Place Your Bets
As the seller of several winning lottery jackpots over the years, Town & Country convenience store bills itself as “the luckiest lotto store in Texas.” And that reputation continues to fuel sales of lottery tickets at the McAllen shop, particularly during big jackpot windows. “We even have to hire security” to aid in crowd control, said owner Tina Noser. “People are superstitious and want to buy their tickets where they think they have a better chance of winning.”
Yesway c-stores—with 150 locations in eight states—also have been lucky lottery merchants. At least three scratch-off winners purchased their tickets at Yesway stores in 2018, for winnings that totaled some $400,000. Derek Gaskins, senior vice president of merchandising and procurement, said lottery drawings, particularly the large multistate events, are great traffic builders for c-stores. “Large jackpots tend to result in a 5% lift in traffic, but the superbig jackpots, such as those for $1 billion, can result in lifts of 20% or more,” Gaskins said. Indeed, major Powerball or Mega Millions drawings can mean 250-300% increases in lottery ticket sales for c-stores, he added.
In fiscal year 2018, about $4.8 billion in commissions was earned by some 216,000 lottery retailers across the U.S. that sell traditional lottery tickets.
Lottery is certainly big business for convenience stores, and c-stores are vital to the games. David Gale, executive director of the North American Association of State and Provincial Lotteries, noted that about half of all lottery tickets sold in the U.S. come from c-stores. In addition to commissions from ticket sales and the chance to receive bonuses for selling big winning tickets, where legal, c-stores often reap add-on sales from lottery players.
According to data compiled by SwiftIQ—the retail insights, activation and measurement platform, which formed a strategic alliance with NACS two years ago—the dollar value of a c-store market basket with a lottery ticket continues to grow year over year and is at least 50% greater than the value of a basket without a lottery ticket. Jeff Lenard, vice president, strategic industry initiatives at NACS, reported that 95% of lottery customers purchase at least one additional item inside the store.
“Lottery, and especially big lottery drawings, drive a lot of traffic to c-stores,” said Dafna Gabel, vice president, insights and strategy at SwiftIQ. “As a result, other categories benefit.” At Town & Country, for example, purchasers of multistate lottery tickets typically pick up coffee, snacks and scratch-off tickets, Noser remarked. And according to Red Bull North America, there is a high correlation between purchasers of lottery tickets and energy drinks. “Over a full year, energy drink purchasers are more than two times as likely as the general population to buy lottery tickets, and a majority of those purchases happen in the convenience channel,” remarked Laura-Lynn Freck, director, shopper insights, at Red Bull North America.
Of course, big lottery jackpots bring more traffic to c-stores, as witnessed by recent drawings like last year’s $1.5 billion Mega Millions jackpot. The prospects of winning drive increases in pump-to-store conversion among c-store patrons, Freck said, as lottery tickets generally must be purchased in-store. “C-stores and manufacturers alike benefit from this in-store traffic since folks are very likely to add snacks and beverages to their baskets while they are picking their favorite lucky numbers,” she noted. “Red Bull has certainly experienced the uptick in sales during high jackpot weeks.” Gale and Lenard both noted that big jackpot windows can often bring new customers into c-stores, providing the opportunity for retailers to win them over for future visits.
Beyond increased traffic and add-on sales, lottery provides retailers with commissions, incentives and the opportunity for bonuses when selling big winning tickets, where applicable. In fiscal year 2018, about $4.8 billion in commissions was earned by some 216,000 lottery retailers across the U.S. that sell traditional lottery tickets, Gale said. While retail commissions vary by jurisdiction, more than 6% of lottery sales are paid to retailers, or approximately a dime per $2 ticket, Gale said. Bonus programs for selling winning tickets also vary by state, with some retailer bonuses capped as low as $10,000, according to Lenard, while in California, the incentive can climb as high as $1 million.
