Why Are Loyalty Programs the Bread and Butter of the Grocery Industry?
Why is loyalty important in the grocery industry?
Customer loyalty is important in almost every industry – the baseline is, retaining a customer is cheaper and delivers a higher ROI than splurging on acquiring new customers. Moreover, there is a limited amount of new customers you can acquire so you should always take care of the ones you already have.
In the grocery sector, customer loyalty is paramount, now even more than ever. COVID-19 pandemic and customers’ shift to shop online has led many customers to change their grocery retail providers of choice. They have started shopping at those grocers that provide an omnichannel experience, those that had the products they wanted in stock or even directly from DTC brands. Since 2020, the fight over customer loyalty in the grocery sector has only been getting fiercer. You can read more on the move from bricks to clicks in the ebook we have created with commercetools talking about a switch from traditional retail to full-on digital shopping experience.
How do loyalty programs help grocery retailers?
1. Higher CLV (customer lifetime value)
Loyalty programs are highly beneficial to grocery retailers, bringing them more repeat purchases and higher customer lifetime value. PYMNTS’ survey found that 43% of consumers spend more at grocery stores that have loyalty programs.
2. Easier customer acquisition
Loyalty programs are also one of the deciding factors in the choice of a grocery retailer. PYMNTS’ survey found that 25% of customers are willing to stop buying goods online and purchase them from their brick-and-mortar grocer of choice if only they provided a loyalty program.
3. Zero-party data source
Loyalty programs are a great source of zero-party data that can help grocery retailers improve their marketing strategy and launch more efficient, personalized offers. With loyalty programs you can, for example, collect all the customer historical purchase data (if the customers scan their card at the checkout or log in the ecommerce store), your customers are not anonymous anymore. You can also ask them additional questions when they sign up for the loyalty program (you can place them in the sign-up form), send them incentivized surveys as part of the loyalty program or add an extra form to fill out in their profile, incentivizing the fill-out to encourage them share more data. Once you are in touch with customers and have a plan on how to engage them regularly, many new marketing possibilities spring up.
Customer trends in the grocery industry for 2022
Here are a couple of customer trends when it comes to grocery shopping that emerged in 2021 and will definitely affect customer loyalty to their usual grocery providers.
1. Customers shift to online grocery purchases
Customers are purchasing more and more groceries online, especially since the COVID-19 pandemic started in 2020. In 2020, 52% of shoppers surveyed in the FMI 2021 Grocery Shopper Report said they had bought groceries online, while in 2021 the number grew to 64%. If the usual provider of choice did not offer an online store or BOPIS, many customers have shifted to another provider that did.
2. Customers expect a seamless omnichannel experience
With customers shopping more and more often online and expecting seamless transitions between offline and online, being omnipresent and having seamless ecommerce integrations is a baseline for every grocery store. Not only should the ecommerce and offline shopping experience be seamless, but also the loyalty program should work across all customer touchpoints, including mobile.
3. Customers expect personalized offers
Customers expect personalization. 90% of respondents in the Epsilon survey said they are much/somewhat more likely to do business with grocery stores offering personalized experiences.
Grocery retailers are focusing more on personalization than ever, for a couple of reasons. First of all, customers expect personalization. They pay more attention to personalized offers as they are constantly flooded by one-size-fits-all deals. Another reason is that grocers, thanks to entering online sales, have much more data at hand to actually create personalized offers. Thirdly, because of the shift to online space, grocers now compete with businesses like Amazon or DTC stores for the online market share and they have to do everything in their power to differentiate themselves and to provide a better deal or better experience than their competition.
“Loyalty is no longer just discounts and points. It's really a way to reach out to your customers, and then use whatever is unique in your personality as a brand.” Bill Bishop, chief architect at Brick Meets Click
4. Customers use various delivery services
Buyers are using various online services to get their groceries delivered, not only direct delivery from the store. This is good news for grocers, as if they do not have their own delivery service, they could still work with partners like Instacart or Doordash to deliver orders directly to customers. It is definitely an easier and faster way to enter the delivery market than building it from scratch.
Best practices for grocery loyalty programs
Here is a couple of best practices of loyalty program tailored specifically for grocery retailers:
1. Ditch paper coupons
Some grocers use coupons as part of their loyalty program, sending printed coupons via post or handing them to their customers at the checkout. Paper coupons can be passed on from one customer to another, they can be lost or easily forged. Moreover, they take a lot of time and money to print and distribute. They also lack tracking and reporting, so they cannot give you much information and feedback to improve your strategy.
