Boston Globe
10/10/2000Grocery wars: Key weapon is loyalty
By Bruce Mohl, Globe Staff, 10/10/2000
With the New England supermarket industry reduced to just two major players, it was inevitable that the survivors, Shaw's Supermarkets and Stop & Shop, would take aim at each other. But instead of a price war over bananas or milk, the first battle in the competition for the hearts and minds of shoppers revolves around the fuzzy issue of consumer loyalty.
Consumers will have to start packing another piece of plastic this week, as Shaw's follows the lead of Stop & Shop in requiring customers to use a card to obtain sale prices.
Shaw's, the second-biggest supermarket chain in New England, is basically copying the pricing and card philosophy of Stop & Shop, the largest chain, while adding a significant twist of its own.
Like the Stop & Shop card, Shaw's new rewards card will allow shoppers to take advantage of sale prices, without clipping coupons. It also will allow Shaw's to track what its customers buy and to market coupons and other promotions to them, based on their shopping patterns.
The twist: The Shaw's card can also be used to obtain discounts and freebies from participating retailers.
Someone buying a large cheese pizza at Papa Gino's, for example, will be able to get a small pizza for free by flashing a Shaw's card. Cardholders will also get 10 percent off at Best Buy on CDs, DVDs, software, and video games.
Shaw's has arranged similar benefits for cardholders with D'Angelo's, Direct Tire, FleetCenter, Great Cuts, and Honey Dew Donuts. Shaw's officials say more deals will be added.
Although most smaller supermarket chains have opted not to offer cards, officials at Stop & Shop (owned by Royal Ahold of the Netherlands) and Shaw's (a division of J. Sainsbury of England) describe them as a necessity. They say that the sophisticated tracking of consumer buying patterns that the cards offer pays big dividends, by making customers feel valued and wanted.
''Customers want it,'' said Shaw's spokesman, Bernard Rogan. ''They want some extra value out of their shopping experience. They want to feel like their stores love them.''
The Star Market chain, which Shaw's purchased in 1998, tried a similar approach with the Advantage card it introduced in 1995. Star customers continue to use the card to obtain in-store discounts, but most apparently do not take advantage of discounts offered by other retailers. Shaw's officials say that Star lacked the resources to manage the program effectively.
The 700,000 Star Advantage cardholders began receiving the new Shaw's cards this week. Another 400,000 cards were mailed to Shaw's customers with check-cashing cards. In-store personnel at Shaw's and Star markets will start signing up customers for the new cards this week; they expect to issue 4 million.
Undoubtedly, some customers want a warm and fuzzy relationship with a supermarket. But others aren't sure what to make of the cards. They use them to obtain in-store discounts, but many wonder why the supermarkets don't just offer everyone the sale prices and skip the cards.
The cards, often called loyalty or discount cards, began appearing in New England during the mid-1990s. The chief benefit to consumers is that the card lets them save on store specials without clipping store coupons. A shopper hands the card to the checkout person, who scans it in.
The card lets the store track what specific shoppers are buying. That information can lead to more sophisticated stocking decisions.
For example, a supermarket would probably be inclined to drop a line of salad dressing not among the top sellers. But if card data show strong loyalty (shoppers buying that brand only, even if bigger-selling brands are on sale), the store might decide to keep it.
The card also permits targeted marketing. Stop & Shop, for example, has used its card data to identify its best customers, thank them, and send them mailings and coupons.
Customers who fit a family-spending profile, for example, recently received tips on back-to-school lunches as well as coupons for family-oriented food items. Customers who fit a wellness profile received a mailing about organic foods and bottled water.
''What I'm trying to do with it is build relationships,'' said Ed Porter, director of customer relationship marketing at Stop & Shop.
Shaw's executives used to look down their noses at the Stop & Shop card. They prided themselves on everyday low prices and said a card shouldn't be necessary to save. They promised to develop a card that would give customers an incentive to shop at their stores, much as the Discover Card does with its cash-back program.
But after researching the Discover Card approach and many others, Shaw's apparently decided to copy what its prime competitor had done. Rogan said the competitive climate in New England forced Shaw's to abandon its everyday-low-prices philosophy, in favor of what industry officials call a high-low pricing approach that uses aggressive advertising and promotions.
Porter, at Stop & Shop, said he doesn't see the new Shaw's card and pricing philosophy as a competitive threat. ''We really think they're trying to be a bit more like us,'' he said.
As for the discounts that Shaw's is offering with its card at other retailers, that's a tough sell, Porter said.
But Rogan said Stop & Shop will end up copying Shaw's approach, forming alliances with other retailers. Other chains owned by Royal Ahold, including the Giant chains in Maryland and Pennsylvania, already do that, he said.
Porter is well aware of what Giant is doing.
''We talk a lot to our sister companies,'' he said. ''But I really don't know what we're going to do.''
This story ran on page D01 of the Boston Globe on 10/10/2000.