Table of Contents
I am kind of Sears obsessed,” Cameron Maxwell, Cofounder, Two Igloos, a retail, strategy, and innovation consultancy, said. “They were so clued in on demographic changes for like 70-80 years. And then, suddenly, they’re not.”
For younger generations, Sears was more of a store that had to be walked through to get to the mall. But in its hey-day, it was the modern equivalent of Walmart. Started in 1880s as a watch company, it quickly expanded with its introduction of a catalog with a diverse array of products. It catered to isolated farming areas that lacked easy access to city shopping by bridging the gap between rural communities and the latest products. In the 1920s, with the increasing popularity of automobiles and the accessibility to urban areas that came with them, the store opens its first store. Within six years, the sales generated from these stores surpassed those of the mail-order catalog. By 1972, Sears was the largest retailer in the world by a mile, four times larger than their nearest rival.
Unfortunately, over the next decades, Sears went from the leader to bankrupt. “The hubris of Sears and their view that their dominance in the market meant they didn’t need to change to meet the needs of these new consumers or compete with a growing number of competitors is ultimately what led to their downfall,” Maxwell said.
In an era of rapidly evolving retail landscapes and changing consumer behaviors, the lottery industry finds itself at a critical crossroads. Just as Sears failed to adapt to the shifting tides of consumer preferences, the lottery industry must recognize the need to stay ahead of customer patterns and retail shifts to remain relevant and competitive in the modern age. Cashier-less stores, buy online and pick up at the store (BOPUS), retail integration, the digitization of retail, etc., are all emerging as necessary technologies for lotteries to adopt. The article below includes examples of how various lotteries are adapting to these shifts in consumer behaviors.
Self-Checkout
“What’s next for the lottery in the age of self-checkout (SCO)?” pondered a distinguished lottery marketer during our conversation. She had recently discussed the future of retail with a representative from a convenience chain operating around 50 stores in their state. This chain manager had observed a remarkable increase in their customers’ SCO adoption rates and believed it will be the primary focus of future store designs. But the manager was worried. Age-restricted products, like lottery sales, are disruptive. To avoid these complications, the manager suggested that lottery sales might be confined to vending machines in the future.
This experience isn’t restricted to this convenience store. Some lottery retailers have noted that 70% of their traffic now goes through SCO. For instance, Circle K is rolling out 10,000 self-checkout machines, dubbed “smart checkouts,” in response to these trends. This trend has grave consequences for the industry. Lottery retailer data shows that when convenience stores introduce self-checkout, lottery sales can decrease on average by 15%, and some stores even see a 30% decrease.
“We understand that there are challenges with that when it comes to marketing and selling restricted products, specifically lottery. We’re committed to finding solutions to continue to grow lottery in that space,” Larry Vertal, Global Age Restricted Manager, Circle K, said at our 2023 Pittsburgh Conference.
For lotteries, the solution will be a complicated one to stop a significant loss in revenue, requiring a suite of new technologies and integrations. Nederlandse Loterij (NLO), the Dutch Lottery, has worked with Abacus to meet customers at self-checkout.
“It’s a very common standard now in the Dutch supermarket to go to a self-service checkout,” Niels van der Meulen, Manager Retail Operations, Nederlandse Loterij, said. “I think everybody who is interested in a lottery product are willing to purchase through it.”
In the Netherlands, the largest food chain, Albert Heijn, sells through self-service checkouts in almost every store. With over 850 stores nationwide, they are still in the process of remodeling shops to expand self-service options. The Dutch Lottery has integrated into thousands of their self-checkout tills.
The lottery offers some of their draw games through the system. To reduce transaction time, players can only purchases “quick picks.” Once added, an alert is immediately sent to the handheld devices of the clerk overseeing the self-checkout area that an age-restricted product is being purchased. If the customer is indeed over the age limit required for purchasing the item— 18 years old, in this case—the staff member approves the transaction via his handheld device.
