Kroger to make customers pay for cash-back debit card payments

Discussion
Photo: Getty Images
Jul 31, 2019
George Anderson

Kroger announced that it will begin levying service fees for all purchases paid with a debit card in which the customer requests cash back. Will bean counters rejoice, believing this to be a brilliant financial move that adds incremental revenue to the grocer’s top and bottom lines? Will the move bring resentment from customers who see Kroger nickel and diming them so it can pad its books for shareholders and Wall Street analysts?

While not necessarily an indication of how the chain’s customers will respond in Kroger’s stores, early reviews on the grocer’s Twitter feed were mostly critical of its action.

“Let me understand this. I have to now ring up my groceries myself, bag them, and get charged a ‘convenience fee?’ That @Walmart across the street is looking awfully convenient.”

Kroger offered the following reply in response to the criticism.

“We are sorry to hear about your feelings about the cashback fee! We have a fee due to banks & other retailers raising ATM fees & limiting the amount of cash back. We want to offer our customers a convenient, low cost, way to get their money. We hope you understand!”

Kroger, according to WLWT5, began rolling out its charges for cash back purchases after testing, apparently with success, at its Dillons banner stores in Kansas.

Those who want cash back with purchases made with debit cards at Kroger stores will now pay:

  • $1 to $100 for a $0.50 fee;
  • $100.01 to $300 for up to a $3.50 fee.

DISCUSSION QUESTIONS: Do you approve of Kroger’s move to charge customers for cash back debit card purchases? Will the practice of charging fees for cash back become common in retail stores over the next two years?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Kroger charging customers for cashback debit card purchase is just not a good look for the company. "
"In a word, no! This may be one of the least consumer-sensitive ideas I’ve ever heard of."
"I’d want to make sure that I wasn’t losing some core grocery shopping business in pursuit of incremental pennies on the dollar."

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14 Comments on "Kroger to make customers pay for cash-back debit card payments"


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Zel Bianco
BrainTrust

I can understand that they need to cover the fees that banks charge, but $3.50 is even more than Bank ATMs in NYC for say a withdrawal of $200. A higher fee than banks seems a little crazy. Also, if you are using your debit card, the fee charged by banks is generally lower than when using a credit card so yes, this may have a negative effect. Is it worth it to Kroger?

Neil Saunders
BrainTrust

I think this is part and parcel of all retailers looking to nickel and dime as much as they can to generate alternative streams of revenue as the core business comes under pressure. That said, while this won’t go down well from a customer service perspective, Kroger is offering a service that, for them, has a cost attached – even if it is tiny. So in my view, a fee is justifiable.

Brandon Rael
BrainTrust

It’s clear that all retailers, brands and especially grocery stores are operating under a very tight profit margin. There is tremendous pressure in the grocery industry, as the competition is picking up. Kroger charging customers for cashback debit card purchase is just not a good look for the company.

By offering a cashback option, grocery stores have saved customers from another trip to the bank or another ATM. It is a nice and convenient service, but very doubtful that customers will be pleased by getting charged for cashback from Kroger. In such a tight and competitive industry, is this the right move for Kroger?

Camille P. Schuster, PhD.
BrainTrust

Whether or not I approve is not relevant. Just because “everyone else” does it is not a sufficient reason for consumers to “understand.” It May eventually become a common practice, but being early in the process may well drive consumers to competitors. Will they come back when the process is common? Not if they have been served well by their new store.

Gene Detroyer
BrainTrust

Does this idea come out of the “How Can We Annoy Our Customer” department?

