Dive Brief:

• Starting in mid-August, Kroger subsidiary Foods Co. will no longer accept Visa credit cards at its 21 stores in central and northern California. The company cited Visa’s fees as the reason behind its decision, writing in a statement to CNBC they are among the highest of all credit cards. Foods Co. added that the savings it generates from eliminating these fees will be passed onto customers in pricing on the company’s most-purchased items. 
• Customers will still be able to use Visa debit cards, and Mastercard, American Express and Discover credit cards, the statement added.
• Visa responded that it is disappointed in Kroger’s decision, but added that it “remains committed to working with Kroger to reach a reasonable solution.”

Dive Insight:

As freight, labor and other cost pressures continue to mount on thin-margin grocers, they’re gong to have to get more creative when it comes to money-savings initiatives. Kroger’s ultimatum on Visa is one potential solution. According to Bloomberg, U.S. merchants pay more than $90 million each year in swipe fees. 

Kroger’s decision should come as no surprise. Merchants have been lobbying for years to get credit card companies to lower rates or have avoided Visa and Mastercard all together through technology upgrades, according to Bloomberg. Walmart pulled the same move in some of its Canadian stores two years ago, but the retailer reached an agreement with Visa a few months later. 

Considering the size and breadth of Kroger, the implications of this decision could snowball into something much bigger. Kroger chief information officer Chris Hjelm told Bloomberg, “It’s pretty clear we need to move down this path, and if we have to expand that beyond Foods Co., we’re prepared to take that step.” 

Despite how necessary Kroger or other merchants believe this move to be, removing this payment option creates the risk of inconveniencing a large chunk of consumers. According to Statista, there were 124 million Visa credit card holders in the U.S. in 2016. Making a connection between slightly higher food prices and credit card fees isn’t something consumers typically process. They just want to get their groceries, pay, and get on their way. If consumers are unable to make that transaction with their primary credit card, that could instill a negative impression on Kroger and cause those shoppers to go elsewhere. Whether there will be a big enough exodus to cause Kroger to reinstate the payment option is yet to be seen.  

Hjelm also hinted at exploring new payment technologies to offer consumers ideal alternatives, but that solution won’t be immediate. American consumers are typically slow to adopt new payment technologies, like mobile payment apps or "tap and go" smartphone functions. 

These hurdles are likely why Kroger is testing the waters at one of its smaller subsidiaries before making additional decisions. If the move to eliminate Visa payment options doesn’t affect sales or consumer loyalty at Foods Co., other merchants might be emboldened to make the same move. But could this cause credit card companies to lower interchange fees and perhaps facilitate a truce? Time will tell.