Supermarket branches have proved their worth in helping banks gather deposits. But are they any good for generating loans?

The question has been debated ever since in-store branches first appeared on the scene about 10 years ago. Many bankers dismiss them as mere check-cashing facilities. Others insist they can achieve the same potential as free-standing, brick-and-mortar branches.

It's a crucial point, since instore branches can't be profitable without a substantial loan portfolio.

A recent survey by National Commerce Bancorp., Memphis, Tenn., supports the argument they can generate loans - and perhaps predictably so, since National Commerce is the nation's second-largest franchiser of supermarket banking services.

National Commerce Bank Services Inc., the bank's supermarket banking affiliate, queried more than 1,000 consumers about their awareness of and attitudes toward supermarket banking.

Respondents Are Customers

Most of the respondents were its own customers, or customers of banks that participate in National Commerce's franchise program.

The results were tabulated and analyzed by Hill & Knowlton Inc., National Commerce's public relations firm.

The survey found that 64% of the customers had taken out some kind of loan from an instore branch, 47% had bought investments such as certificates of deposits and money market accounts, and 40% had opened credit accounts, including credit cards and credit lines.

Auto Loans Popular

The most popular loan was for an automobile, 24%, followed by mortgages and personal loans, both at 14%.

"It's more than a check-cashing deal," said Douglas W. Ferris Jr., president of National Commerce's supermarket branching affiliate.

Cashing checks, however, remained the most popular instore transaction, cited by 78% of respondents, followed closely by checking deposits, 71%.

While National Commerce's objectivity may be somewhat suspect, the survey results do confirm the experiences of some other banks that supermarket branches can generate loans.

Bank South Corp. operates 35 supermarket branches in Atlanta, most of which were acquired in a 1987 merger.

This year, for the first time, that unit as a whole became profitable on the strength of a successful loan promotion.

Beginning in the spring, Bank South's "Trade In Your Bank" campaign encouraged customers at other banks to refinance their auto loans at Bank South, which offered lower rates as an inducement. The promotion was companywide, but was pushed particularly hard in the supermarket branches.

Aggressive Approach

As a result, auto loans at Bank South's branches in Kroger supermarkets surged by almost 350% this year.

"We plan to continue to be very aggressive in expanding the consumer loan portfolio, and the in-store branches are a major part of that," said spokesman Bo Spalding.

Boatmen's Bank of Kansas City, Mo., which participated in National Commerce's survey, claims an average 30% loan-to-deposit ratio at its five supermarket branches. And most have been open less than a year.

National Commerce itself reports an average 50% loan-to-deposit ratio at its 39 in-store branches in Tennessee.

A Quest for Convenience

"The experience to date would suggest bankers continue to have more of an image problem relative to supermarket banking than do customers," said Robert A. Carper, an Atlanta-based consultant.

Mr. Carper had supervised Bank South's in-store branching program until November 1989 and continues to consult with banks interested in the subject.

Mr. Carper believes educated, white-collar customers respond particularly well to supermarket banking, since they are open to innovation and seek convenience.

Bankers, on the other hand, are "still operating from the marble-and-glass edifice kind of mentality," he said.

Staff Attitude Crucial

Everyone agrees that bankers stationed in grocery stores must be highly motivated.

"The staff that work in the supermarket branches have to believe them to be full-line delivery outlets. Then they have to train the customers to believe it's a bank like any other bank," said Tim Thomas, senior vice president with Boatmen's in Kansas City.

"It all depends on the relationship between the store and the bank personnel," said Michael P. Sullivan, a Charlotte, N.C.-based bank marketing consultant. "If the bank personnel are allowed some freedom to be able to go up and down the aisles soliciting customers, then those branches are the more successful ones."

The National Commence survey may not end the debate on the loan-generating capability of supermarket branches. But at least it provides plenty of food for thought.

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