Using digital coupons, especially unique coupons assigned to particular customers protects you from fraud, allows you to track your customer’s purchases and actions and allows you to narrowly target only the loyalty program members. You can assign specific coupons to particular customers allowing only them to redeem them. You can use a digital coupon system and print the digitally managed coupons, if you still want to provide printed coupons to your less-digitized customers, for example to those, who are less likely to use mobile apps. But the main point still stands – you should manage your loyalty coupons in an online system.
2. Ensure omnichannel presence
As I’ve mentioned in the customer trends section, customers expect a seamless customer journey across all of your sales channels. Your loyalty program should be available both online and offline and provide the same look, feel, information and capabilities everywhere.
3. Go beyond loyalty cashback
While direct cashback or simply discounts are the most wanted type of loyalty incentive among grocery customers, it does not give the grocers much value and it costs a lot. Using different types of incentives instead of cashback or next to cashback is a more efficient strategy. For example, store credit, loyalty points or gift cards can be more beneficial as they cannot be redeemed on the spot, they require the customer to come back to the store to redeem it, hence bringing repeat purchases and generating loyalty. Moreover, some of the store credit may go unused (if a customer does not come back to do shopping), which will save the budget (targeting only the returning customers).
Other incentive ideas in the loyalty program include, for example:
- Loyalty points that can be exchanged for prizes from a rewards catalog.
- Special (automatically applied) discounts available only to the loyalty club members.
- VIP coupons available only to the loyalty club members.
- Special treatment for loyalty club members, for example a separate checkout counter, faster delivery service options, possibility to scan their articles in self-service mode, possibility to pay later for their shopping, free home delivery or free BOPIS.
4. Provide personalized loyalty offers
Customers expect personalized offers which, if done correctly, are more efficient than cookie-cutter deals. If you choose to provide discounts, coupons or other types of deals to your loyal customers (beyond points or cashback), make sure you offer the right incentives to the right audience. It can be 1:1 personalization based on the customer’s preferences or simple segmentation and differentiating the offers by customer segment.
5. Consider creating loyalty program tiers
Not all customers are equally loyal or spend the same amount of money at your store. Not all of them deserve the same incentives and treatment. You can differentiate the offer provided to those customers by creating loyalty program tiers based, for example, on their annual spend or the frequency of purchases.
6. Launch time-limited retention offers
To motivate customers to shop with you more frequently during a specific timeframe, you can launch time-limited offers targeted at your loyalty program members. For example, you could launch special promotions (like 10% off on fresh produce, only on Saturdays), coupons with expiry dates, launch special, double-points days, or change the number of points that can be earned on certain product categories or brands each month, to promote these.
7. Add an expiry date to all rewards
If you want to motivate your customers to come back to your store shortly, add an expiry date to all your rewards – if they want to use them, they will have to come back. You can generate time-restricted discount coupons, introduce expiry dates on loyalty points and gift cards and so on (as long as it is legal in your country/state as some US states prohibit adding an expiration date to gift cards).
8. Gamify your grocery loyalty strategy
Gamified loyalty programs have higher participation and satisfaction rates than standard ones. What can you do to gamify your loyalty program? For example, you could name your loyalty program, loyalty currency, and theme all the communications sent out to customers in a creative way, to make it seem like in a game (points could be stamina, levels could be named after a real videogame), introduce levels (tiers) that can be achieved, rewards “unlocking” where customers have to perform certain actions or earn enough points to be eligible for the reward, double-point days, challenges, raffles, and contests.
9. Advertise your grocery loyalty program broadly
Lots of grocers forget to advertise their loyalty scheme outside of the store. Of course, your loyalty program members should be your current customers so advertising it at the checkout makes perfect sense. On the other hand, if you introduce a loyalty program and you offer an online store or BOPIS as well, you may gain new customers thanks to the loyalty scheme. To do that though, you will need to advertise it to new customers and it has to be done outside of the brick-and-mortar location. Think TV ads, magazine ads, radio, billboards but also PPC, social media, or display ads. See what works for your prospective audience but make it broad, especially if you offer home delivery.
10. Limit the loyalty discount per customer
Sometimes, if the promotions offered are really good or the cashback is at a high level, small entrepreneurs and businesses may take advantage of it. To spend the budget on building customer loyalty instead of burning the budget on making wholesale shopping cheaper for businesses, you should limit the amount of discount granted per customer, the number of items on promotion purchased per customer, maximum number of loyalty points accrued or number of items that can be bought using discount coupons. Set up smart limits that will let you target your desired loyal audience.
