After one year of testing Texas' appetite for the supermarkets of the Kroger Co., Fifth Third Bancorp is ready to take on some other states.

In August 1993, the bank got a leg up on the rest of the credit card industry by launching a cobranded MasterCard with the largest supermarket chain in the United States, which had sales of $22.4 billion last year.

Industry observers hailed the program as a coup for Fifth Third, which has a relatively modest 500,000 card accounts and issues credit cards primarily in Kentucky, Indiana, and Ohio.

Kroger's 2,200-store network in 24 southern and midwestern states was seen as a big lift for Fifth Third in credit cards.

The cobranded card was also praised for rewarding consumers for something they do regularly: shop for food.

In one year, cardholders can earn up to $500 in rebates that are redeemable in Kroger stores by shopping at those stores and purchasing groceries with the MasterCard. However, the average annual rebate so far is closer to $72 for a family that spends about $300 a month on Kroger goods.

The cobranded product is available in two versions: a gold card with a 10.15% interest rate, based on the prime rate plus 2.9%, and a standard card with a 16.15% interest rate. Neither version has an annual fee.

Fifth Third is ready to market the card beyond the test sites in Dallas and Houston, said Gregory P. Lutz, vice president of consumer lending. -"We are moving into a much more aggressive phase now."

Until June, Fifth Third depended on Kroger's ability to attract customers to the card program through in-store promotions and local advertising. But the partners recently agreed that it is more appropriate for the bank than the supermarket to peddle financial products.

"In the beginning we took a step back," said Mr. Lutz, "but now we want to take the leading role."

To that end, Fifth Third reintroduced the MasterCard in Dallas and Houston by mailing 1.4 million preapproved solicitations in July and August. Also in August. Fifth Third sent out 230,000 solicitations to residents of Toledo, Ohio. tn September the bank is dropping about 400,000 more pieces in the Columbus, Ohio, and Louisville.. Ky., areas.

"The response rate looks really good," said Mr. Lutz, who expects the mailing in Texas to exceed the industry average of about 2% in submitted applications.

Dallas and Houston were chosen as the starting point because Kroger ran a frequent shopper program in those cities, which provided access to an established customer base. That program has been disbanded, but many of those frequent shoppers were the original targets of the Fifth Third MasterCard.

Fifth Third's latest mailings are the first in which the bank targeted an outside consumer pool with preapproved offers. In one year the program gained 30,000 cardholders. Mr. Lutz said he expects Fifth Third's new marketing strategy to yield about one million customers over the next few years.

Fifth Third also developed marketing and advertising kits, distributing them to participating Kroger stores and instructing them on how to present the product.

In taking over the promotion of the product, Fifth Third is also assuming a greater financial responsibility and risk.

"We recognize that there is a tremendous opportunity with this product," said Mr. Lutz, "and that is why we are willing to invest some seed money in the beginning, so that we can set ourselves up for success."

Kidder Peabody analyst Susan L. Roth added, "Fifth Third is one of the most profitable banks in the country. It would not do something [of this magnitude! unless management was convinced that it would be profitable."

Mr. Lutz, 34, is fairly new to the card business. He joined Fifth Third in 1991 as a programming manager for Midwest Payment Systems, a subsidiary that processes card transactions and electronic funds transfers. Earlier he was employed as a bank consultant for Deloitte & Touche and spent five years with Star Banc Corp., also in Cincinnati.

In August 1993. Mr. Lutz was promoted from managing credit for Fifth Third's own credit cards to his present position as head of card products.

This year Fifth Third revamped its card division. consolidating the bank's card marketing and credit management under Mr. Lutz. Previously, Midwest Payment Systems managed the marketing and promotions, and Mr. Lutz was responsible for the credit side of the business.

Tim Ballinger, who was deeply involved in the launch and development of the Kroger card, and who left the bank in June to join General Electric Evendale Credit Union, said, "The success of the Kroger card will be significant."

Mr. Ballinger believes the value of the program will be especially meaningful to consumers as the holiday season approaches and they redeem their rebates for special food items, like Thanksgiving turkeys.

"Cardholders don't have to wait a long time to get value for the program. There is more immediate gratification," pointed out Frances Dale, president of Entandem Inc., a Reston, Va., credit card consulting firm.

Ms. Dale compared the reward system of the Fifth Third product to other cobranded products like the General Motors MasterCard, which requires several years of active use to earn a significant discount on the purchase of a new car.

Other features of the Fifth Third card include Kroger discount coupons, which are mailed to cardholders each month, and a bar code. which is not yet activated. The bar code is supposed to identify discounted items in Kroger stores when it is swiped over a scanner at the check out counter.

Originally, Fifth Third and Kroger planned to allow cardholders to scan the bar code and accrue rebate points without actually using the credit card to purchase items. Credit card consultants argued that cardholders would receive all the benefits of a credit card without actually using it. The bar code idea was criticized because some experts believed it would simply give the rebate away.

Mr. Lutz said his bank has focused primarily on getting the product into other states and into the hands of more customers. There has been no additional discussion of the bar code, but, he said, Fifth Third, "will revisit that issue" and the bar code's use could change.

Also down the pike is the addition of merchant partners like hotel chains and car rental companies that would award Fifth Third-Kroger cardholders rebate points in exchange for their patronage. As the product enters its second phase, penetrating new markets and reaching a larger audience, analysts are predicting a strong potential for success.

The industry consensus is that supermarkets are a major growth area for plastic, and if Fifth Third can attract even a small proportion of consumer spending on food items, Ms. Roth concluded, "it is looking at a strong opportunity."

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