Targeting $1.7B in unredeemed card value

Redeeming gift cards in supermarkets could drive incremental traffic and sales.

Aiming to cash in on the proliferation of gift cards, Coinstar is testing Alula, a kiosk that gives shoppers an easy way to redeem their gift cards for cash.  It has placed kiosks at 21 Giant Eagle stores in central Ohio, reports The Columbus Dispatch. 

Coinstar will profit from the difference between what it pays redeemers and what it gets for card resale in the secondary market.  Giant Eagle, and presumably any other retailers that follow, benefit from shopping done by incremental store visitors—and possibly a placement fee for each kiosk plus a percentage of the volume redeemed.

This concept could be a moneymaker for supermarkets in this economy, where many people have greater need for food on the table than discretionary purchases.  According to new CEB TowerGroup research, 2012 annual sales of gift cards in the United States exceed $110 billion, and spillage (the unspent portion) is $1.7 billion.  The spillage figure—the target of Alula and websites already in this space such as plasticjungle.com, cardpool.com and giftcardrescue.com—is actually down 20% from a year earlier because 30% of people who receive gift cards spend $25 more than the value of the card, CEB TowerGroup says.

Still a significant market to pursue, Alula does offer convenience.  Yet The Lempert Report feels the price for that convenience seems steep.  According to the Dispatch, Alula offers redeemers between 60% and 85% of a card’s face value, issued in a voucher cashable at the supermarket check lane or customer service desk.

This may be a cool electronic version of, say, check-cashing or pawning, but it is vulnerable, in our opinion.  The rate it pays could be more generous.  For instance, plasticjungle.com and cardpool.com pay up to 92% of a card’s value, and giftcardrescue.com pays up to 90%.  All offer free shipping, and all sell gift cards too at discounts.

We think the Alula pay rates leave room for Kroger, Safeway’s Blackhawk, or other established gift-card programs to undercut this kiosk plan, pay customers more generously, and generate additional volume.  Retailers could also build more goodwill by offering gift-card redeemers sharper prices on store brands and donations to local charities.