Are grocery loyalty programs broken?

Most loyalty programs within grocery follow a standard formula. It starts with getting physical cards in hands of customers. Customers then scan their card every time the check out because they will qualify for the lower shelf sticker price on items they buy, plus maybe there are special coupons the customer can apply to their purchase as well. All discounts and coupons are typically funded by the brands the customer is selling. The grocer sees this program as helping customers save money, and if customers can save money, they will be more loyal to the chain. I can’t remember when this approach began, but it’s effectively in place for all grocers I’m aware of, from Safeway and Kroger banners to Stop & Shop and Giant Eagle. However, there are two notable exceptions to this herd mentality. First is Publix, a major southeastern chain, and second is Whole Foods, a national upscale chain now under Amazon control. Both have proven that loyalty goes way beyond a card-based program for discounts and coupons. For many years, Whole Foods has a loyalty program that offered special prices and coupons on the healthy products they sell. Once Amazon purchased the chain, that loyalty program went be the wayside. Amazon replaces the program with a version of its Prime membership that provided customers with even deeper discounts on items. However, it seems they eliminated the coupons that accompanied the old program. The big difference with this grocery loyalty program is that it offers both product discounts and discount savings on the entire basket with %-off savings, including additional savings if you use the amazon prime credit card, something your standard grocer almost never does. Amazon has the resources to spend its own money on these types of discounts (versus brands paying typically) and is on a mission to ensure almost every customer that shops Whole Foods realizes that their prices are much more affordable and comparable to other stores than consumers think. Amazon May be spending money upfront to change consumer perception around the chains high-end pricey reputation. It seems to be working, with Amazon slashing prices for every customer (even those not in the Prime loyalty program) in many items several times since they took over Whole Foods. I doubt they think they can just pull back on this lower pricing strategy once people start believing that Whole Foods is competitive from a price perspective. This must be a sustainable strategy for them. While there are discounts layered on top, the key focus is to reduce everyday prices for customers of all kinds. That’s a loyalty strategy that seems to be working. 

On the other hand, Publix has been famous for bucking the trend and avoiding a loyalty card-based program altogether. Although they do offer digital coupons to shoppers that can be redeemed with an associated customer mobile phone number, their definition of loyalty has always been much broader than other grocers. What I’ve admired about Publix is that they believe that loyalty is about customer service, not just discounts. Sure, people want to save as much money as possible. But that is becoming table stakes in such a competitive industry. The key question is how retailers will differentiate against competition. One way is offering different ways to save money. The other ways involve services and providing a better shopping experience that save people time. For many shoppers, based on lots of industry research, they’d be willing to pay slightly more with money if they could pay slightly less with their valuable time. Publix isn’t perfect, but it seems they’ve invested heavily in their staff to ensure customers are taken care of. The stores are bright and clean. And there’s a fairly comprehensive assortment. However, anybody following the grocery industry agrees that the greatest assortments are those online via e-commerce offerings. The only thing differentiating one grocer from another is the store experience and customer service. 

The big question is how do the majority of retailers with legacy savings card programs evolve with the times and reinvent their loyalty strategies for the modern customer with modern expectations. Here are three examples.

#1) Retailers might consider ditching their loyalty card programs, bringing their prices down and layer on seasonal promotions. Take any savings and invest in staff upgrades and training to create a more enjoyable store shopping experience. 

#2) retailers might consider a subscription loyalty program where customer pay $X per year and are entitled to a certain amount of savings each time they shop. Online retailers are testing this to provide expedited and more expensive shipping options to customers. Store-based retailers could do the same. 

#3) keep the card program but build several unique in-store experiences that attract and retain shoppers (there’s data that the longer the shopper stays in the store, they more she purchases). Programs like celebrity chefs doing cooking demos, inviting popular brands in to do demos of new product launches, craft beer tasting for both male and female shoppers to enjoy the grocery shopping experience (I for one would actually want to go grocery shopping if this was standard fare)

At the end of it all, retailers need to differentiate loyalty offerings beyond discounts and savings. There are bold moves to be made in reinventing programs around experiences and services with a small dose of financial savings. Well executed programs like the ones mentioned above could actually increase loyalty and cost the grocer less than the current offerings. My guess is that progressive retailers like Publix and Wegmans and new entrants like Amazon will continue to reshape what loyalty means in the still relatively boring grocery category. Only the bold will survive and thrive. 

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