Extreme Couponer 101: Coupon Redemption

I get a lot of comments and questions every week asking if the stores are going to get reimbursed for a certain coupon or if they will lose money on a deal. It is also becoming a peeve of mine to see people say that we should not get free items because we are going make them stop issuing coupons. So, I decided to give us all a crash course in how coupons are redeemed by the store.

The Life Cycle of a coupon:

1.  The manufacturer decides to run a coupon program and sends the coupon to a design agency that handles coupons.

2.  You acquire the coupon through the paper etc.

3.  You use the coupon, the store takes the coupon

4.  The cashier adds up her coupons and cash to make sure the drawer balance.

5.  The coupons are then bagged by the store and sent to the corporate office where all the coupons from all the stores are put into a bigger bag and sent to a big clearing house. Publix and Kroger use one overseas… (note some stores do this in house)

6.  The clearing house puts all the coupons that are in good condition on a big conveyor belt and they are scanned, then an automated process sorts them by manufacturer and prepares an invoice for the manufacturer.

7.  They are mailed from the clearing house to the manufacturer for reimbursement.

8.  The manufacturer receives the coupons and an invoice stating how many are there (think thousands).  They then pay the bill.  Some will recount to check for clearing house fraud and then pay the bill.

**The stores have on average 6 months past the expiration date to submit a coupon to the manufacturer – while you should not plan to use expired coupons unless allowed do not fret, they will still get their money**

How the stores get their money:

• They can be paid directly by the clearing house – then the clearing house gets reimbursed from the manufacturer

• They can pay a handling fee to the clearinghouse and they get a check from the manufacturer

Reimbursement also includes .08¢ per coupon to cover handling fees and the manufacturer’s reimburse postage costs!

Now for the details we care about:

If the coupon scans in the store odds are it will also scan in the big clearing house’s automated machine – thus the store should get reimbursed.

If the coupon doesn’t scan, is damaged etc. it is labeled “hard to handle” and is hand processed.  If it is the coupons fault (poor design, bad  barcode etc.) the grocer can then charge the manufacturer a higher handling fee!

The store does not have to submit any information about what you purchased with the coupon. Therefore if you use a Prego coupon on Pepperidge Farm Toast (because the cashier told you too) the manufacturer will only care/notice if Publix submitted more Prego coupons than the amount of Prego they purchased. Since Publix purchases thousands of jars of Prego per year the odds they would have more coupons than product are pretty slim.

When does the store “lose” money?

Some Manufacturers have poor practices with redemption that has nothing to do with the consumer, claiming falsely that coupons are not eligible for one reason or another.

Copies/fraudulent coupons- After a coupon goes through the clearing house and is sent to the manufacturer the manufacturer can still deny the coupon. Internet printables that have unique numbers (coupons.com or smartsource) make it easy for the manufacturer to spot fraud. If a coupon does not have a unique number or security code then the manufacturer will usually accept the coupon (within reason – bad copies even a cashier should catch). Why? Because the store’s corporate office has a chance to challenge any denial and if the manufacturer cannot prove fraudulent use then the store will win the challenge.

Again remember you are talking about thousands of coupons from each store.  Don’t think they are sitting around analyzing them (unless they are one of the bad companies which will falsely deny them anyway).

Store coupons:

These are processed in house. First, most people assume these coupons are the store being nice and just giving you money off an item… let’s think about that. This is a business guys, it’s not about being nice.

Stores are reimbursed for “store coupons” through various options:

• The manufacturer can pay an advertising fee to place their product or coupon in the store flyer

• The manufacturer can work out a discounted deal for X product, the store then decides instead of making the product the discounted price for everyone, to require customers to submit a coupon to get that price. This is the best plan overall, most shoppers would not care or know about the coupon so they only have to sell the product at the discounted price to a small percentage of shoppers. Therefore they make money on the other shoppers.

Fake Example (profit widely inflated): Fresh Express Bagged Salad gives Publix a discounted rate of $1 per bag for 500 bags. Publix decides to sell the bag for $3 and to put a coupon in the flyer for $2 off.
100 customers buy the salad with a coupon
400 customers buy the salad without a coupon ($2 profit per bag for Publix)
In the end: Publix gave 100 customers the salad without making any profit, however overall they made $800 off the deal.

• Lastly the store can have a special reimbursement policy with the manufacturer for the store coupons. So they are handled like actual manufacturer coupons above.

The only time they are not getting reimbursed for these coupons in some way is if it is for a house brand item.  Keep in mind those are the items they make the most money on so they still aren’t out anything.

In closing: I hope that gives you some idea of how coupons are handled. The intention of this post is not to encourage improper use of coupons only to make some realize that the use of coupons puts money back in the pockets of grocery store. We are not taking these stores to the cleaners. They are doing just fine. About 10% of American’s shop with coupons (effectively), they get their money back from us through reimbursement programs. 90% of Americans pay through the nose for groceries and they keep the profit always growing for these stores. While profit numbers for 2008 are not out yet, for 2007 Kroger had net profit of $1.18 billion up 15% from 2006, and Publix had a net profit of $1.2 billion for 2007 up 7.9% from 2006.

For more information check out:
How Stuff Works
IOS (Clearing house used by Publix and Kroger according to their client list)
Kroger 2007 Profit Release
Publix 2007 Profit Release

Did I miss something you would like to know leave a comment and I’ll do a second installment if needed!