list showed anywhere from 5 cents up to 30 cents per swipe, coupled with a sales percentage ranging from 1 to 2 percent — makes such a huge impact.
Murphy pointed out a staggering fact — the Co-op pays the same amount in credit card fees as it takes home in net income.
But, he said it’s a necessary part of doing business in the modern economy. Murphy explained that not only do credit card transactions make up 70 to 80 percent of all his store’s purchases, the average purchase total is nearly $10 more for credit and debit card purchases over cash.
Rodney Kroenlein is co-owner of Arnold’s Market and said his store is in a similar boat as the Co-op. He said Visa purchases make a huge portion of his sales and said the only recourse businesses often have is to pass this fee on to the customer with their product markup.
Marilynn Martin, owner of Carbondale breakfast institution Mary Lou’s Grill, said all this is precisely why she’s never fooled with credit cards.
Other than a stint about 15 years ago that lasted less than a year, Martin said her restaurant has always been cash-only. She said with the rental of the credit card machines on top of the fees assigned for each transaction, it just ate too much into their profits.
If she did take them, Martin said she’d have to raise prices across the board, which is something she doesn’t want to do.
“I’m not going to charge people that use cash,” Martin said of distributing the added cost of using credit cards.
Isabela Mifflin rents a booth at GLAM Salon in Murphysboro and said she doesn’t go through a large payment processing company that a larger business would. As an independent contractor, she uses the company Square for her card processing. The company provides inexpensive hardware for retailers looking for an easier way of accepting credit cards.
Mifflin said she’s thankful to have it as an option, but she said she, too, feels the pain of high transaction fees — she said Square averages about 2.5 percent per transaction. She said this includes any tips she accepts. Mifflin explained that she gets to keep the entire tip amount, but is charged for the entire transaction as opposed to keeping her tip separate.
Two and a half percent may not sound like a lot, but Mifflin said it adds up.
“It does at the end of the day make a huge difference what you make,” she said.
On the flip side, Mifflin said she understands that Square provides her with a valuable service.
“I wish it wasn’t as much, but they take out what they need to take out,” she said.
Murphy and Kroenlein said Kroger has a lot of weight to throw around in terms of market share — they will have a lot more impact with even threatening to suspend using Visa cards than either of their businesses could.
They said while Kroger is likely just working out a deal for their own company, it raises awareness of the hardship running credit cards can put on small businesses.
A regional representative from Kroger would not comment specifically on the announcement in Bloomberg, but did say there are no plans locally to suspend the use of Visas.