Anyone know how this works?

[mehan]

I have been trying to get an answer to my latest burning question - and I just can't find one. So I thought I would turn to the veritable brain trust here at R/F

Currently, the grocery chain I use (Kroger) is giving you 4X the fuel points if you buy (non-Kroger) gift cards,  e.g. - $100 Carrabba's gift card nets me 40 cents off a gallon of gas at my next fill up(up to 35 gallons).  I called the owner of our local Carrabb's and asked "I know that I get the full $100 value for my gift card - do you, or do you only get a reduced amount?".  He said he gets the full amount to0. Since I know him relatively well, and he wouldn't stand to gain anything by telling me a fib, I figure, Kroger has to be making some pretty decent profit on the cards - otherwise why would they be giving me potentially $14 free? 

There is no fee on the card.   $100 bucks gets me $100 - how is Kroger making the money?

[Xantrawler]

This could be what is called a lost leader move. The company loses some on a product to get you in the store, then once you are there you buy other items that normally you may not have bought. In the end they make up whatever it looks like they are losing. While you may not buy that little extra someone else will. It is in one way a three fold deal. The business makes a little off the card, a little for the gas and a little for the extra you bought. The amount they pay will be different from person to person. With you it is a $100 card. The other person it is a $25 card. The amount they pay out to the $25 person is less than the amount they pay out to you. That person may spend more than you in the extra things they buy. I hope I have been able to help, I'm no expert and my mind is spinning just trying to keep this straight. If my wife was here she could explain it better, she works in retail sale, I'm just a dumb old medic. Want to ask me a medical question. lol NEXT!

[KeeperoftheBar]

I could be wrong, but instead of Kroger giving you $.40/gal off, you will get $.10/gal off 4 times.  At least that is how my Kroger card works.  Then they will get you to their store 4 times and increase the opportunity for you to buy something with a better markup.

[mehan]

I actually wish that were the case - but no, you can use up to 1000 points ($1 a gal) per fill up -as a matter of fact, you can't decide not to use all available discount (just 20 cents this time and save 20 for next), only not choose to use the discount or not. (use 40/gal y/n?).

But I have had both the loss leader explanation given to me  as well the fact that they (Kroger) get the cards at a discounted rate.  Also that even though at the POS Carrabbas gets the full value - it trickles down in franchise/advertising fees.

However, that being said - its only conjecture from everyone thus far.  Its making for some interesting conversation around the watercooler though. 

[William_MacKean]

My local Roundy's (Rainbow Foods) has a deal that gets me free gas at the local BP stations for shopping at Roundy's.  It's a mutual exclusivity pact to give people a reason to shop at each store.

Holiday and Cub Foods does the same in my area, but neither are as close as Roundy's, so I don't go there.

It's all written off as advertising expense.

[Anna Iram]

Something else to put into the equasion, though I don't know how this might help in answering your question: If you purchase a$ 100 gift card at any Carrabbas, Bonefish...or I believe all of the restaurants under Outback's umbrella, you'll receive an additional.  $20 card to be used in January and February.

Perhaps Outback corp is passing some of that $20 savings along to Krogers.

[Butch]

I believe that Carrabbas (and all the other cards) are sold to the store at less than face value.  The store profits by selling them at face value, and Carrabbas (or whatever) profit by either you coming in and buying more than the face value of the card, or you buy less than the value and never use it again.

Bottom line:  I believe that Kroger's pays less than $100 for a $100 gift card.