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Clint Woodman is Vice President of Woodman’s Food Market. He operates 15 stores in Wisconsin and Northern Illinois, employs more than 3,400 people, and his family has been growing the company for more than 50 years.
See Woodman’s 90-year timeline
The typical Woodman’s store is about 250,000 square feet – larger than a Super Walmart. Oh, and they are a debt-free, employee-owned company.
The key to their success? Woodman’s Food Market do two things to keep their operating expenses as low as possible so they can pass the savings on to their customers:
- They buy in bulk
- They accept cash, check, and debit cards
Notice something missing? They don’t accept credit cards.
How can they exist without accepting credit cards?
It comes down to overhead and keeping costs low:
- The average fee to accept a debit card is 25 cents per transaction (swipe).
- The average fee to accept a credit card is 2-3% of the total.
If the average customer spends $100-$200 on their weekly grocery shopping then accepting credit cards would cost Woodman’s $2-$6 in swipe fees. For every 100 customers that go through their checkout lines they could be inflating their overhead by $200 – $600.
Compare that to the cost to accept debit cards: 100 customers would cost them $25 – regardless of the size of their purchase. Debit is definitely better then credit for a large store like Woodman’s.
Passing the savings on to the customer
Mr. Woodman says they offer such great prices and save customers so much money that it overcomes a customer’s desire to pay with a credit card.
I asked Mr. Woodman what their customers think about the policy. He said the only pushback they get is when opening a store in a new area.
Once people see how much they can save on their grocery bill they typically forget all about it and take advantage of the low prices by paying with their debit card or cash.
Bottom line: Lower swipe fees translates to lower overhead and lower prices for us.
Web and mobile payment options
An explosion of web and mobile payment options have come onto the market in the past 24 months. Most notably are services like Square, PayPal, and Starbucks.
Gary Leland is owner of the largest wallpaper store in Texas, a sporting goods store, and Podertainment Magazine for IOS. He warns us about how some payment systems don’t give business owners a choice in saving on swipe fees because they run all cards through as credit cards.
Stipe is a payment processing company that offers an interface for businesses to process credit and debit cards via the web or a mobile device.
He says Stripe processes all transactions as “credit”, which also charges the business owner higher processing fees.
Considering 65-70 percent of his in-store business is done via debit card, the unnecessary fees would cost him thousands of dollars a year. That’s a trip to Europe for him and his wife.
Why we should pay with debit or cash
Vendors, businesses, and retail stores must be profitable to stay alive. They can not absorb the fees for payment processing so the cost gets passed on to us.
By the way: This is the same for labor, cost of materials, licenses, insurance, etc. Swipe fees are just another bullet in the cost-of-doing-business chamber.
We benefit by offering to pay with a debit card or cash. It lowers their overhead, allowing the company to obtain higher profits.
Higher profits allows businesses to offer us:
- Better service
- Better products
- Lower prices
A profitable company can pay their employees a better wage. This translates to better service for us.
A company with higher profits can provide us with a better selection of products.
Lower overhead for the business means lower prices for us. Isn’t that what we all want?
Pay attention to payment options
My decision to get rid of my credit cards was motivated by two things:
- I can’t trust myself with a credit card (too easy to get into trouble)
- I can’t take part in increasing prices for me or my neighbor
I urge you to consider the same. The only people who win when we pay via credit are the banks that fill our mailboxes with pre-approved offers and help Americans get into debt.
You already have a debit card. To avoid debt – and costly interest – you can adopt some of the practices I have followed for more than 7 years:
- Use cash for small purchases (avoids processing fees altogether)
- Use debit any place where I swipe the card myself
- Offer to pay with debit – even when they don’t ask “Will that be Debit or Credit”
Also on the show:
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What a great way to end 2014! The interview with Clint Woodman was fantastic. (BTW another food chain that does not accept credit but does accept dedit is ALDI).
I have a question for you, Steve. Will anything he say cause you change anything about the way you will USE your debit card in 2015. Specifically, since retailers must pay the full credit card processing fee when you use your debit card as a credit card, will you always be upfront with retailers when using the debit card and not try to process it as a credit card? I have heard debit card prophets claim when asked “Debit or Credit?” they always respond “credit.” One such person is Dave Ramsey, who I heard claim on his radio show recently that he doesn’t even KNOW his debit card pin because he NEVER uses it that way. I believe the morality of this is somewhat conflicted. First there is lying when you say “credit”, (or push “credit” at the pump), but even more you are hurting your neighbors by keeping prices high to cover the increased costs.
