Grocery rewards programs go unnoticed until it’s too late

Tom Dougherty, CEO – Stealing Share

14 October 2011

But at least get the rewards programs right

I am pretty sure that groceries have never viewed their rewards programs as a way to attract customers, but just to keep them.

Because, for the most part, preference in grocery stores is based on location, especially in the absence of meaningful brands. Oh, there are exceptions. Wegmans, Earth Fare, Fresh Market and Whole Foods have something close to brands. But, for most, your grocery store of choice is based on what is closest or most familiar. There are few people willing to drive across town to shop at Kroger when there is a Harris Teeter only a few minutes away.

Grocery store chains understand this. They also understand that margins are small and shrinking. So, the “rewards program” was born. The chains understood that the only way to remain profitable was to keep their current customers coming back.

“Grocery store brands, for the most part, do not matter and even fewer rebrand with any meaningful purpose.”

For most chains, the rewards programs work on the idea that, if you shop enough, there is some benefit — be it a discount on your next order or some kind of rewards gift. But what happens when the “rewards” go away?

Still, some rewards programs don’t make a lick of sense

The strategic offices of Stealing Share are located in Greensboro, North Carolina. One of the local North Carolina grocery stores, Lowe’s Foods, has recently changed its rewards program to give its shoppers money off gas purchases. Previously, it had given customers a $5 coupon once their purchases of certain store brand items had reached a certain level.

Now it is graciously giving customers five cents off per gallon of gasoline for every $100 they spend, with a 25 gallon max. For all of us non-math majors, that is a benefit of only $1.25. What’s worse is that the savings is only good at Wilco/Hess gas stations (two miles away from my nearest Lowe’s Foods).

I contacted Lowe’s about how stupid I thought this new rewards program was, saying that the previous reward program had now turned into a big zero as I will never get gasoline at Wilco/Hess because I can get the same discout at nearby Costco or Sheetz.

The response I got was troubling. To paraphrase, I was told the reason Lowe’s decided to go to the new rewards program was because it had gotten such positive feedback from customers where it tested this program. In all of the test locations, Lowe’s had a gas station on the same footprint. Meaning, customers could shop and then go to the gas station in the same parking lot and redeem their savings.

rewards programsIt does not take a scientist to figure out why the test program was met with such positive feedback. These folks were getting rewarded for something they already do: shop, then fill up their tank. For the remainder of the 90+ stores Lowe’s has, their customers must inconvenience themselves for a $1.25 benefit (which may not even cover the cost in gas it takes to redeem it). Therefore, the “loyalty reward” for shopping has been completely removed.

I have a couple of grocery stores that are equal distance from my home. Both carry the same items and, in all honesty, there is not a lot of difference in price from one to the other. Though the rewards programs were never a conscious reason for choosing one over the other, the removal of a benefit I had taken for granted has prompted me to reconsider which store I will do my grocery shopping in the future.

I have to ask why it matters to me where I buy groceries. The answer is it really does not matter me. Grocery store brands, for the most part, do not matter and even fewer rebrand with any meaningful purpose.

Like most families, mine tends to get the same things each week – deli meat and cheese, milk, bread, bottled water, etc. As I think about it, I have no brand loyalty to any particular store. It is purely a matter of habit.

Grocery stores, in general, have done a poor job of investing in their brands. It’s no accident that those that have made an investment in their brands – such as Wegmans, Whole Foods, etc – have actually built preference, have higher margins and customers will drive across town to shop there.

Was the reason I used Lowes only because of the $5 off coupon I got?

As margins shrink, the only way to perserve and increase preference is through investing in brand. The brand, not rewards programs, are what determine preference. Rewards programs are nice, but are they only noticed when they are gone?

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