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Kroger and the “I” word: Rejecting Credit Cards to Make a Point

By Brian Riley
August 2, 2018
in Analysts Coverage
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interchange

interchange

The word “interchange” evokes emotions with merchants and card issuers.  For merchants, the complaint is that card companies charge too much for credit card acceptance.  For issuers, the response is that credit cards bear risk as transactions settle through private payment networks.

Today’s read is about Kroger nixing credit card acceptance in a handful of California stores.  This is not a David and Goliath story; it is more like Goliath and Goliath.  Kroger is the largest food retailer in the US, employs more than 430,000 people and, with $123 billion in sales, is the largest grocery chain in the US.

  • Kroger says it will no longer accept Visa credit cards at Foods Co. stores in Central and Northern California as the two companies clash over rates and fees.

  • The ban on Visa credit cards will take effect starting Aug. 14 and affect stores in major cities like San Francisco and Sacramento.

  • Visa told CNBC it is “disappointed” at Kroger’s decision and will continue to work with Kroger to reach a solution.

It is interesting to note that this announcement is not carried on the Kroger site.  As you can see here, press releases range from opening a health clinic, to launching a grocery delivery service and, the latest in men’s shaving products.  A search of “Visa” at the press site yields nothing.

Is this a case of “grocery store gone wild” in the golden state?  Is this a test?

We will have to see.  It is not the first time that a merchant rejected cards.

This is not the first time a significant retailer poked at US card products.  In this announcement, you will see Walmart rescind their no-visa-credit card restriction.  Costco, the retailer who shifted from Amex to Citi 2 years ago, also had a fleeting with the payment brands.

Now, of course, Kroger’s Food Co. division promises what every retailer promise:

“Visa’s rates and fees are among the highest of any credit card brand,” Foods Co. said in an emailed statement Monday. “The savings will be passed along to Foods Co. customers in the form of low everyday prices on the items shoppers purchase most.”

It does not happen that way, as we have seen in every market where regulators whacked interchange.  The savings end up in the merchant coffers, not the consumer pocketbook.

From where I sit, the only reason to use a credit card at a grocery store is to garner the reward points.

When it comes to milk, eggs, and food, nothing fits on a debit card better than groceries.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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