MAKING CARDS COUNT

JAMES FALLON

LONDON (FNS) -- British food retailers are finally beginning to use the mountains of data they're collecting from their loyalty-card programs to launch marketing targeted at specific customer groups. One of the key questions they want to answer is whether they are attracting truly loyal customers.

Three of the largest British food retailers -- Tesco, Cheshunt, England; J. Sainsbury here; and Safeway, Hayes, England -- rushed to introduce loyalty-card programs over an 18-month period beginning in late 1995. The food retailers now have 7 million to 10 million card members each, with the numbers increasing steadily.

Many of the programs also offer the chance to earn loyalty points through purchases at other retailers, such as photoprocessing stores or dry cleaners.

The customer-loyalty programs were seen as a way to rejuvenate same-store sales growth, which had plateaued at less than 3%, and overcome the government planning restrictions being placed on the companies' abilities to open new stores. They were also considered an incremental part of that year's buzz word: Efficient Consumer Response. The three retailers set off a frenzy by others in competing sectors to launch their own plans.

Now companies from British Petroleum to Boots the Chemist have loyalty-card programs offering customers the chance to earn "money-off" points for each pound they spend.

But analysts and observers say the supermarket retailers are still using the loyalty cards more as a marketing tool than as a way to truly learn about their customers. They also question whether, in the end, the programs are generating enough incremental business to justify their cost.

Part of the problem has been the huge investments in information technology and related systems required to process the data gathered via the frequent-shopper programs. Executives at the three companies admit that there is a significant difference between introducing a loyalty card and figuring out which pieces of collected data are actually important.

Safeway has been the most advanced in this arena, regularly mailing its ABC cardholders information on offers, menus and related topics. The retailer spent a long time installing sophisticated databases that enable it both to capture and interpret every bit of data collected.

Safeway has now moved beyond its competitors in using this data by linking it to micromarketing and its category management program, a spokeswoman said.

"In the old days we would simply eliminate slow-selling items and replace them with new products," she said. "But now, with the ABC card, we are able to evaluate whether that slow-selling item actually is an important reason why our most loyal customers come to Safeway, so we might keep it. We recently conducted a category management review of our dairy category on that basis, and sales shot up significantly."

Safeway also offers a 10% discount on all grocery purchases to parents of children aged 5 and under, and regularly does targeted mailings to customers "because they told us that one thing they wanted to reduce was junk mail," said the spokeswoman.

For example, the spokeswoman said, the chain recently was approached by Walt Disney Co., Burbank, Calif., to do a promotional mailing on its latest video release to consumers who had bought a Disney video in the past. "They went to all the food retailers and we were the only one with specific enough data to do it," the Safeway spokeswoman said.

But the company isn't limiting the information gained from its loyalty card to mailings and other promotions. Safeway is the largest user of self-scanning devices in the United Kingdom -- in 150 of its stores -- and customers must have an ABC frequent-shopper card to access one.

Safeway is also testing kiosks in two of its stores, which ABC cardholders can access to learn about promotions, recipes and other information that might be of specific interest to them. "We truly are moving into relationship marketing," the spokeswoman said. "We now have a whole area in our marketing department devoted to one-to-one communication, which we believe is the future of grocery shopping."

Sainsbury has followed Safeway's lead by introducing its own customer clubs, one devoted to pet owners and the other to new parents. The Pet Club offers savings on cat and dog products, pet care hints and a newsletter, while the Sainsbury's 0 to 5 Club offers savings on baby products as well as a magazine.

Last year, the retailer installed a data warehousing system to help it analyze all the information it is collecting via its Reward Card. Sainsbury was also one of the first U.K. retailers to link its loyalty card to its financial services network, allowing shoppers to earn points on their card each time they use a Sainsbury's bank-issued Visa card.

While retailer executives declined to discuss current costs of the frequent-shopper programs, when they were launched program costs ranged from $16.2 million to $24.3 million.

A Tesco executive admitted its loyalty program cost the retailer 0.2% in profit margins in the year ended March 31, 1997. Tesco now says simply that "the costs of operating Clubcard are under control and are built into our budgets."

Of all the major U.K. retailers offering frequent-shopper programs, Tesco is the furthest behind in using the data it collects through its Clubcard. The company still hasn't installed a data warehousing system to analyze the information it is gathering. A spokeswoman said the matter is under review.

Tesco has begun sending targeted promotions to customer groups, but none of these are as sophisticated as Safeway's or Sainsbury's, industry analysts said.

The irony is that Tesco continues to outpace its rivals in growth terms, with same-store sales increases of more than 6% against the 2% to 3% level of its competitors.

Analysts use Tesco's success, even with the limited development of its loyalty card, as a plank in their argument that a loyalty-card program isn't central to winning the competitive battle.

"These cards are still only in their infancy," said Richard Hyman, chairman of the London-based consulting firm Verdict Research.

"Loyalty cards will eventually be a useful way to generate incremental profits," he added. "But first the companies have to make sure their whole supply chain management, logistics and warehousing systems are geared to supplying their stores in a customer-specific rather than a mass-market manner."