11. Do not bind your loyalty program to store credit card
Many grocers make the mistake of binding the loyalty program benefits solely to the store credit card (meaning only purchases made using the store-issued credit card would get the discounts). It is very limiting as many customers may not want a store-issued credit card. Grocers do that to promote their credit card subscriptions, losing valuable clients in the process.
You can have both, a loyalty program that welcomes anyone (under certain conditions) and that promotes the store-issued credit card, for example by giving the credit card holders additional points or discounts. You can make your loyalty program tiered and give one set of benefits to those, who do not own a store-issued credit card and another to the ones who do.
If you want to learn about loyalty programs best practices, I have written an ebook on loyalty program best practices which I highly recommend you to read.
Examples of fantastic grocery loyalty programs
The most common form of loyalty schemes in grocery stores are grocery store loyalty cards. They often offer a simple cashback or a points-based scheme where points can be exchanged for cash to pay towards shopping. It is not surprising as one of the biggest decision factors when it comes to choosing a grocery store is the price. However, there are many grocery stores that offer different loyalty benefits or combine other loyalty benefits with the simple cashback or loyalty points. Here are a couple of examples of the best loyalty programs in the grocery industry as of 2021:
Target Circle rewards program
Target offers a loyalty program called Target Circle. The program is free to join and offers both store savings and manufacturers’ coupons. To use the benefits, the coupons have to be activated on the app and customers have to scan the in-app barcode or enter their phone number to get their savings in-store.
Additionally, customers earn 1% store credit on every Target purchase that can be used on any future purchases. Target also offers a 5% store credit for RedCard (Target’s store credit card) holders. They up the 1% to 5% store credit to non-RedCard holders on the customer’s birthday.
The rewards expire if a customer has not used their Target loyalty account for one year (not earned and not redeemed any store credit), limiting the liabilities that Target may accrue.
Sprouts loyalty program
Sprouts offer a loyalty program as well. Every month, the store releases new digital coupons that need to be added to customers’ accounts before shopping. To keep things exciting, they feature monthly and weekly deals. The in-app barcode has to be scanned at the checkout to get the discounts.
The chain sometimes offers extra discounts for loyalty members, such as $5 off a $40 purchase or 20% off a certain product category as well highly-engaging promotional events like a giveaway where customers can win free groceries for a year.
Walmart+ premium loyalty rewards
Walmart launched a premium loyalty program called Walmart+ in 2020, right after the explosion of the pandemic. It is a paid loyalty program inspired by Amazon Prime, focused on providing customers more comfort and time. It costs $98 a year or $12.95 a month and includes a 15-day free trial period. Members receive unlimited same-day free delivery from stores, free shipping (with no order minimum), fuel discounts (5 cents a gallon at selected petrol stations), and access to tools (like Scan & Go) that make shopping faster for families. Customers can also buy prescription drugs for less using the “Rx for less” prescription discount program.
According to Piplsay, as much as 11% of Americans signed up for the program within the first two weeks of its launch making the program a huge success and a real threat to the Amazon Prime service.
Kroger loyalty program
Kroger is a grocery retail chain that offers two loyalty programs, one for their grocery stores and another for petrol stations. For the grocery part, Kroger has just launched Boost, a two-tier paid loyalty program focused on ecommerce and convenience. Members can receive enhanced (double) gas points and free one-day delivery for $59 annually, or the gas points and free delivery in as little as two hours for $99 annually. Kroger offers a welcome package worth $100 to decrease the cost to join the program for the first year. Boost membership expires 365 days after purchase.
For the fuel stations, Kroger offers a Fuel Reward program. Customers earn one fuel point for every dollar they spend at the store (and two points if they purchase gift cards). Customers can then redeem their points when paying for the fuel at Kroger’s petrol stations.
Loyalty programs are an important marketing tool to increase revenue in the long term for grocery retailers. Nowadays, the best loyalty programs are omnichannel, personalized, and gamified and this is what customers usually expect from their grocery retailers. However, usually, introducing such complex loyalty programs takes a lot of time and costs a lot of money. But, what if I told you that it doesn’t have to be this way?
Voucherify is an API-first promotion and loyalty management software that you can integrate in days. Upon initial integration, launching loyalty programs is quick and easy and can be done using a marketer-friendly dashboard. Voucherify allows for narrowly targeting the loyalty program, setting up any rewards, tiers, and earning rules of choice.
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