Blackhawk Network Wants Supermarkets To Take A Chance On Lottery

Consumers clearly like playing the lottery — they purchase roughly $60 billion worth of scratch-off tickets a year. You have to be in it to win it, as the expression goes, and American consumers are mostly certainly in it.

But not when they are shopping at the grocery store, which doesn’t tend to sell these types of tickets nearly as easily or readily as convenience stores and gas stations do. It’s a situation that is largely growing out of a payments problem, Blackhawk Network Head of Lottery and Sports Betting Richard Gotlieb explained to PYMNTS. Consumers don’t like to have to check out twice.

And that is exactly what they have to do when they are at the grocery store. First, they check out in the regular line with their food items, and then they have to make their way to either customer service or a vending machine to make their ticket purchase. For consumers who have been pushing a cart around the aisles for the last hour, it’s just enough added friction to make them decide they don’t need a lottery ticket that badly.

Blackhawk, in partnership with Scientific Games and Kroger, is testing out a pilot with the Kentucky Lottery to solve this problem by making it possible for customers to skip the extra trip and simply pick up their scratch-off ticket in the checkout line.

“This partnership solves that consumer friction point and really allows lotteries to enter previously untapped retail environments,” Gotlieb said. “These use cases allow grocers to build new relationships with consumers who haven’t historically been lottery players by making products more visible and accessible. We expect to attract new players that will drive incremental revenues.”

This isn’t the first attempt of its kind looking to fill this gap, he noted. Grocers in the past have tried variations of plans to put lottery tickets directly in the checkout lane so that the cashier could easily grab and sell them. The results were encouraging in that they saw scratch-off sales go up by 40 percent — but the shrinkage issue with scratch-off tickets disappearing before they were ever purchased ate up the increased revenue, and those attempts never got out of the pilot phase.

What Blackhawk and Scientific Games are building for this pilot is different, said Gotlieb.

“This partnership leverages a number of the core competencies that come from our payments business, including a deep understanding of merchandising and retail operations,” he explained. “And it leverages the same technology integrations of our payment solutions that we’ve repurposed to allow a consumer to order and receive a lottery ticket in-lane.”

That, combined with Scientific Games’ SCiQ InLane technology that physically stores and secures tickets and won’t allow a scratch-off ticket to be vended until a payment has been made, aims to deliver the benefits of bringing lottery sales to the checkout line securely and safely enough that shrinkage doesn’t become a problem.

And the benefits go beyond increasing sales. Today, lottery sales such as they happen in grocery stores are nearly invisible, Gotlieb said. For most sales, grocery stores have become very smart about getting customers to carry loyalty cards that they scan before purchasing, which helps them get a very granular look at their customers and their purchasing habits.

But those cards aren’t being used at all when customers are buying scratch-off tickets at a vending machine or customer service desk. That means the grocery merchant really doesn’t know who their lottery customers are or how they buy. Relocating the lottery to the checkout line will give retailers access to that data for the first time, said Gotlieb.

“And we’re really excited about how much they can leverage that data to market lottery as a category, really for the first time,” Gotlieb noted. “Through partnerships like this, we’re helping the lottery in Kentucky understand which games resonate with which demographics. That can allow both retailers and lotteries to provide better-targeted offers and responsible promotions to consumers, and better understand how in-store placement and signage can help drive growth and visibility as well.”

Lottery can be an incredibly tricky place to bring in new innovation because it is such a highly and strictly regulated space, said Gotlieb. Even seemingly small changes can be very complicated to make. The selling of online lottery tickets is something he said he believes we will see more of in the future, but not with any incredible speed.

“I think many lottery directors would welcome the opportunity to sell online, however, it’s generally a political decision balancing responsible gambling, Native American gambling agreements and the desire to grow revenues, so it likely won’t happen quickly, but change will come,” he said.

In fact, it’s already happened in some locations — but the drive in physical retail, particularly the grocery lane, is much stronger because the need is so much more apparent. When over 40 percent of consumers skip a scratch-off purchase because the payment is such a pain, per Blackhawk’s data, the obvious move — and the one that Kroger, Blackhawk and Scientific Games are pushing — is to simply fix the broken payments process.

“And we’re still seeing major growth and expansion opportunities for these in-lane products that make it easier and more convenient to purchase for consumers,” said Gotlieb. “In that sense, we see a long runway in physical retail.”