Five years after its inception, Blackhawk Marketing Services Inc., a unit of the grocery giant Safeway Inc. that distributes prepaid cards, has seen its reach expand to more than 60,000 retail locations in North America.
The Pleasanton, Calif., unit sells 400 brands of cards on behalf of more than 100 clients, including retailers and telecommunications companies, and even some of the grocery chains that compete against Safeway. The unit has opened an office in the United Kingdom and plans to start offering cards there this year.
"We're a nontraditional financial services company," said Don Kingsborough, Blackhawk's president and chief executive. But it is one that works with traditional players of various sizes.
For starters, the prepaid funds are stored in accounts at several banks, including Wachovia Corp., U.S. Bancorp and Wells Fargo & Co. Some of the cards work on the Visa U.S.A. Inc., MasterCard Inc., and American Express Co. networks. And Blackhawk has at least one bank client on the front end: TCF Financial Corp. in Wayzata, Minn., which is offering merchant cards to increase branch traffic.
Outfits like Blackhawk and Interactive Communications International Inc., a privately held Atlanta company that uses the name InComm, let merchants expand the distribution of their gift cards to many locations outside their own chains.
Tim Sloane, a researcher at Mercator Advisory Group Inc. of Waltham, Mass., said, "I can have a single relationship with Blackhawk, and that gets me relationships at thousands of locations where I can sell cards to consumers who will come to my store and spend money."
InComm, which sells its products at more than twice as many retail locations as Blackhawk, says it is the largest distributor of prepaid cards. But Mr. Kingsborough said that while InComm is considered the biggest player in phone cards, Blackhawk is the leader in the gift card market.
Gift cards are "something the consumer has latched on to, being that it's easy for them to buy and it's still a personalized gift," he said. "It's something that is going to grow for the next 10 to 15 years, because the consumer penetration is still small."
Blackhawk touts its connection to Safeway. "We're really a retailer at heart, which I think gives us an advantage, because we speak the same language as our retail partners," said Teri Llack, a spokeswoman for Blackhawk. "We understand what it takes to get something done in retail."
Still, Mr. Kingsborough said its parent does not tell Blackhawk which companies it can sign as clients.
"Safeway is really part of our alliance, just like any one else would be. They just happen to be an investor," he said.
When asked why Blackhawk has accepted clients that compete with Safeway, Mr. Kingsborough said, "Competitors work together if it's in their interest."
But apparently such cooperation has its limits. Kristi Turner, an InComm spokeswoman, said Safeway has done business with InComm and PRE-Holdings Inc. (which InComm bought this year) but ended the relationship because they directly compete with Blackhawk.
Safeway did not return a call Friday by press time. But in its first-quarter securities filing the grocer said an increase in gift card sales resulted in higher payments to gift card partners, which in turn contributed to a decline in cash flow.
Blackhawk and InComm collect a fee from merchants when a card is sold. Mr. Sloane said that retailers pay $2 to $5 on a $50 gift card.
Consumers almost never spend the exact face value of the card, he said; either they spend more than what it is worth, or they spend less, and merchants benefit from the "breakage."
