Surcharging is still the rule at most off-site automated teller machines, but some retailers are turning to a no-fee model as a way to draw in customers and profits.

Dairy Mart Convenience Stores Inc. is aiming to capitalize on the anti-surcharge sentiment, trading a cut of the ATM fees for what it says has already proved to be a significant boost in customer traffic. Nine months after the company installed no-fee ATMs in 600 of its stores, users are going out of their way to use machines - and often buying goods during their visit.

For the Hudson, Ohio-based company, the ATM program is the latest in a series of major marketing initiatives in what has been a three-year comeback program.

"There's no doubt it's attracting people," said spokeswoman Betty Yopko. "The biggest source of income that will keep these [ATMs] in the stores is customer traffic."

Wawa Food Markets, a Pennsylvania-based chain of 500 convenience stores, also offers no-fee ATMs, and industry experts say a trend may be in the making.

"It's a possibility that more and more retailers may see free ATM service as a competitive advantage," said Bruce Van Kleeck, vice president of member services at the National Retail Federation, an industry trade group. Such initiatives could potentially move up to the grocery store industry, he said, given the longtime rivalries between the two types of food retailers.

Consumers have bristled at ATM surcharging since it became prevalent four years ago. But it was not until last fall, when two California cities approved ordinances banning banks from charging the noncustomer fees, that the practice became a flash point for consumer activists' ire. Despite legal challenges to those ordinances, surcharge foes are grabbing headlines, and Dairy Mart says the timing could not get much better.

Les Riedl, senior vice president at Speer & Associates Inc., an Atlanta-based consulting firm, said other retailers are indeed watching the two chains.

"I think everybody's going to follow these results very closely," Mr. Riedl said. But that may not mean that more retailers will embrace such a program, he said. "I think what works for one retailer and what fits their business case is not necessarily going to work for everyone. … In any of the markets, there's generally some value in being the first to do this."

"Off-premises" ATMs became popular in 1996, when Cirrus and Plus, MasterCard and Visa's national ATM networks, lifted their bans on surcharging. Convenience stores, gas stations, fast-food restaurants, and other retailers quickly became landlords or owners of ATMs, aiming to get cash in people's hands and provide a new service, but also to reap surcharge revenue.

But Dairy Mart has foregone the fees, and instead has invested heavily in a seven-state campaign of radio commercials, newspaper ads, and billboards to publicize that policy.

"We've spent more money on this ATM promotion campaign than we have on any other campaign in the company's history, I think," Ms. Yopko said. Between May and November, transactions tripled at the company's ATMs.

Dairy Mart, which operates 615 stores in Ohio, Kentucky, Michigan, Pennsylvania, Indiana, Tennessee, and North Carolina, says a September phone survey of 600 ATM users in Kentucky and Ohio indicates that the ATMs are a big draw.

Of those who used a Dairy Mart ATM in the previous 30 days, 65% said Dairy Mart's no-fee offer influenced their visit, and 53% said they went there specifically to get cash from the machine. Seventy-seven percent of Dairy Mart ATM users also reported making a purchase during their most recent visit.

Dairy Mart executives say the program appears to be contributing to the overall turnaround at the company, but they are still analyzing whether it makes sense in all stores. Location seems to matter. A particularly successful Columbus, Ohio, store is bringing in more than 3,000 transactions a month; others near bank branches, for instance, have not fared as well.

Comparable-store sales for the company's second quarter - the first quarter of the ATM program - increased 14.6% from the previous year, Ms. Yopko said. Second-quarter sales were up 11.1% the previous year.

Dairy Mart had been a deployer of Bank One Corp.'s Rapid Cash machines from June 1997 to December 1998, but Bank One pulled them out after realizing that its ambitious goals for the machines - which surcharged even its own customers - could not be realized.

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