Mohamed Amer
BrainTrust
Kroger, like any other company, can price their products as they wish, charge (non-regulated) fees as they please, and otherwise run their business in a way that achieves desired financial targets. On the other hand, consumers are free to make choices as to where, how, and with whom they spend their money. It’s the brilliance of our market system. Where that fails us is when the retailer has a locational monopoly or exclusive access to and distribution of basic products. Otherwise, both retailer and consumer will benefit: those consumers that value the convenience and the service provider boosting their razor thin margin. Back to Kroger, I’d want to make sure that I wasn’t losing some core grocery shopping business in pursuit of incremental pennies on the dollar. Wouldn’t want an additional revenue stream to inadvertently harm my core business. And why not reward loyalty members by eliminating or reducing those convenience fees? Will the competition turn into copycats or will they turn it to their advantage by casting Kroger as the main villain in a… Read more »
Verlin Youd
BrainTrust

Hit the nail on the head as usual!

Ryan Mathews
BrainTrust

In a word, no! This may be one of the least consumer-sensitive ideas I’ve ever heard of. Whether or not customers are willing to go along with it in the short run is immaterial, it’s just a bad policy.

But … as long as we are thinking along these lines why not charge customers for parking? After all those pesky lots need maintenance. And how about bags? Instead of rewarding shoppers for bringing their own bags, why not charge a nickel for every bag you bring and a dime for every bag the store supplies? And what about initiating surcharges for water used in misting produce and extra electricity on frozen foods?

You get the point. It’s hard enough to attract shoppers these days without creating ways to upset them.

Doug Garnett
BrainTrust

This is a mistake — not because it’s not a good idea, but because Kroger has already trained customers to expect that cash back is a free service offered by Kroger. It’s far less damaging to never have offered the service than to take it away from customers.

It’s not a catastrophic mistake — it probably won’t be noticed in the bottom line. In fact, I’ll suggest that the added profit from this will be negligible — once they account for cashier time explaining the change and the added costs around processing the fees.

This last point is what retailers need to care about: Is there enough money to be made to justify the risk to the brand? In this case, I don’t think so.

Ken Wyker
Guest

At first I thought Kroger’s reasoning was that the card companies were charging more. Then I read it closer and realized it is because other retailers and banks are charging more! So, they’re basically saying they want to charge a fee because they can.

This doesn’t just affect customers wanting to get cash back, it affects every customer that hoped that Kroger was a partner in helping them deal with the hassles of managing their money and providing affordable food for their family.

Craig Sundstrom
Guest

I don’t share the doom of the “cost customers crowd” — 3/4 of the respondents — but at the same time I’m struggling to understand the rationale for this. Yes there’s a cost for Kroger in keeping the store filled with cash so customers can skip the ATM line, but there are all kinds of things that cost money that aren’t charged for (free parking comes to mind, readily). I’m not sure becoming known as another Aldi is the best PR move.

Verlin Youd
BrainTrust

I agree with Mohamed and others that this presents a golden opportunity for many other retail outlets, from drugstores on every other corner to Walmart, to remind customers that they don’t charge fees for cash back … enhancing rather than taking away from the customer experience and value. Will be interesting to see this one play out!

Dan Frechtling
BrainTrust

If Kroger is paying the retail rate for a signature debit card transaction run through one of the card networks, it may cost between $.25 and $.55 for $50 cash back (though the numbers vary a lot). If they recover $.50 of that, they can argue they are fairly covering their costs and note other retailers and banks do the same.

While this may be factually true, is the negative publicity and social media worth the extra fees Kroger could earn?

This is not an isolated decision, but part of a comprehensive plan to manage costs within Kroger. As shoppers report narrower selection and elimination of premium services like the deli section, Kroger is making a series of other changes that could cost it to lose customers. At least the debit fees are easier to reverse, even if the bad buzz is not.

Karen McNeely
Guest

I think this is a bad idea. It sounds like they are taking a page from the airline industry. Next, will they charge you if you go to a full service line, use a cart, or get something from the deli?

wpDiscuz
Braintrust
"Kroger charging customers for cashback debit card purchase is just not a good look for the company. "
"In a word, no! This may be one of the least consumer-sensitive ideas I’ve ever heard of."
"I’d want to make sure that I wasn’t losing some core grocery shopping business in pursuit of incremental pennies on the dollar."

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