STORING SECRETS

DENISE ZIMMERMAN

Will consumers opt out of frequent shopper programs if they don't feel their personal information is safeguarded?

Retailers, concerned about that very issue, are going to new lengths to protect the privacy of their customers. They are beefing up the security of data bases and making sure to inform customers of their efforts.

Indeed, a vast majority of consumers, 80%, believe they have "lost all control over how personal information about them is circulated and used by companies," according to a nationwide poll of 1,006 adults conducted by Louis Harris & Associates, New York, and Equifax, Atlanta.

Wegmans Food Markets, Rochester, N.Y., is among the chains taking extensive measures to assure shoppers its policies regarding confidential shopper data collected through its electronic frequent shopper program are above reproach.

"A loss of trust in us would be a terrible thing to occur. Therefore, we set out in painstaking, if not agonizing, ways to arrive at a privacy policy for the future even though we did not know what the future would be," said Mary Ellen Burris, director of consumer affairs and a member of Wegmans' Privacy Committee, which drafted the policy and regularly reviews privacy matters.

Few chains have developed privacy committees like Wegmans but most have taken an uncompromising -- almost militant -- stance when it comes to protecting their data and their relationships with shoppers. Among the measures implemented:

Privacy policy statement. Retailers told SN it's critical to state clearly that data collected on shoppers will not be sold to outside parties under any circumstances. This information typically appears in a prominent position on frequent shopper application forms as well as on fliers and in-store signs.

In addition, some retailers describe the type of data collected, explain how the information will be used and outline security systems in place to safeguard confidentiality.

"Opt Out" option. Many frequent shopper programs enable customers to request their purchases not be tracked, with the understanding that they will miss out on targeted offers.

Vons Cos., Arcadia, Calif., Brodbeck Enterprises, Platteville, Wis., and Big Y Foods, Springfield, Mass., are among retailers offering the option. Riser Foods, Bedford Heights, Ohio, intends to extend the option to new applicants soon.

Few shoppers elect to "opt out," retailers note, but the option raises their sense of control and their comfort level. Legislation designed to give consumers more rights over companies' collection and use of personal data was introduced last month in the House by a representative from Massachusetts, home to several highly competitive frequent shopper programs.

Restricted access. Retailers such as Lees Supermarket, Westport, Mass., whose program analyzes information according to shoppers' spending levels, limit data base access to designated high-level staff only.

"There are only two people in the company who have access to the data: myself being one, and my son, who is president," said Albert Lees Jr., chairman and chief executive officer.

Data base security. Gerland's Food Fair, Houston, for example, protects information from unauthorized access by using passwords and physical locks on computer disk drives, said Kevin Doris, chief operating officer.

Like many retailers, Gerland's is frequently approached by packaged goods manufacturers interested in buying shopper data to target the retailer's customers directly.

"And we say, 'No.' Any reward going to the consumer has to come from Gerland's. We will not release addresses," Doris said.

Roundy's, Pewaukee, Wis., and Price Chopper Supermarkets, Schenectady, N.Y., will work with manufacturers on promotions using some data collected through card-based programs but that data is never linked to specific shoppers, both retailers told SN.

"The golden rule that we have is that no name and address files will be released" to parties outside the company, said Tom Wiesner, director of marketing at Roundy's. He added that stores the wholesaler works with are held to the same mandate.

"If we do customer-specific mailings, we use a neutral third-party printer, usually bonded, and give them the name and address file," Wiesner said.

Joanne Gage, vice president of consumer services at Price Chopper, said, "We will not give [mailing lists] to anyone but we are trying to do more co-marketing with manufacturers and in that case, we do the mailing and the list never leaves our hands."

Although Mars Super Markets, Baltimore, has yet to launch a frequent shopper program, it's already given thought to privacy policies and, like most retailers, won't share mailing lists, said Dennis McCoy, chief executive officer.

"We will insist upon having control over the data and we will share the ability to communicate with our customers with outside parties but not share information about our customers," he said.

"If Procter & Gamble wants to communicate with a segment of our market, they'll be doing it through us rather than our providing them information on that segment," McCoy added. "We are very sensitive to that issue of confidentiality."

Atlantic Food Mart, Reading, Mass., a single-store retailer, has been approached by third parties interested in gaining access to its extensive shopper information and "I've turned down some lucrative proposals to sell this data," said Ralph Melchionda, general manager.

"I had a manufacturer that wanted to know everybody who bought a specific product of theirs in the last six weeks. I could have provided it but we declined," he said. "They wanted to contact these people and there's just no way we're going to get involved in that."

Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill., said few retailers are willing to sell out their shopper relationships by selling shopper data.

"Retailers inherently understand the value of the relationship and what they don't want to do is have anybody intervene and affect that," he said. Devising a policy statement on privacy, fully understanding the scope of the commitment and enforcing it internally are essential, he added.

"This whole thing is going to be a process that holds our feet to the fire on being true to the consumer," Bishop said. Developing targeted offers valued by shoppers, and not designed merely to drive the business, is the ultimate goal retailers are to shoot for if they subscribe to the "C" in Efficient Consumer Response initiatives, he added.

"I think people are willing, to a certain degree, to make a tradeoff there so long as we don't go too far and start selling [mailing] lists," Atlantic's Melchionda said. "They'd become inundated with phone calls and junk mail and they'd be angry with us.

"It's a close relationship with the consumer. There has to be some trust there," he added.

Retailers typically communicate their commitment to protect consumer confidentiality through application forms for their frequent shopper programs. The language of privacy policies varies from retailer to retailer but the one printed on Wegmans' literature is characteristic of most. The statement, signed by Danny Wegman, president, reads:

"You have our word that the information gathered by Wegmans Shoppers Club will only be used on behalf of giving you, our valued customer, our very best. We will hold all such information in the strictest of confidence, even within Wegmans, and pledge never to sell your name, address or purchase information to anyone else. We guarantee it."

To further underscore its commitment, Wegmans makes available to consumers the full policy statement, which addresses the Privacy Committee's role, disciplinary action that will be taken against its own employees for violating privacy policies and data security measures taken with vendors.

Industry observers say food retailers are perhaps more vigilant than other classes of trade when it comes to guarding consumer information. However, now and then a chain may test the limits and learn a costly lesson.

For example, one retailer recently told frequent shopper club members that their purchasing data would be used in a very specific manner, but later reneged on that promise when cooperative advertising revenues proved too irresistible.

"These guys committed to delivering only coupons that were on the consumers' favorite products. Then they deviated and started sending some co-op coupons that they were paid to deliver," an industry observer told SN.

Unsurprisingly, the move provoked complaints and harmed the retailer's relationship with its customers."It's sort of cheating on the promise," he added.

Rob Winett, electronic marketing manager at Riser Foods, said the revenue potential of selling sensitive consumer data can't possibly offset its ultimate cost.

"We are in the grocery business," he said. "Selling this data could be very lucrative but, because of its nature, [would be] damaging and damning to our goodwill with our customers.

"The dollars we could collect for the sale of data pale in comparison to the gross margin dollars generated by the educated use of the data in marketing and merchandising," Winett said.

Gerland's Doris agreed the promise of relationship marketing, and ultimately boosting the bottom line, rests in how successfully a retailer makes use of his data internally while preserving shopper trust.

"I think if we are going to show the real value of our programs the most important thing is to keep their personal information private," he said.

Overall, retailers said that while protection of privacy remains very important to consumers today, they are more willing to share some information in exchange for incentives they perceive as valuable.

The tradeoff becomes possible when a conscious decision can be made by the consumer who understands just how personal data will be used.

"Consumers would want to know who is going to see this information, is it going to be used for data base marketing by the chain itself or is the list going to be provided to third parties," said Robert R. Belair, a Washington attorney who co-edits Privacy & American Business, a Hackensack, N.J.-based publication.

"They will want to know how long the information is kept, whether the collection process is automated and what kinds of safeguards there are regarding unauthorized access to that information," he said.

Belair noted consumers are far more sensitive about unauthorized access to medical records, financial information and lifestyle choices than they would be about their grocery shopping habits.

The vast scope of information publicly available through various sources and computer on-line services, for example, has served to lessen, rather than raise, consumers' sensitivity about privacy issues, some retailers said.

"Discussion about privacy with regard to the Internet makes people realize it is almost impossible anymore to protect all information," said Wegmans' Burris. "You could make the argument that a data base a supermarket has is very secure compared to what's available otherwise."

"There are only two people in the company who have access to the data: myself and my son."

Albert Lees Jr.

chairman, CEO

Lees Supermarket

"We set out in painstaking, if not agonizing, ways to arrive at a privacy policy for the future."

Mary Ellen Burris

director, consumer affairs

Wegmans Food Markets

"The dollars we could collect for the sale of data pale in comparison to the dollars generated by use of data in marketing."

Rob Winett

manager, electronic marketing

Riser Foods

"If we do customer-specific mailings, we use a third-party printer and give them the name and address file."

Tom Wiesner

director, marketing

Roundy's