Grocery Cards Get an Extra Scan

  Frequent-shopper cards are as common in supermarkets as ketchup, but they've done little to enhance customer loyalty. Now grocers are looking for spicier marketing ingredients.
  Most Americans are card-carrying members of a supermarket frequent-shopper program, but the majority don't know why.
  Until recently, such programs have done little to truly reward loyalty, merely cluttering consumers' wallets with yet another piece of plastic that garners dubious savings at the checkout counter and offers vague promises of future benefits, say retail marketing experts.
  But a renaissance is afoot in grocery stores as supermarket chains face the fact that in-store differentiation and one-to-one marketing programs driven by loyalty cards could be their best weapon against discount retailers making aggressive moves into the grocery industry, especially low-price king Wal-Mart Stores Inc.
  New data-mining software and technology, plus a fresh approach to marketing partners, may provide some much-needed marketing help for the nation's largest supermarket chains as they experiment with new loyalty tactics.
  Supermarket loyalty cards achieved widespread U.S. penetration in the mid-1990s and are now offered by 50% to 70% of all grocery retailers, according to the Food Marketing Institute, Washington, D.C. More than 50% of households have a grocery loyalty card, according to McKinsey & Co. research.
  But retail observers say consumers assign only low perceived value to supermarket loyalty cards. Supermarkets are now trying to revitalize the cards through new promotions designed to add value instead of simply providing the coupon-like discounts such cards currently offer.
  "Mainstream supermarkets that are getting killed playing the price-discount game against Wal-Mart are starting to realize they must segment and target their customers in order to get out of the price trap, and the best way to do that is through devices like frequent-shopper cards," says Bill Bishop, president of the Barrington, Ill.-based retail consultancy Willard Bishop Consulting.
  The emptiness of most supermarket card programs is due to the industry's perennially thin profit margins and the lack of deep marketing resources, observers say. Supermarkets invested heavily in card programs but have failed to support them with sophisticated data-management processes and marketing personnel.
  "Supermarkets were very good at executing programs and getting loyalty cards into the hands of consumers, but they didn't seem to know what to do with them next and a lot of programs have stalled," says Chris Moloney, director of market strategy for loyalty services provider Maritz Marketing, Fenton, Mo.
  The most widespread practice among supermarkets is to offer grocery cardholders a discount on certain promoted items. That type of thinking doesn't engender long-term loyalty to the store, says Moloney.
  "The more supermarkets give discounts on certain items the more it feels like a coupon, which rewards cherry-pickers, not loyalists," he says.
  Even worse is the fact that the majority of supermarkets have done very little to segment members of their frequent-shopping clubs to identify and reward their most valuable customers.
  "Supermarkets failed to learn the most important lessons gained by the airlines and hotel industries over the last 20 years: that you must reward your best customers in order to keep them coming back," says Britt Beemer, chairman and founder of America's Research Group, Charleston, S.C. "Data mining by supermarkets is at the kindergarten level, and they're missing huge opportunities to lock in high-spending customers and keep them."
  One of the ways supermarkets are working to make frequent-shopper cards matter to consumers is through bold tie-ins with national brand marketers, providing food manufacturers with sought-after data about what consumers are actually buying thanks to the behavior-tracking power of bar-code equipped cards.
  Other innovations include new personal shopping gadgets that make the in-store experience more interesting and that are only available to those who have a frequent-shopper card.
  Interestingly, Wal-Mart does not offer a frequent-shopper card program-yet. Many experts believe Wal-Mart, which offers groceries in its fast-growing, 187,000 square-foot Supercenter formats, will bypass frequent-shopper programs as part of its no-frills philosophy. The company now has more than 1,500 Supercenters, and about the same number of traditional Wal-Mart non-grocery stores. At the moment, Wal-Mart has no plans to issue a loyalty card, says a spokesperson.
  That creates opportunities for retailers willing to enhance the shopper's experience through special perks obtained only by using the card.
  But challenges remain for supermarkets grappling with languishing loyalty card programs. One difficulty is the task of managing the sheer volume of data supermarket cards generate.
  "If you imagine how often the typical household shopper goes to the store, then multiply it by the number of products bought each week, the amount of data stores are generating is monstrous," says Bishop. "There is also a question of quality in the data, because you're dealing with customer files that may not always be up to date. And you may have multiple cards issued to shoppers within one household, muddying the picture."
  New solutions are being devised by third-party software companies, including Lawson Software, a United Kingdom-based company that is expanding through its U.S. headquarters in St. Paul, Minn. Lawson offers tools to help grocery retailers reward consumers for purchases based on geographic region, the total size of the checkout tab, and the day of the week, among other variables.
  Another sticking point for supermarket loyalty programs these days comes from privacy and consumer groups that are raising questions about corporations' use of consumer data, and the fact that program discounts are usually available only to those qualified to have a frequent-shopper card. Migrants and people who pay with cash are less likely to sign up for a free card, they say.
  "There are certain markets in the U.S., especially California, where consumers' antennae for privacy issues is very high and in some cases the shopper doesn't feel like it's a deal to share all their household purchase data with the store," says Mike Capizzi, a vice president with Milford, Ohio-based loyalty marketing consultancy Frequency Marketing Inc.
  Something Special
  To offset privacy concerns, supermarkets must make it worthwhile for customers to carry a loyalty card.
