Albertsons Move Sparks Great Loyalty Debate

It’s a fairly rare occurrence for a major retail company to eliminate a loyalty card program.

But that’s just what’s been happening with Albertsons and its corporate sibling retail banners in the past few weeks. This may be beneficial for retailers in the short term, because they save the costs of operating card/database efforts, and they can tell shoppers that everyone will now have access to the same deals.

However, in the longer term, retailers without loyalty programs lose capabilities that many others in the industry will have.

Let’s take a look at what’s been happening at the company. First, a word about corporate structure. Albertsons LLC and New Albertsons Inc. (NAI) are both divisions of AB Acquisitions. Albertsons LLC operates 414 Albertsons-banner stores that were acquired earlier this year from Supervalu. NAI operates banners including Acme, Jewel-Osco and Shaw’s/Star Market.

Since mid-June all the banners mentioned have made announcements about eliminating loyalty programs. Shaw’s and Star, for example, announced a new marketing campaign that introduced thousands of everyday lower prices and offered discounts with or without a loyalty card.

Let’s take a deeper dive into the specific case of the Albertsons-banner stores. In an article in last week’s SN, two consultants reacted critically to this unit’s move to relinquish the loyalty effort, noting that most retailers are heading in the opposite direction by accelerating loyalty programs to obtain more data about shoppers. Without data, Albertsons will not be able to create personalized programs for individual shoppers, they noted.

These points are important, as companies such as Safeway and Kroger are quickly accelerating their personalization capabilities. What will it be like for a retailer to compete against those two in future years without similar abilities?

I asked Albertsons LLC about the prospect of competing without a card, and here’s how spokeswoman Chris Wilcox answered this:

“We found that tracking individual shopping habits isn’t as critical to our overall strategy as knowing what our customers in our neighborhoods are shopping for. Tracking individual purchases can be one way to do it, but it’s not the only way. Getting to know our customers in neighborhoods, learning each store like it’s our only store, and offering best-in-class customer service is as much of a differentiator.”

In a sense this represents a great loyalty debate. Do you need a card to win in the marketplace? A retailer lacking a card may be able to outperform at the neighborhood level, but how will it fare without knowing the habits of individual customers?

Read more: Albertsons Evaluates Loyalty Cards Across All Banners

The biggest defense of not having a card is that some successful retailers are also in the same boat. Jon Hauptman, partner at Willard Bishop, Barrington, Ill., told me there are two types of retailers successfully growing without loyalty programs.

First are marketing-oriented retailers that connect with shoppers in other ways. Successful ones without loyalty programs include H-E-B, Hy-Vee and Whole Foods. Retailers like these, he said, typically rely on store management to help tailor store offerings; often solicit shopper email addresses to connect with engaged customers; and connect with shoppers in other ways as well, such as regular surveys and social media vehicles.

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Second are efficiency/cost-oriented retailers that focus on low prices and don’t seek to tailor assortment or pricing by store or shopper. Those without loyalty programs include Aldi, Demoulas Market Basket and WinCo. They present market-leading prices and great values, Hauptman said. Their low-cost focus is not designed to be tailored, localized or personalized, he added.

From what I can tell, Albertsons aspires to be part of the first group, the marketing-oriented retailers. But Hauptman expressed caution about the company’s strategy.

“In the future, it will be increasingly difficult for Albertsons to compete against retailers like Safeway that have loyalty programs and are advancing down the road towards personalization,” he said. “That’s where the puck is headed.”

Hauptman said he wouldn’t put Albertsons into the group of best-in-class retailers competing without cards, at least not yet.

“I don’t see them taking an alternate route and doing other best-in-class, interesting things to differentiate from the competition,” he said.

Read more: Shaw's Ends Loyalty Program With New Campaign

So while a retailer might be able to compete without tracking individual shopper habits, it would need spot-on execution to win against competitors with deep data and personalized offers. It’s hard to underplay the challenge, as the competition will presumably get more intense over time as data capabilities improve.

Meanwhile, in putting more focus on hybrid EDLP pricing strategies as they gravitate away from loyalty programs, banners in the larger Albertsons organization will face new hurdles, Hauptman said. Success with this approach requires more investments in margin by taking costs out of the system; outstanding communication about new programs, including through social and mobile media; a commitment to stay the course in good or bad times, and additional attributes besides just price to attract shoppers, he explained.

We’ll have to stay tuned to see how Albertsons and its sister banners progress on strategies that don’t embrace loyalty programs. Here’s one thing for certain: The outcome won’t be evident right away. Loyalty initiatives and alternative efforts are meant to build engagement over time. So don’t expect a quick verdict.

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