EYE ON CARD PRIVACY

MICHAEL GARRY / Additional reporting by Julie Gallagher

Earlier this month, PW Supermarkets, a 10-store retailer based in San Jose, Calif., went against the grain -- in both the United States and especially its marketplace -- by discontinuing the linkage of store discounts to its loyalty card that began in 1999.

Shoppers no longer must sign up for a card to receive discounts at the checkout. They can still opt to get the card as a way to donate a percentage of their purchases to local schools.

Why did PW pull the plug on card discounts? "The No. 1 reason was the customers. They demanded it," said Karen Belli, PW spokeswoman. "Lots complained about having to carry the card." She acknowledged that if PW's point-of-sale system could have identified shoppers who provided phone numbers, "it would have made a huge difference."

However, some shoppers also objected to the cards on privacy grounds, noted Belli. Those shoppers were uncomfortable with a system that could collect all of their purchase data, and associate it with their name and address.

"The day we went to the card, people said, 'We're not going to fill anything out,"' she revealed. "They were afraid of junk mail, or that we'd pass the information on. But our policy from day one was never to share the information with outside companies. You still get non-believers. One person said, 'You sold my name because I'm getting junk mail. You're the only one that got my name.' I can guarantee that that wasn't the case."

So even late in 2004, with loyalty -- or frequent shopper -- cards a staple in the U.S. supermarket industry, privacy can still rear its head as an issue of concern to some shoppers. Moreover, the growth of technology that enables retailers to identify and track consumers' spending habits in exquisite detail, from the Internet to RFID (radio frequency identification), makes privacy an issue that promises to gain greater attention from legislators, privacy rights advocates and the media.

Indeed, much of the focus these days is on speculation about the potential privacy problems associated with RFID. (See "The Privacy Hurdle," SN, Nov. 15, 2004.) Yet even some RFID questions are tied back to the basic data infrastructure that retailers have established for their loyalty programs.

Retailers, who invariably post a privacy policy stating the information they collect is never traded or shared outside the company, generally report few complaints about the cards. "Looking across the U.S., [card privacy] is usually not a big concern to people," said Gary Hawkins, chief executive officer of Green Hills, a one-store independent in Syracuse, N.Y. Hawkins is also known as a consultant and author on loyalty programs. "Occasionally, we see waves of concern about it that come and go."

Still, observers stressed that retailers with loyalty programs must be ever vigilant in maintaining a strict and transparent privacy policy.

ZEROING IN ON SHOPPERS

Card programs offer food retailers the ability to zero in on their best shoppers and offer discounts tailored to their needs. Other kinds of information can also be offered, such as recipes and even alerts on items containing allergic ingredients. Yet many retailers never get beyond using the cards to convey standard discounts at the POS, which Hawkins said is a mistake.

"If we want customers to identify themselves each time they shop, there has to be something in it for the customer," Hawkins said. "If all they get are the same discounts they got before, that's not a good value exchange. Then you hear from customers, and you should hear from them."

Consumers typically yield a relatively modest amount of personal information when signing up for cards: usually name, address and sometimes gender, phone number, birthday and e-mail address. Food Lion, Salisbury, N.C., only requires a shopper's name, though other information can be volunteered in order to receive targeted mailings.

Occasionally, more personal information is requested, such as income, Social Security number, or driver's license number. That's usually if the card doubles as a check-cashing card.

Consumers who object to giving retailers their name but still want standard discounts sometimes provide fake names. "I don't think retailers care if I say I'm Elmer Fudd," said Carlene Thissen, president, Retail Systems Consulting, Naples, Fla. "But if a store rewards its best customers, then I would lose out."

In addition to providing consumers with choice and notice with regard to card programs, Food Marketing Institute, Washington, encourages retailers to: allow customers access to their data; place time limits on the maintenance and storage of data; and ensure the data storage is secure.

Many are following that advice. For example, retailers typically separate their scan data from their shopper information, and "only two or three people in a company have the authority to put them together," noted consultant Thissen. Food Lion encrypts all consumer information in its databases.

