How good is this? A business you own develops a product that is sold by a competitor and you make money off it. Talk about sweet.
That very scenario is played out daily as the Blackhawk Network, a subsidiary of Safeway, which markets retailer gift cards sold through other merchant locations. Every time a Starbucks gift card is rung up in a Food Lion, for example, Blackhawk hears the beautiful sound of a cha-ching being added to its top line.
Steve Burd, chairman, chief executive and president of Safeway, told investors last month that the cha-chings are adding up and Blackhawk is projected to make a pretax profit of $100 million in FY 2007.
"When we started out, we didn't think this big," he said at the time. "Now that we are in the middle of it, we do."
Charles Cerankosky, an analyst at FTN Midwest Securities Corp, told Bloomberg News that Blackhawk is tapping into a market that should reach $200 billion next year. Blackhawk is expected to grab about $3.45 billion of the total.
Blackhawk distributes the gift cards of about 185 retailers, including Apple iTunes, Barnes & Noble, Home Depot and Starbucks. The company says its kiosks, about 63,000, are housed in over 80 percent of the top-50 supermarket chains in the U.S. It plans to be in 100,000 locations by 2008.
Discussion Questions: What are your thoughts on the Blackhawk business and the growing gift card market? Do you see some point in the future that retailers will begin to object over the relationship between Blackhawk and Safeway?