Managing Labor, Long Lines
As with other categories, lottery can bring its share of challenges for c-stores. Gale conceded that lottery equipment “takes up space in a limited area,” a space where retailers may prefer to highlight other impulse items. Then too, there are equipment and software malfunctions that can frustrate retailers and customers alike, as well as legalities, including the required separation of lottery sales from other purchases, and in some states, the requirement that lottery purchases be cash only. Training store staff on lottery sales, meanwhile, requires an investment in time and resources.
When it comes to big jackpot windows, challenges can become more pronounced. “Big jackpots can have a real impact on labor,” remarked Yesway’s Gaskins. “You have to have proper staffing.” One way to minimize labor costs, he suggested, is to offer one checkout line just for lottery tickets. Lenard of NACS advised that extra staffing during big lottery jackpots should only be added if ticket demand is particularly strong. “To break even in adding an employee at $10 an hour, a store would need to sell 200 tickets per hour,” he said.
While lottery-driven traffic can be a boon for retailers, customers can feel inconvenienced. Pointing to the average 3 minutes and 33 seconds that a typical customer spends in a c-store, Lenard said, “When lines to purchase lottery tickets get long, customers looking to buy a cup of coffee or sandwich may decide that it’s too difficult to find a parking spot or too long to wait in line and may go somewhere else for those items.” And even if they stay, he added, “they may not enjoy their store experience as much as they usually do.” At least one retailer believes lottery-buying customers are willing to wait longer for their crack at a fortune. Big jackpots “don’t scare people away,” said Bob Bolduc, CEO of Pride Stores, with 32 locations in Massachusetts and Connecticut. “Customers expect the long lines,” he said.
Promotion Pays Off
Signage promoting lottery sales, where legal, can serve as reminders to consumers to pick up tickets—whether it’s a regularly planned purchase or a special splurge for a big drawing. Town & Country, for example, features a large marquis sign on the corner of its property touting lottery tickets.
“When lines to purchase lottery tickets get long, customers looking to buy a cup of coffee or sandwich may decide that it’s too long to wait in line and may go somewhere else.”
Yesway, meanwhile, works with state lottery authorities on in-store signage that highlights customers who have purchased winning tickets at its stores. The chain also looks to drive impulse sales of other items during big jackpot windows and merchandises products like candy bars at checkout counters for added rings. While Bolduc agreed that impulse displays are a “good idea,” he lamented that at many c-stores there often isn’t enough room to implement them.
Red Bull’s Freck cautioned that while big lottery jackpots can increase store traffic, “it’s not a guarantee of added sales since many lottery shoppers have limited cash to spend and want to spend as much of their disposable dollars on a chance for a winning ticket.” The key to capturing incremental purchases, she continued, is to “provide lottery shoppers with compelling offers.” SwiftIQ’s Gabel added that during big jackpots, c-store operators should ensure that their shelves are stocked and include secondary locations for some products, if possible. She and Gaskins agreed that state-sponsored games, such as scratch-off programs, shouldn’t be overlooked. “There are many kinds of lottery games,” Gabel said. “Have the right offerings available in your market.”
Innovations and initiatives are underway that could streamline the lottery purchase process for both retailers and consumers and attract new players. Gaskins revealed that Yesway is testing “play-at-the-pump” technology, and Gale noted that the lottery industry is working toward a cashless initiative, which would permit the purchase of lottery products with a debit card. In an effort to help retailers manage the lottery category, Gale’s organization has been working with 7-Eleven to create a pilot XML program to implement a simplified, standard reconciliation process for lotteries and retailers. “Eventually we hope to extend this program to retailers across the country,” he said.
Of course, lotteries go well beyond offering just commissions and added-sales opportunities to retailers. “Lotteries exist to help provide revenue for things like education programs, economic development, environmental projects, social programs and much more,” Gale said. Indeed, in fiscal year 2018, about $23.4 billion was transferred to beneficiaries across the country. “It’s partnerships with retailers, like convenience stores, that make those contributions possible,” he said.