Second Timothy, you are right! I forgot about Aldi. They don’t shock me as much because, although they are a larger chain (more stores) it’s hard to believe a 200,000+ square foot grocery store could thrive without accepting credit.
I haven’t changed the way I use my debit card in a couple years. Yes, there are times when I use my debit card in the credit function. These are the times when I want the added Zero Liability Protection on my purchases. You can go back to Episode 95 where I spoke more about how I use my debit card responsibly http://moneyplansos.com/sos095-the-credit-card-surcharge-and-responsible-debit-card-practices/ but in summary I will use my debit card with the 4-digit PIN when:
*I swipe the card myself (and cover my fingers so nobody can see what I’m typing into the keypad like at the gas station)
*It’s a store/owner that I trust – like our vet (and I still cover the keypad while typing)
You mentioned the morality of saying “credit” when using your “debit” card. I would ask that you look at it from the eyes of the vendor/retailer/store: They are asking “Will you be asking us to process your card as a credit transaction or through the debit approval process?” That’s where they will save money if you say Debit and use your PIN number. It’s not asking if you are using a credit CARD, they are asking how you would prefer the approval process to be handled through their POS system.
Does that make sense?
:Hello Steve, I always appreciate your thoughtful responses. You ask if it makes sense. I believe I understand what you are saying even though I do not always agree with you. I’m having trouble finding the right words. Does that make sense? I know I am drawing a very fine point here, but I think it is important. Either debit cards are more risky than credit cards or they are not. Perhaps you can answer a moral dilemma I feel in my own transactions. I do not have a debit card because I feel they carry more risk than a credit card. If someone got my card AND my four digit pin, I would not have what you are calling Zero Liability Protection on my account. If I am wrong, you need to explain to me again why you run your debit card through as a credit. So my dilemma is this: Sometimes I would like to purchase an item from Dave Ramsey’s website. Dave only accepts debit cards. I don’t want to sign up for a card I would only uses rarely at his site. I know I could enter my credit card number on the site and it would process since the site only asks for the 16 digit number and not the pin. Would it be wrong for me to buy something there with a credit card? The way I have answered it so far is to only do cash transactions with Dave Ramsey’s LAMPO group. This means I do not buy online but rather restrict my purchases to when I am able to visit Financial Peace Plaza in Tennessee. I find this inconvenient but I respect Dave’s position on not taking credit.
Yes, Debit cards are technically more risky than Credit cards when you consider theft. If you have a Visa or MasterCard branded Debit card, which most banks offer, then you can run the card either as a Debit/ATM-type transaction or Credit transaction. If you run it through the Debit process and you type in your PIN number then you do not get those protections because it is not being processed through the Visa/MC system.
I’m not sure why there would be any difference in the protection. MasterCard extend the Zero Liability policy for PIN transactions on their branded cards on October 17, 2014. However, I do believe it has to do with the amount of risk Visa/MC are willing to take and a simple swipe/sign isn’t as safe as entering a private 4-digit PIN number.
However (you knew there was a “however” coming) I believe Credit card transactions are more risky to our economies (personal and national). Why? You heard about it in this episode: 2-4% of every Credit transaction is charged to the vendor, the vendor has to increase prices to make up for the loss, and we get charged more for our milk, oil changes, baseball bats, and Tonka toys. It’s another form of inflation.
I have made the personal decision to use only Debit cards and select when and where to use the PIN number so that I get the best of both worlds: Charge less to the vendor when I use my Debit card and PIN number or get the Zero Liability protection when using my Debit card in the credit function.
I have only spoken to one person who had their debit card compromised due to the actual card being stolen and used elsewhere – and they used it in the Credit function (so Zero Liability was in effect). Everyone else had their account compromised through other means – they still had their cards in their possession and nothing could have been done to keep the scammers from scamming. The question is: How much hassle do you want to go through when it happens and will your credit card company want to continue working with your as much as your bank (Debit card) wants to keep your business?
As far as Dave Ramsey: He won’t take Credit cards as a matter of principle. I’m not sure how they know they can tell the difference between a 16-digit Credit card or 16-digit Debit card, but you can buy a lot of their stuff on Amazon (they take Credit). But you have to admit: It’s cool to buy his stuff will at Martha’s Place.
You cleared it up perfectly. I can’t dispute anything in your post. Especially the idea of shopping at Martha’s. If you get your pastry and coffee at Barnes and Noble, you pay dearly for it. But at Financial Peace Plaza it’s free. Sort of makes the trip to the bookstore all worthwhile.