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In the early days, merchants installed ATMs in their stores with the expectation that customers would make a withdrawal, then deposit some of that money back into store coffers before walking out the door. Then surcharging came along, and the business model changed. ATMs became more about making $1.50 per transaction and less about getting customers to spend their money in the store. Deciding the early business model still made a lot of sense, Dairy Mart decided to drop its $1.50 surcharges at more than 600 convenience store ATMs in Ohio, Michigan, Pennsylvania, Kentucky, Indiana and Tennessee. After the Hudson, Ohio-based chain rolled out its fee-free ATMs last May, many in the ATM industry predicted the program wouldn't last. "How can they make any money?" was a common question. Seven months later, Dairy Mart CEO Bob Stein insists the program has exceeded expectations. ATM transactions have tripled. In September, the chain surveyed 600 customers from two of its major markets. Among the findings: 65 percent of those who used an ATM said that the lack of fees had influenced their visit, 77 percent of them had made a purchase in their most recent visit, and 43 percent said the no-fee ATM was the main reason they came to Dairy Mart. "That implies new customer traffic that we did not have before," Stein said of the last statistic. Most of the stores were without ATMs for several months, following the cancellation of a contract with Bank One and the removal of about 500 of the bank's Rapid Cash machines. In a filing with the Securities and Exchange Commission, Dairy Mart said it received $3 million from Bank One to end the ATM relationship. In contrast to the Bank One program, which required no capital investment from Dairy Mart, the company pays Efmark, a Westmont, Ill.-based service provider, to manage its machines. Neither Dairy Mart nor Efmark will comment on the cost of the program. Addressing some of the industry skepticism about lost profits, Stein said Dairy Mart sees its ATMs as "advertising support for the company" rather than a stand-alone moneymaker. However, he added, "If we continue to drive the transactions and the statistics continue to improve, I know we're going to make money with it because the rest of the offerings in our stores are going to benefit." Rob Evans, director of marketing for NCR's self-service division, thinks Dairy Mart may be on to something. (Efmark is using NCR hardware). Noting that transactions have tripled since Dairy Mart dropped the surcharge and that 77 percent of ATM users said they made a purchase in their last visit, Evans said, "A retailer like Dairy Mart may ask, 'Is it the best strategy for us to split $1.50 down the middle on 200 transactions, or do we make more money if we can get 600 people to withdraw $40 -- and we make a 30 percent margin on 20 percent of that withdrawal?' " While it's difficult to find other retailers who have decided to forgo surcharge income, there are at least two: the Lakeland, Fla.-based Publix supermarket chain and Wawa, a Wawa, Penn.-based chain of convenience stores. Dairy Mart added couponing to the mix in August. Stein said that the first effort, a two-for-one offer with Coca-Cola, yielded a "phenomenal" redemption rate. Other vendors, including Pepsi Cola and Millstone Coffee, have signed on for similar ATM promotions. Evans, of NCR, offers anecdotal evidence of the coupons' popularity. He routinely stops at a Dairy Mart on his way to work in Dayton, Ohio, and at a competing convenience store on his way home. Shortly after the coupon program began, Evans saw a notice posted near the cash register of the competitor, cautioning clerks not to accept the Dairy Mart coupons. "I expect that next year we'll have couponing every month with one of our vendors," Stein said. "It's a nice tie-in that allows ATM customers to enjoy something else while they're in the store." Dairy Mart is stepping up an already aggressive campaign to promote the service through newspaper, radio and billboard ads. "We feel that it's working, so we should be looking to communicate that much louder about the kind of value we have," Stein said.