Once purchased, the lottery ticket is printed on the receipt detailing the purchased numbers, purchase date, draw date, and the retailer’s barcode. While these receipts can be scanned and stored in apps for post-draw checks, they still need to be redeemed physically at a retail store.
The team is still working to increase player awareness of the channel. One of the areas that NLO wants to improve is where lottery tickets are located on the self-service checkout user interface (UI). Currently, lottery tickets are classified as “products without barcodes.” Like fruits and vegetables, players must navigate to the product. The current implementation requires the customer to go through three pages before they can add lottery tickets to their basket.
Furthermore, customers’ purchasing habits are stubbornly ingrained. “We know from research that lottery tickets are mostly a planned shopper journey. You don’t just add it to your basket. Players think: ‘I want to just pay for my groceries here at the sales scan and then I start a new shopper journey going to the service counter,’” van der Meulen said. “So, it’s not in the people’s mind to buy that they can purchase it through self-checkout.”
For other lotteries, NLO’s advice is to minimize dependency and maintain control. It is recommended to involve fewer parties in the process. Additionally, ensuring a robust and adaptable system for ticket management and layout changes is crucial. It is also imperative for lotteries to communicate the security and validity of participation to players. Overall, the focus should be on creating an efficient, secure, and trustworthy experience for participants. “It’s just another way of buying which is similar to a terminal, but just a different place,” van der Meulen said.
Delivery
Lotteries are beginning to experiment with integrating into lottery retailer’s eCommerce platforms to sell tickets online. Loto-Québec has partnered with one of the largest grocers in Canada to deliver lottery games to players. “We saw an opportunity to create convenience for our customers,” Steve Lévesque, Sales & Distribution Dir., Loto-Québec, said. “Our partnership started about a year and a half ago, and we recently expanded to include their discount supermarket chain. Both supermarkets now sell our lottery products on their websites.”
By going to the retailer’s website, players can add the games to their basket like they would for any other food product.
“Our main offerings are draw games, such as Lotto Max and 649 and scratch tickets. The instant ticket products we offer are negotiated with the supermarkets and generally include more permanent games,” Lévesque said.
On the backend, the process is no different than any other retailer, except the lottery sends packs to a central warehouse, where the activation of the tickets and order preparation takes place. Only lottery-authorized employees can handle the tickets. The delivery service had a few hurdles, the biggest being age verification. But once the supermarket could sell other age-restricted products, like alcohol and cigarettes, they could also sell lottery tickets.
Loto-Québec is now testing the up-sale advertisements. This service is offered intermittently, based on the size of the lottery jackpot, and allows customers to buy a ticket at checkout. “We’re very mindful of responsible gaming standards, so we don’t offer this with every transaction,” Lévesque said. “Only once in a while.”
Ideally, the retailer’s website would promote Lotto 649, and Lotto Max. The advertisements, however, need to be purchased almost two months in advance. “We really need to adjust in real-time. We’re trying to figure out how to make that work,” Lévesque said.
As awareness for the product builds, sales are picking up. In April, lottery delivery increased by 34%. “It’s not generating huge figures yet, but we’re getting there,” Lévesque said.
Nederlandse Loterij is testing a different method of selling tickets through a retailer, using the same technology as their in-lane solution. The process begins with the customer visiting the retailer’s webshop. Once they’ve selected their desired draw ticket, they proceed to an age verification process which requires the customer’s bank.
After successful age verification, the customer proceeds to the actual purchase, where they have to enter their email address. Unlike Loto-Québec, where the retailer sends a physical ticket, the customer receives an email with a PDF attachment. This PDF includes a digital ticket and QR code. This QR code is the most important part of the ticket, as it is what the customer will scan at a retail location to claim their prize. This PDF is only redeemable at a physical retail location, ensuring that the ticket cannot be used online.
The pilot program for this online ticket selling process started in November 2022, with the first event draw taking place on New Year’s Eve. The program is closely monitored, with a focus on customer experience and identifying any potential barriers in the process.
