Why Do Grocery Retailers Face Challenges With Their Loyalty Programs?

There are challenges associated with loyalty programs in every industry, but it appears there might be
more facing grocery retailers.

Loyalty360 talked to Eastwest Marketing Group CEO Lou Ramery about this intriguing topic.

Can you talk about why you believe that grocery loyalty programs don’t create more loyal customers?
Ramery: Retail loyalty programs face a number of challenges and the grocery retail category faces several of them. The industry operates at very small margins, which limit the rewards grocers can offer to program members. Even compared to other retail loyalty programs, grocers are forced to rely on subsidizing their programs with discounts provided by their CPG partners.  Most of the leading programs have followed the same strategy and shoppers can easily game the system and spread their loyalty across a number of brands. The digital coupons that are a primary feature of most grocery schemes are offered equally by all of the programs; Safeway and Kroger regularly offer a similar selection of coupons and other large regional players like Ahold USA follow the same model. The member pricing benefit is an attractive way to attract shoppers to the programs, but it’s replicated across all of the programs too, which limits the loyalty impact. 

The feature of the grocery programs that does create opportunity cost and, thus ongoing loyalty, is the fuel reward points. Smart shoppers consolidate their shopping at a single brand to maximize the monthly fuel discounts earned with the points earned on every purchase. Most grocery programs are hooked on the CPG subsidies, but that shouldn’t limit the programs ability to create more loyal customers. Smart program managers can take advantage of the massive data assets created by the programs.

What challenges do grocery loyalty marketers face now in producing a successful loyalty program?
Ramery: A successful loyalty program delivers a well-crafted blend of rewards and recognition features that change shopper’s behaviors. Grocery program managers are challenged by both the economics of the industry and the limited opportunities to differentiate the customer experience for their best customers. The industry should pay attention to some of the other businesses that have put the customer first and changed how they compete for profitable customers. Like most retailers, program reward costs are high and the industry hasn’t figured out how to offer compelling rewards that interest their customers. With new challenges from leading brands like Walmart and Amazon, grocers need to double down on creating customer loyalty. Those brands aren’t afraid to redefine how consumers purchase groceries and even the best supermarket brands haven’t created fences around their best customers. When is the last time you felt your favorite grocery program delivered a personalized experience? Sending the same set of weekly coupons and offering member pricing isn’t going to beat the super stores and the likes of Amazon. The challenges are going to become even steeper as the younger generations become a primary part of the grocery audience. Until the grocery industry figures out how to build barriers to letting their best customers split their shopping behavior, the industry’s loyalty programs will continue to miss the mark on creating loyal shoppers.

Why is the grocery industry different from other industries when it comes to earning customer loyalty?
Ramery: Sub-optimal harnessing of data and driving customer insight from that data has been a major negative aspect for the grocery industry. As opposed to other competitive industries with high frequency−travel, financial services, and retail, for example−grocers have not organized, leveraged, and utilized customer data to deliver a true level of personalization and relevance. There are limited lifetime value analyses and, as such, little differentiated treatment of high value customers. Shoppers contrast grocery’s lack of recognition with programs of other industries and these shortcomings fail to engender emotional loyalty.

How are grocery customers changing and how does that impact future loyalty?
Ramery: Grocery shoppers, as in many industries, are facing numerous options. They must decide among differing formats, both online and in-store, and seek to rationalize the myriad of brand value propositions exposed to them. Millennials, in particular, seek immediate support, rewards, and recognition. They do not spend significant time in planning their grocery list, they center their grocery visits around recipes more than replenishment and are less price-sensitive around their menu planning. Additionally, as consumers are generally opting for healthier lifestyles, produce as well as non-processed foods, along with relevant content have become important arrows in the grocer’s quiver to drive retention and loyalty.

What trends do you see in grocery loyalty programs that bode well for success in the future, as they apply to loyalty?
Ramery: A major industry trend is the influence and emergence of “omnichannelism.” Responding to Amazon’s and Walmart’s incursions, grocers must reimagine their future from both physical store location and digital capabilities. Well-conceived and managed loyalty programs can use analytics and insights to enhance customer experiences and purchase journeys. This includes physical store redesign (expanded areas for pick-up, local merchandising, etc.) as well as online (personalized e-circulars, coupons, relevant content, triggered replenishment, etc.). A second important trend is the development of artificial intelligence. AI will leverage unused retailer data and create additional value from it, including more relevant circulars/communications and next logical offers as well as improved pricing and promotions.

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