Loyalty pays off for Tesco as Britons feel the pinch

LONDON, Feb 23 (Reuters) – With Britons the most affected by their disposable income in 30 years, Tesco is ahead of rival retailers in tempting them further through its checkouts with an economy loyalty scheme.

Tesco Clubcards are held by more than 20 million UK households, 8.5 million of them via app, boosting sales and helping Britain’s biggest retailer land better deals with suppliers in one of the markets world’s toughest foodies.

Tesco (TSCO.L), a pioneer in customer data science and analysis, launched Clubcard in 1995 to track shopping trends and reward loyal customers.

After offering discounts of up to 50% on select products to holders in 2020, it aggressively promoted the program last year, adding 1.9 million app users between October and December.

“Great value matters to our customers now more than ever,” Tesco chief customer officer Alessandra Bellini told Reuters of the scheme, which is a first for a major British supermarket chain.

As retailers around the world grapple with rapidly rising inflation, Tesco has placed Clubcard at the heart of its strategy, enabling the 103-year-old group to outpace Sainsbury’s (SBRY.L), Asda and Morrisons and cope with the strong discount of the German chains Aldi and Lidl.

Backed by a television, radio, newspaper and online marketing campaign, Clubcard prices now account for more than 95% of Tesco’s promotional sales.

Clubcard holders pay up to half as much as non-holders on some 3,000 products in-store and online, while any impact on Tesco’s margins is offset by gains in sales volume. Last month, the company raised its 2021-22 earnings outlook for the second time in four months.

Current Club Card prices are among the best choices: 1 pound ($1.36) for a pack of two McVitie’s Jaffa cakes for a Club Card holder versus 1.6 pounds for those without, 10 pounds for a 20-bottle pack of Coors beers for 14 pounds, while a nine-pack of strawberry Frubes yoghurt is half price.

With UK inflation expected to reach 7.25% in April, this approach is resonating with consumers. Read more

Elizabeth Petch, a 54-year-old barrister from Sawbridgeworth, south-east England, is a regular Tesco customer who said the “substantial” cuts won out.

“They also regularly apply to items I buy anyway, so overall it definitely made a difference to my bill.”

Although shares of Tesco have risen 29% over the past year, 17 of the 22 analysts who cover the stock still consider it a “buy”, according to data from Refinitiv.

“The benefits of scale and momentum in food retailing are chronically undervalued by the market,” HSBC analyst Andrew Porteous said of Tesco’s share price.

‘VIRTUOUS CIRCLE’

Under Ken Murphy, who became its chief executive in October 2020, Tesco has grown through the COVID-19 pandemic, reaching a UK grocery market share of 27.9% over four years.

The YouGov Brand Index says Tesco’s rating for providing good value improved by a market-leading 199 basis points in the 12 weeks to January 2 year-on-year.

And when Clubcard prices are factored in, Tesco increasingly emerges as the cheapest of the big four UK supermarkets in The Grocer’s widely followed price survey.

“Essentially, compared to a lot of other loyalty programs, it’s really easy for shoppers,” said Fraser McKevitt, head of retail and consumer insights at Kantar.

“You don’t have to do anything, you get the right price just by showing up with your Clubcard,” he added.

The Club Card prices complement the other elements of Tesco’s pricing strategy – ‘Everyday Low Prices’ on more than 1,600 items and ‘Aldi Price Match’, which matches the prices of 650 key products with those of the discounter , which Tesco says removes an incentive for customers to shop elsewhere.

The net result, Tesco says, is a higher volume of goods sold to more shoppers. Total UK sales reached 14.8 billion pounds ($20.1 billion) in the 19 weeks to January 8, reflecting organic growth of 7.5% on a two-year basis.

This has helped Tesco achieve better deals with suppliers, place larger orders on favorable terms, allowing for more customer offers and further volume growth, which consequently means even better deals with suppliers. .

“It’s hard to compare to the Tesco Clubcard price file,” said a veteran grocery retailer who has competed with Tesco for decades. “Tesco is in a virtuous circle now and I don’t see them messing it up from here, it looks really strong.”

As suppliers also face inflationary pressures, failing to fully pass on a legitimate cost price increase to Tesco means pursuing it with rivals, resulting in a ‘double whammy’.

“A major Tesco supplier would give preference to Tesco every time,” he said.

And while inflation has added strain to negotiations, Tesco’s supplier relationships have been transformed since an accounting scandal in 2014, with independent supplier Advantage Report rating it as the best supermarket group to deal with in recent years. last five years. Read more

Club card prices are also set to be further improved, with analysts predicting they could be personalised, which Sainsbury’s is also pursuing. Read more

“We are in the early stages of this initiative, we still have a lot to do,” Murphy said last month.

($1 = 0.7380 pounds)

Reporting by James Davey; Editing by Alexander Smith

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