LOYALTY CARD WAR IN U.K.; J. SAINSBURY JOINS BATTLE

JAMES FALLON DENISE ZIMMERMAN

LONDON (FNS) -- The customer loyalty card battle is heating up in the United Kingdom, with J. Sainsbury plc here the latest food retailer to launch one and Tesco plc, Cheshunt, England, raising the ante with new card services.

The new Reward Card represents a reversal by Chairman David Sainsbury, who last year insisted loyalty cards were merely electronic green stamps, an ineffective marketing tool.

Sainsbury's launch follows on the heels of rollouts by Tesco and Safeway plc, Hayes, England. ASDA, Britain's fourth-largest food retailer, based in Leeds, has been testing a card program and reportedly plans a chainwide rollout soon.

Tesco last year unseated Sainsbury as the market leader and credited its Clubcard for the coup.

Tesco has now raised the stakes and launched a direct-debit version of its loyalty card, Clubcard Plus, which offers checking account interest rates that are better than most banks'.

Sainsbury and Safeway reportedly have plans to offer a similar co-branded card.

"It's my expectation that retailers from all over the world -- and not just food retailers -- will be closely watching the U.K. scene," Brian Woolf, president at Retail Strategy Center, Greenville, S.C., told SN.

Card program activity in Britain has reached a feverish pace that rivals any in the United States, he said.

"I think this is a wakeup call for the U.S. major chains to realize that this stuff is serious and that there's no going back. You can't put the genie back in the bottle," Woolf said.

U.S. retailers could take a cue from card programs in the United Kingdom and Belgium, where frequent shopper programs are prevalent, said Barry Kotek, managing partner at Retail Systems Consulting, Naples, Fla.

Sainsbury staged an aggressive signup campaign and registered one million customers for the card in the first two days after it was launched last month, according to a spokeswoman. Under the program, customers have to spend at least $7.70 (5 pounds) to collect points that can be redeemed for purchases or toward travel through a partnership with British Airways. Spending $385 (250 pounds), for example, will earn a $3.85 discount at Sainsbury's or 40 air miles from the airline.

Sainsbury's and Tesco's programs differ in that Sainsbury awards points -- and collects transaction information -- on orders of $7.70 or more, while Tesco's threshhold is $15.40 (10 pounds).

"Half the transactions in the U.K. are under 10 pounds so Tesco misses out on [collecting data on] those sort of transactions," Woolf said, noting Tesco deliberately wanted to focus on the more profitable shopper. "Safeway has a one-pound threshhold, so they are capturing even more information.

"What Sainsbury has done is narrowed the gap between them and Tesco through a mimic strategy. That's really the disappointment. They didn't try to differentiate their program significantly. A serious differentiation strategy could have allowed them to leapfrog Tesco," he added.

Sainsbury said its Reward Card will cost $15 million to $23 million (10 million to 15 million pounds) to set up and will need a 2% to 4% increase in sales to cover costs. The retailer estimated it could get 6.3 million cardholders, or 70% of its nine million weekly customers.

Customers will be sent their first points in September but afterward will receive reward vouchers immediately at the checkout. The points can be redeemed at all of Sainsbury's 852 stores, including its Savacenter hypermarkets and Homebase and Texas DIY hardware stores.