In-store branching is on the rise, but profits from these branches may not be following suit.
According a study by Mentis Corp. and MarkeTech Systems, consumer response to bank branches inside supermarkets has been "lackluster."
Such branches make up more than 9% of the country's 70,000, up from 0.7% a decade ago. One attraction is the cost: only 60% as much as traditional branches, the researchers said.
However, they said, supermarket branches generate only about half the revenue of traditional branches.
"Banks are opening in-store branches because they see it as a way to increase their exposure and capture new customers," said Marty Molloy, research analyst for Mentis of Raleigh-Durham, N.C. "But at this point they're not seeing great returns."
Mentis and MarkeTech studied 612 banks, including 78 with more than $4 billion of assets. Mr. Molloy said his research did not include whether the branches made or lost money.
The finding are similar to those of an SCB Forums Ltd. study completed last year. SCB said many bankers were disappointed with the performance of their in-store branches.
The new study indicated that as banks look to supermarket branches to reduce overhead and increase foot traffic, they often enter the business with false expectations.
Though supermarket branches use fewer full-time employees, they require staffing for extended hours, which often eats up expected savings, according to MarkeTech.
In addition, because loans and many other bank products are not "impulse" purchases, the high volume of store traffic does not easily translate into more revenue, said Halle Conway, managing partner with MarkeTech Systems.
MarkeTech said supermarket branches between three and five years old reported average deposits of $5 million, while traditional branches of the same age had $9 million. Supermarket branches more than 10 years old reported $16 million, compared with $32 million for nontraditional locations.
John W. Garnett, a longtime promoter of supermarket branching, took issue with the Mentis/MarkeTech study. Mr. Barnett, , president of International Banking Technologies of Norcross, Ga., said that of its 450 bank clients, which operate 2,000 supermarket branches, one-third see monthly profits from them within the first year.
The Mentis/MarkeTech study "is contrary to our findings," Mr. Garnett said.
Michael L. Reddoch, president of National Commerce Bank Services Inc. of Memphis and a consultant on in-store branching, said in-store branch performance can vary widely, depending on the goal for the branch and how committed management is to the concept.
"There are a percentage of banks that do it well and there are a large percentage that don't do it as well as they should," Mr. Reddoch said.
In-store branch banking, he added, is not for everyone: "There are going to be some people who are rethinking their strategies."