After having worked for a multi-state convenience retail chain for over twenty years and now consulting in the retail channel for another 16, the customer I just described above is my idea of a “dream” customer. But the total value to your revenue stream of the customer who plays the lottery on a regular basis has been poorly understood and under appreciated by the retail community for years, myself included.
I speak all over the country to retailers about category management issues and when the discussion is around lottery I hear the same comments I used to make when I sat on the retailer advisory board of a major state lottery commission over 20 years ago (maybe you’ve made these comments yourself): “the commission’s too low” or “the lines are too long” or “they (lottery customers) don’t buy anything else.”
My purpose in writing this article is to offer some facts around these issues in order that you can make better informed business decisions. While I don’t deny the commission (or gross margin) issue is real, I do teach in my category management seminars that there are two ways of generating gross profit dollars (which, as the saying goes, is what we take to the bank). As you well know the formula for GP$ is simply
Number of Units multiplied by Gross Margin Dollars = Gross Profit Dollars
Therefore, many units at a relatively lower gross margin dollar amount can be equal to fewer units at a higher gross margin dollar amount. For example:
In terms of long lines: As we all know these occur during times of increased draw game jackpots, i.e. Powerball and MegaMillions and the inconvenience this causes to non-lottery playing customers cannot be ignored but it can be managed. And while the occurrences are temporary the ongoing business the lottery players bring to your store is not.
In addition, according to research conducted by The NPD Group “Lottery Tickets are a driver of traffic/revenue – high incidence of purchases and higher average checks.” In fact, all the research I’ve conducted or read has consistently shown lottery players to over index in key categories and they spend more on average even when their purchase occasion doesn’t include lottery.
Finally, there is no other category that puts cash into your customers’ hands while they are in your store. In fact, based on national averages, 88% of the dollar value of prizes are redeemable at retail locations (for example, $88 out of $100 worth of winners). What a golden opportunity for additional sales.
I would be remiss if I did not mention the growing concern in some retailer circles about internet sale of lottery tickets. Quite honestly while we are still very early into this development, the record both from the few states in the U.S. that are selling this way and the long history in Europe where tickets have been sold online for years is this:
- The total amount of sales over the internet are comparatively small
- The sales appear to be incremental, i.e. not cannibalizing in-store sales
- This avenue of purchase currently appeals primarily to players who are infrequent in-stores buyers if they have played previously at all
From my perspective I would recommend that you keep yourself current on the facts regarding this issue and be thinking about ways to position your stores for a competitive advantage by leveraging the internet.
I’ll conclude by saying this article is not intended to be a “sales pitch” for lottery. In fact, like many (if not most) of you I was suspect of lottery, both as a category manager and for many years as a consultant, seeing it as a “necessary evil” (yet another comment I hear often) but I have determined, based on the facts, that this category has the potential to contribute to increased total store sales and profits for many retailers. And that’s my bottom line: Helping retailers find ways to enhance their business performance. It is in that spirit that I offer this information to make of it what you will. And I offer my best wishes for your business success.