How supermarkets can use rewards to offset rising prices

Jenn McMillen is founder and chief accelerant of Incendio, a firm specializing in customer-facing initiatives, whether it’s marketing or technology. Incendio builds and fixes marketing, consumer engagement, loyalty and CRM programs and is a trusted partner of some of the biggest U.S. brands. The views expressed here are those of the author.

The supermarket industry has not shown much of an appetite for traditional, points-based rewards initiatives. But right now, it should be feeling peckish.

Food prices have risen by 2.6% over the past year, and manufacturers have cut back on promotions due to pandemic-related demand, presenting a perfect atmosphere for cultivating points-based rewards programs.

Yet supermarkets continue to remain one of the least active retail sectors in the rewards industry, accounting for less than 1% of all retail reward memberships in 2017 (the most recent year calculated) – 142.4 million of 1.6 billion memberships.

The Opportunity is as Obvious as an Endcap of 12-Packs

Supermarket competition has been mounting for some time as the industry splinters, and supermarkets are pressed to find new ways to look more attractive. People buy their food at gas stations and dollar stores, at specialized organics shops and at mass merchants, as well as through online and subscription-based retailers.

Related:Price Chopper/Market 32 serves up more ways to use rewards

The data-capturing capabilities of rewards, when expertly analyzed and deployed, can make one merchant’s shopping experience more attractive than another’s. It’s that simple.

Further, and this is the kick in the pants, effectively run rewards programs not only save shoppers money, they save merchants money, through cost-effective marketing, customer retention, bigger baskets and improved vendor relationships. I’ve personally seen one company save $5 million in gross profits in the first three months after improving its loyalty data processing procedures.

The ‘Why’ Behind the Elusive Supermarket Rewards Program

It’s not that supermarkets do not offer versions of rewards. Many do, in the form of discounts that only members can enjoy — but no points are issued for the member to save toward rewards. The consistent flaw in this model is that such programs have historically been driven by vendor brands based on their promotional calendars, not by customer preferences.

In loyalty slang, the term “grocery store loyalty” means an indistinct, non-personalized program.

For example, Kellogg’s might place its cereals on sale to generate trial and/or stock-up purchases during a big ad campaign. But if the shopper doesn’t buy Kellogg’s cereal, or even enter the cereal aisle, the promotion is lost on her. Very few items, if any, are personalized and relevant to what she (and I) actually buy.

Related:Southeastern Grocers adds ‘rewards Boosters’ to savings options

Case in point: A supermarket that sent me supposedly personalized coupons once included a discount on jars of baby food. I don’t have babies. I’ve never bought baby food, or diapers, or formula, or anything that would indicate that I’ve got a baby in the house. Conversely, I’m not at that age where I’d want to eat pureed jarred prunes either. What was trussed-up as personalized offers was really just promotional marketing with a blanket dollars-off coupon thrown in for good measure.

The Price is Right to Change Grocery Rewards Now

Examples of how rewards programs can benefit supermarkets do exist. Many are outside of the grocery category or outside the country, but the models and practices can be adapted. Let’s take a look.

• Eur-OK, International Rewards. In the UK, supermarket giant Tesco engages 16.5 million members through its Clubcard programs. It uses the data, in part, to test new product lines and innovative offers with smaller groups of members, and then uses its remaining customers as control groups. This data may have contributed to the development of its Clubcard Plus program, a subscription (£7.99 a month) that rewards members 10% back on their in-store purchases. Subscriptions translate into continual revenue and, more importantly, customer retention.

Meanwhile, the UK chain Sainsbury’s uses member purchase data for personalized promotions based on what they buy most often. Through the Nectar coalition rewards platform (an umbrella program comprised of many collaborative partners), Sainsbury’s sends its loyalty members limited-time offers every week. It then gauges offer responses to learn more about member preferences and tweaks future offers to be more relevant. The result: Sainsbury can use the offers to move excess inventory and parlay the insights into more cost-effective marketing.

• Rewards to Howl Over. PetSmart, seller of pet goods, grooming and wellness supplies, is proving that good rewards entice desired behaviors across all its services. Through its Treats program — which morphed from a grocery-style initiative into a points program — its more than 40 million members receive eight points for every dollar spent on products, services and even donations to PetSmart Charities. Because the points extend to services, PetSmart has a broader view into its customers’ lifestyles and pet priorities. Supermarkets similarly can personalize generous rewards for shoppers of loyalty-heavy categories. If a shopper regularly spends a lot on pet products, the retailer can offer double points on category purchases for a limited time. The customer will likely spend more, try new products and feel closer to the retailer.

• Conveniently Stored Rewards. Convenience stores have come a long way from shriveled hot dogs and neon nachos. 7-Eleven’s lab store concept, expanding from Houston to Washington, D.C., and San Diego, includes organics, fresh-baked pastries and a beer cellar. It’s likely 7-Eleven is gauging activity on its loyalty program, 7Rewards, and applying its findings to these stores. The program issues 10 points for every $1 spent, and members can earn double points by using the 7-Eleven wallet — a convenience that likely entices return trips. And for those who don’t want to make the trip, the concept stores offer delivery through the 7Now app.

• Some U.S. Supermarkets Make the Point. While many U.S.-based supermarket reward programs are built on promotions that can be downloaded to a member’s digital account, few dole out points that can be accumulated toward aspirational store rewards. Among those that do is Albertsons. With its Just for U program, shoppers earn one point per dollars spent, which can be redeemed for fuel or free items in the store once they spend $100. Based on how shoppers use their rewards, Albertsons can fine-tune its personalized offers for better engagement and bigger baskets.

Well Done, Rewards!

The supermarket industry may have recession-proof qualities, but it’s not impervious to competition. And when margins are wafer-thin, a rewards program helps merchants stand apart from their rivals not only by engaging shoppers, but by improving operations.

The program has to gather the right data, of course, and it needs the technology to accurately predict shopper behaviors based on the insights, to benefit financially. But merchants that have mastered the model have been able to improve inventory control, price products according to what shoppers will pay (higher or lower) and even benefit their vendors.

And rewards teach the language of the consumer. Grocery customers are basically numb to program-related discounts for all, because they’re not special. But an exclusive deal delivered privately, based on something specific the customer did — that shows that someone is listening, and cares.

The price of that sentiment is rising at a greater rate than the food bill.