Instant Tickets In-lane
Selling scratch tickets in-lane has compelling opportunities for the industry. Some lotteries have piloted solutions like the Florida Lottery with Southeastern Grocers, which involved selling activated tickets in-lane. However, many retailers want a more complex option: tickets activated only after purchase. Ticket-by-ticket (TBT) accounting has long been the industry’s “white whale.” While it would significantly improve efficiency and security, the industry must overcome several hurdles.
One of the most significant obstacles is the lottery tickets themselves. Each ticket typically contains two barcodes: a Universal Product Code (UPC) and an Interleaved 2 of 5 (i2of5) barcode. The i2of5 barcode is exclusive to the lottery industry; it cannot be recognized by retailers’ cash registers, making it impossible for them to scan to activate the ticket.
There are additional operational hurdles to address. The shift to a ticket-by-ticket accounting model would also necessitate a significant transformation in the industry’s financial structure. Currently, lotteries invoice retailers on an aggregate and delayed process, like 30 days after a pack is activated. Many lotteries would be reluctant to transition to a model where they bill retailers for every ticket sold.
But the Texas Lottery® believes that selling scratch tickets in-lane is vital to the industry’s future health and revealed a three-fold plan to accommodate as many retailers as possible. The first part is “ticket-by-ticket activation.” Unlike TBT accounting, this model does not alter pack-level statuses; packs still transition from “Confirmed” to “Activated” to “Settled.” Instead, it adds a new layer to the system, a ticket-level status that co-exists with the traditional pack status. When the retailer scans a ticket, the ticket is activated and the status change is recorded in the lottery’s gaming system. This approach presents several benefits, including enhanced tracking of scratch ticket sales and improved security for retailers resulting in decreased financial liability.
The second part will modify the inventory barcode. The Texas Lottery is in the beginning stages of replacing the i2of5 with a Code 128 barcode, which is compatible with virtually all retailers’ point-of-sale systems. This new barcode comprises 30 digits that provide all the necessary information for the lottery gaming system to identify a specific ticket and for the retailer to process the transaction correctly once the ticket is scanned at the point-of-sale system.. The lottery will implement the Code 128 barcode after necessary software changes and extensive testing are complete.
The final part utilizes smart dispensers, like Scientific Games’ SCiQ ® and Pollard Banknote’s easyVEND™. These dispensers can communicate with the retailers’ point-of-sale systems and the Texas Lottery’s gaming system, providing accurate inventory and sales data. These dispensers offer additional security because tickets are inaccessible without being purchased. SCiQ has been deployed in Texas at several 7-11 retail locations through a program administered by Scientific Games. The Texas Lottery does, however, have its own pilot programs for both the SCiQ and easyVEND™ dispensers to be deployed at different retailer chains later this year. These pilot programs will sell tickets containing the traditional i2of5 barcode.
“In Texas, we are working hard to find in-lane sales solutions for all the different types of retailers across our large state,” said Ryan Mindell, Deputy Executive Director of the Texas Lottery. “The only way we will compete with our own sales records over the last few years is to develop these innovative in-lane solutions to sell scratch tickets. Our hope is that these three approaches offer a flexible toolkit for retailers, allowing them to choose the best combination for their business.”
Digitizing Retail
In today’s digital age, consumers are increasingly adopting a “digital-first” mindset. This shift has significant implications for the in-store environment, transforming retail spaces into dynamic fulfillment points that cater to self-service experiences.
Chris Riegel, CEO and Founder of STRATACACHE, emphasizes the impact of this shift, stating, “You can see in other industries, such as banking or Quick Service Restaurants with kiosks, how consumers are being trained en masse to be ‘digital first’. How does that then impact the in-store environment, where the store is becoming more and more of a fulfillment point for the customer? It’s increasingly self-service for everything from product finding, to subject matter expertise, to check-out.”
A recent quantitative study by SalesForce, based on the “Connected Shoppers Report,” reveals that consumers are blurring the lines between digital and physical channels while in the store. Nearly one in three shoppers have researched a product online using a mobile device while in-store, and one in four have scanned a QR code to learn more about a product. This demonstrates the evolving role of the physical store while underscoring its importance in the shopping journey.