At Remke Markets, Erlanger, Ky., nobody has access to consumer data -- not even the company president -- except for Pat Iasillo, director of customer relationship marketing. "That protects us a lot because we have complete control over what happens to the information," Iasillo said, adding that in eight years, he's fielded questions about privacy from only two shoppers.

While Remke shares no names of consumers with outside companies, it does allow marketing companies to look at anonymous market basket information. "Manufacturers want to know, 'If household A bought this, will household B?"' Iasillo said.

TAKING ON CARDS

Among privacy rights advocates, the individual most associated with raising questions about loyalty cards and RFID in retailing is Katherine Albrecht, director of CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering), a grass-roots, volunteer organization she founded in 1999.

A doctoral candidate at the Harvard Graduate School of Education, Cambridge, Mass., Albrecht operates three Web sites: nocards.org, spychips.com and BoycottGillette.com, the latter two pertaining to RFID. She is frequently quoted in mainstream media outlets regarding loyalty card programs or retailers using RFID.

The fact that loyalty programs are open and voluntary -- and backed by written privacy guarantees -- does not justify them, Albrecht asserted. "If this information is so sensitive that you want a policy to assure you that it won't be given out to strangers, why in the name of heaven would you voluntarily provide it to strangers running your supermarket's database?"

Albrecht also pointed out that consumer databases may be subject to legal scrutiny. In a widely reported case in 1999, a shopper sued Vons, a unit of Safeway, after claiming to slip on spilled yogurt in a Vons store. The shopper objected to what he said was Vons' plan to cite in its defense shopping records showing he bought a lot of alcohol. According to reports, Vons denied that claim and a settlement was reached.

Retailers do generally acknowledge that loyalty card data is not privileged and can be subpoenaed, said consultant Thissen. "But I've heard retailers say they would go to jail before giving up the data."

Albrecht also fears the federal government will be interested in looking at consumer databases, possibly for evidence of terrorist connections. Echoing Albrecht's concerns, PW Markets' Belli confirmed telling the San Jose Mercury News that "some people refused to shop with us because they were afraid Uncle Sam was watching."

Consumer databases can also be turned against retailers that compile them. Last March, a shopper filed a class-action suit against Bellevue, Wash.-based QFC for failing to use her shopper information to notify her that she purchased beef that may have come from a cow found to test positive for mad cow disease last December. According to reports, QFC said it acted properly, but its motion to have the suit dismissed was denied in June.

Some observers asserted that privacy advocates give supermarkets too much credit for technological sophistication.

Pat Walsh, FMI's senior director, industry relations, observed that most retailers with loyalty programs only have the ability to offer benefits to segments of consumers as opposed to individual consumers. "The industry is still a long way from realizing the benefits of customer-specific marketing through loyalty programs," he said.

Consumers Speak

Some samples of how shoppers feel about the privacy issues surrounding loyalty cards:

Kathleen Gallagher, Old Bridge, N.J.

I don't think that people should have to have their purchases tracked in order to get discounts. It's none of the store's business what I buy. But if they're going to track it, they should at least keep the items I buy in stock. The discounts I get are minimal because they are not usually on my brands, and I won't switch just to get the discounts. The 10% off the order twice a year is really the reason why I use the card."

Sharon Maddox, Willis, Texas

I also use a credit card for all purchases in order to get airline points. I recognize that I am being tracked in two places, but I am not willing to carry cash or miss out on discounts allowed for the card.

Susan Gallagher, Charlotte, N.C.

I know that they track my groceries, and I don't care because they send me coupons in the mail for $10 off a purchase of $25 or more, and because I am not buying anything top secret.

Greg MacSweeney, Clifton, N.J.

Discounts aren't a constitutional right. It's a private business, and you're the consumer. You have to ask the question, do I want to save money or keep my information private? I choose to save money, and I saved about $980 last year.

Charlotte Goldstein, Danbury, Conn.

If I spent hundreds of dollars at a liquor store, I wouldn't want them to track my purchases. But food? I have no problem at all with tracking that.