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7-Eleven CEO expects payoff from Vcom program by 2004

February 6, 2003

DALLAS -- The chief executive of 7-Eleven expects the company to begin reaping financial rewards from its Vcom program by 2004, according to an interview he gave to BusinessWeek Online.

"We've been working on the Vcom system for seven or eight years, and 2002 and 2003 will be the last two years of the heavy investment. By 2004, we would be able to show the investment community the advantages of what we've built," Jim Keyes, 7-Eleven's CEO, told BusinessWeek.

The retail c-store chain recently announced a deal with Alliance Data Systems to add prepaid cards to the Vcom program, which will allow customers without bank accounts to use the cards for financial transactions offered through Vcom kiosks such as purchasing money orders, cashing checks and eventually paying bills. The cards can also be used to buy gas or other merchandise at 7-Eleven stores.

(See related story 7-Eleven chooses partner for stored value cards)

Keyes compared the cards to card readers that allow people to pay for gas at the pump. "When we did that, a lot of people thought that was crazy," Keyes said. "But customers saw it as more convenient. Both gas and merchandise sales went up."

Customers will get freebies and discounts for using the Vcom card. And Keyes said that franchisees, recalling the business boost that came from in-store ATMs, are eager to see Vcom become a reality.

Keyes said consumers need more convenient alternative methods of payment. "In the late 1980s, we brought back to the U.S. from our Asian and European operations prepaid telephone cards and began to build that business here. A natural evolution is expanding that concept to a prepaid anything card," he said.

Wall Street is taking a a more cautious attitude toward Vcom. "These systems cost lots of money to install. At some stage, they ought to kick into earnings growth," said Merrill Lynch analyst Mark Husson. He thinks that will happen by year's end, though he fears it could be a challenge to bring franchise operators on board. "Sometimes it's like herding cats," he said.

By the end of May, 7-Eleven expects to have Vcoms in 1,000 of its 5,800 U.S. stores. Keyes said the retailer will begin seeming more tangible benefits from Vcom when critical mass is achieved.

"There's the incremental transaction that we get from Vcom as we pick up another 50 to 100 customers per day, which we have the potential to do. Those customers will buy financial services and products from the store, too," he told BusinessWeek Online.

The Vcom cards will also give customers the option of using a card for small purchases -- at a lower cost to 7-Eleven than a debit or credit card. "Using credit cards to make small purchases has a high cost of service. That's not practical for us or the credit-card company. With the prepaid cards, there would be no interchange fee," Keyes said.