According to a recent Leger study in North America, digital signage is seen and noticed by more than seven-in-ten shoppers (71%) in retail environments, convenience stores, and restaurants. Moreover, 69% of respondents found digital signage engaging, informative, and interacted with it, leading to learning something new or making a purchase. In fact, 11% indicated that seeing a digital sign prompted a purchase.
A digital signage program is a tantalizing opportunity for lotteries. After all, it’s an advertising platform owned by the lottery, giving them the flexibility to promote their products as appropriate. Different products can be displayed when it is most advantageous. For example, during high jackpot periods there might be an automated programmatic change in the content to prominently feature a product like Powerball and/or Mega Millions. Lotteries can also promote less visible products, such as Numbers games and progressive Fast Play-type games, which have smaller jackpots but a passionate player base.
The effectiveness of various point-of-sale marketing tactics can also be measured, and lotteries can test different campaigns to see which are the most successful. Therefore, the importance of setting KPIs to measure performance cannot be overstated. Lotteries can evaluate sales and compare different retail trade styles, targeting their messaging effectively and updating content as needed in real-time.
A growing number of lotteries are digitizing their retail environments. The British Columbia Lottery Corporation (BCLC) operates 5,000 retail displays using Carmanah Signs’ Content Management System, ActiVia Media Platform (AMP). BCLC’s network has recently grown to include pilot testing of Digital PlayStations, as well as sports betting at hospitality and retail outlets.
Due to the successful engagement of players, the Ontario Lottery and Gaming Corporation (OLG) doubled its Digital Menu Board footprint from 250 to 500 locations in the last year. OLG is also moving forward with the integration of 400 Digital PlayStations and a soon-to-be-introduced “terminal backer” at 130 retail locations to make better use of the current terminal blank canvas backspace. Other innovative projects include the Illinois Lottery’s initiative to launch a large digital presence at O’Hare Airport in Chicago and Washington’s Lottery pioneering a digital claim center.
The versatility of digital signage allows for creative, adaptable, and measurable marketing campaigns at retail. The adage “the medium is the message” comes into full effect in the realm of digital signage. As Marshall McLuhan suggested, the form of a medium embeds itself in any message it would transmit or convey, creating a symbiotic relationship by which the medium influences how the message is perceived. In the context of digital advertising, the medium is more than a vehicle for content; it becomes part of the content itself. For lotteries, it brings a modern touch to retail environments, effectively attracting the attention of consumers and influencing their perception of the products being advertised.
Collaboration
While eCommerce was already becoming a more prevalent channel, the pandemic accelerated this shift towards eCommerce, with substantial growth observed during 2020 and 2021. According to the Census Bureau of the Department of Commerce’s Quarterly Retail eCommerce Sales Report, eCommerce experienced significant growth rates of approximately 42.4% and 18.4% in 2020 and 2021, respectively. But the data shows retail is resurging. In 2021, brick-and-mortar sales grew by 18.1%. In 2022, physical store sales increased 8.3% compared to eCommerce’s 7.4%.
There is little doubt that the pandemic hurt retail permanently. Yet, it is a key channel. After all, people still want to go outside of their houses. However, like the many changes Sears saw over its 100+ year life, customers’ habits are changing. Retail strategy has shifted away from a focus on convenience and price, which historically has been its two key tenets. “Bad retail is going away, largely because of eCommerce,” Maxwell said. “Now, it’s about blending physical and digital together.”
The above stories have shown how lotteries are integrating with retailers to become a more “phygital” product and meet consumer trends, whether it’s intercompany API calls or front-and-center digital signage. However, each of these fascinating pilots has a common theme. As players’ shopping preference change, the future success of the industry is predicated not only on technology but also on collaboration with retailers. It could prove to be a boon for both parties.
“When retailers are really worried about how their world is changing, I think is a great time for lottery to step in and be collaborators,” Maxwell said. “I think lottery can be a real partner to these retailers.”