Supermarkets Need to Enhance their Loyalty Programs

Feb 10 2017

CC_PostImage_Grocery_v1Total U.S. grocery sales have been flat in recent years, and only 1.4% of those sales are currently placed online, well below the worldwide average.  With numerous companies trying to capitalize on the opportunities these figures represent, and grocers’ success almost entirely dependent on repeat business, supermarkets will therefore need to enhance their loyalty efforts.  Before we consider solutions, here’s a quick look at emerging competitors.

Online-Focused Efforts

The gap between performance and potential in the online grocery space is generating a wide range of initiatives:

  • A growing number of online start-ups offer regular drop-offs of pre-cooked meals and/or fresh ingredients.
  • New and established grocers are exploring multiple pick-up and delivery services to cater to the digital audience.
  • Google, Instacart, and other firms are shipping groceries to online shoppers at a variety of speeds.

Amazon

The online giant recently announced plans to test Amazon Go, a physical store selling produce, prepared meals, and other groceries.  In the next 10 years, it may launch up to 2,000 Go outlets, including drive-through locations and hybrid versions that offer both in-store shopping and curbside deliveries.  This expanding brick-and-mortar footprint could threaten many grocers, given Amazon’s loyalty-building expertise:

  • 50% of U.S. households belong to Amazon Prime;
  • 91% of first-year members sign up for a second year; and
  • 96% of them renew for a third year.

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Megastores

Supermarkets also face intense competition from supercenters and warehouse clubs.  Their “one-stop shopping” mantras promise consumers more convenience and time savings.  Since these giant outlets also buy supplies in larger quantities, they pay lower wholesale costs, which lets them undercut grocers on popular items.  Warehouse clubs’ membership fees create added incentives for shoppers; spending more at these clubs will help them maximize the returns on their investments.

Supermarket Solutions

Most supermarkets offer rewards programs, too, of course.  Indeed, consumers are more likely to join those programs than those offered by other retailers; they’re also much more likely to shop and spend more at stores that reward repeat visits.  Grocers need to constantly analyze and refresh their program offerings, though, to keep in step with their audiences.  For example, they should develop innovative apps features to attract Millennials, who have shown that they’ll readily abandon brands that don’t cater to their evolving interests.

Another increasingly popular reward — across all generations — is cash back:

  • It’s one of the top three most-wanted perks;
  • More than half of all consumers have participated in cash-back promotions; and
  • 25% say it’s the most compelling way to influence their purchase decisions.

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Cash back is also emerging as a loyalty driver.  Amazon, for instance, recently introduced a credit card, exclusively for Prime members, that offers them 5% cash back on Amazon purchases and 1-2% back elsewhere.  Just as importantly, the cash back can be redeemed only on Amazon purchases, helping drive higher AOV and even more frequent spending.

Many supermarkets offer similar rewards — customers who reach specific purchase thresholds can get a form of cash back, which can be applied to gas purchases — but they tend to be fairly small.  Grocers operate on very slim margins, though, which prevents them from subsidizing larger payouts.  They also don’t want to risk turning off customers by charging a membership fee for more substantial perks and rewards.

At Clarus Commerce, we’re recognized experts in cash-back rewards.  Our flagship program, FreeShipping.com, pioneered their use, offering online shoppers consistent 10% cash back at over 1,000 outlets.  From 2015 to 2016, total 10% cash-back orders and spending rose 7.6% and 7.5%, respectively.  Our 20% cash-back promotions, held annually during high-volume shopping periods, offer more proof of the benefit’s growing appeal.  Comparing subscribers’ promotional responses from 2015 to 2016:

  • Orders increased 57%;
  • Spending jumped 84%; and
  • Average order values (AOV) rose 17%.

We also partner with retailers to craft programs that can incorporate cash-back offers at no charge to clients — or their customers.  Working with a multi-brand retailer, we built a product that features an ongoing cash-back offer funded via third-party, non-competitive retailers.  To solidify members’ loyalties, they can only use their percentage-back savings on orders at the host retailer.  Since the program launched:

  • Members’ purchase frequency has gone up 40%;
  • Their AOV have risen 17%; and
  • Their total sales have increased 56%.

With e-commerce, Amazon, and big-box outlets exerting an ever-larger influence over grocery shoppers, the industry faces continued disruption in the coming years.  By enhancing their rewards programs in response to consumers’ changing expectations and desires, traditional supermarkets can protect and expand their audiences.  A cash-back offer that doesn’t require self-funding can also help grocers compete for greater share of wallet with millions of shoppers — driving loyalty, AOV and sales to a whole new level.