  "Supermarket retailers need to give their customers something special they can't get anywhere else. That may include a customized experience or information tailored to that shopper, but it must be unique," Moloney says.
  One such example may be the "personal shopping assistant" from Holtsville, N.Y.-based Symbol Technologies, a wireless device issued to a customer who swipes his or her frequent-shopper card through a reader. The hand-held device allows customers to scan items throughout the store and keeps a running tally on items while triggering suggestions for menus and related items while the shopper pushes her cart down the aisle.
  Albertsons Inc. is testing the devices in several of its Chicago-area Jewel-Osco stores. Stop & Shop Stores Inc. is also testing them in several of its East Coast outlets.
  The overriding new mantra for supermarket loyalty programs is promotions that add value, and enrich the shopping experience.
  Examples of valued-added frequent-shopper card promotions include the first-ever national promotion last year linking 200 Jewel-Osco stores in the Midwest with Time Inc.'s People magazine through the grocer's frequent-shopper program, the Preferred Card. People initiated the promotion, which included in-store product demonstrations and ads in regional editions of the magazine.
  Tangible Results
  For one week last fall, each time consumers using their Preferred Card bought five designated consumer package-goods brands, they were automatically entered into a sweepstakes for a free trip to Hollywood. The promotion, which showcased items from Unilever, Kellogg Co. and Sara Lee Corp., racked up 240,000 entries and a 200% sales gain in featured brands, says Dave Watt, People director of market integration.
  "Thanks to the mechanism of the Preferred Card, we were able to prove tangible results to our advertisers whose products were featured in the promotion, and it was incredibly successful," says Watt.
  A spokesperson for Jewel also says the promotion was successful. People executed it and bore most of the costs.
  The Kroger Co., the nation's largest grocery chain, also harnessed its frequent-shopper card recently for one of its largest national promotions ever, a tie-in with Hearst Corp.'s Good Housekeeping magazine. The program rewarded consumers for purchasing any of 85 products with automatic entry in a $100,000 sweepstakes from Dec. 17, 2003, through Jan. 14.
  "Every time consumers purchased any of more than 80 products with the Good Housekeeping Seal, they were automatically entered to win a home makeover and a new car," says Sara Rad, Good Housekeeping's director of brand development. "Kroger is able to show us the data on how spotlight products performed versus all other products."
  Safeway Co.'s Safeway Club card has one of the nation's largest marketing partnerships in its four-year-old loyalty connection to United Airlines' Mileage Plus frequent-flier program, which the two companies touted late last year with a six-week, double-miles promotion. For every $250 spent using a Safeway frequent-shopper card anywhere in the U.S., consumers racked up 125 Mileage Plus points, which are automatically generated year-round by Safeway Club Card members who have registered with the program. (Due to longstanding marketing agreements, Safeway also offers American Airlines and Continental Airlines miles to its shoppers in Texas.)
  "The program gives shoppers an ongoing incentive to use their Club card, and adds incremental value," says a spokesperson for Pleasanton, Calif.-based Safeway, which has 1,700 North American stores.
  But doubts linger among retailing experts about what type of currency is most useful in rewarding shoppers.
  "Unlike airlines, where you reward the traveler with more of its own branded travel, the reward for grocery purchases is often something unrelated, like travel rewards or a new cars, which is counter to one of the keys to loyalty marketing," says Moloney. "If I'm a supermarket and I'm giving away an unrelated product, how am I really building loyalty to my store?"
  The most popular type of supermarket loyalty programs in the United Kingdom are coalition-style programs that involve multiple retail channels so that consumers earn points through a variety of types of purchases, including at supermarkets, and earn diverse types of rewards. Such programs have never taken wide hold in the U.S., partly due to broader geography and the lack of truly national supermarket and gasoline brand operators that would make such systems feasible.
  "The attitude in the U.S. grocery market has always been that profit margins are so thin for supermarkets here that U.K.-style coalition marketing would never work," says Moloney.
  But Carlson Marketing Group is getting some traction in the U.S. supermarket arena with its eight-year-old, coalition-style Gold Points Reward Network centered on the East Coast. Launched in 1996, Gold Points includes numerous partners including T.G.I. Friday's, Thrifty Car Rental and Radisson, among others. Last year its first supermarket was added with The Food Emporium, a division of Montvale, N.J.-based The Great Atlantic & Pacific Tea Co.
  In the program, shoppers at 37 stores can use their combination Food Emporium/Gold Points card to earn points that are redeemable within the store, in real time, for discounts on products. Points can also be earned through Food Emporium purchases for rewards from dozens of other coalition partners.
  Since launching the Food Emporium card last year, Gold Points has driven a 5% incremental spending increase among the supermarket's customers, says Janet Sparkman, executive vice president and general manager of Gold Points Reward Network. Food Emporium executives were not available for comment.
  Although Gold Points is in the minority in the U.S., Sparkman believes coalition marketing may begin to catch on as more supermarkets try to escape the "discounting death spiral," and seek alternative types of consumer rewards.
  "Grocery margins are very thin, and most want to give their customers something valuable that doesn't take three years to earn," says Sparkman.
  Adding pizzazz to supermarket frequent-shopper cards is one of the few remaining avenues for cash-strapped retailers, says consultant Bishop.
  "If supermarkets harnessed their data to make each customer feel special, they would find some significant untapped opportunities and might win back customers who have gone away," he says.