Creating the Next Generation of Grocery Loyalty


Creating the Next Generation of Grocery Loyalty

15 Minute Read
Grocery retailers have long been masters of customer loyalty. But to compete against direct-to-consumer e-commerce startups, brick-and-mortar companies need to take a page from the Silicon Valley playbook and use digital technology to keep customers coming back.

The next generation of loyalty programs are starting not in the grocery aisle, but in Silicon Valley. While taking advantage of new technology comes naturally to direct-to-consumer e-commerce startups, brick and mortar retailers are still catching up. Best-in-class loyalty programs go beyond static shopper and punch card loyalty programs. They leverage digital technology to keep customers coming back.  And this increasingly means working with retail tech startups creating leading edge loyalty, personalization, and marketing tools.

I moderated a panel at Shoptalk on Next Generation Loyalty with Marcus Pfruender from Metro AG, a German retail and wholesale group with 760 wholesale stores in 25 countries; Tarang Sethia from 7-Eleven; and Cheryl Williams from Wakefern, the largest retailer-owned cooperative in the U.S. which supports 344 Shoprite and other supermarkets.  We discussed how these retailers are taking advantage of digital and other new technologies to increase long-term loyalty.  Here are some of the key takeaways:

More than just money

The best loyalty programs need to deliver value beyond monetary rewards.  McKinsey recently surveyed ~10,000 consumers across 9 industries on the perception and influence of loyalty programs.  Unsurprisingly, customers care first about monetary rewards within a loyalty program.  However, it is nearly as important for consumers to feel special and recognized, for example with surprise and delight offers.

Digital technologies provide a vastly expanded set of options to create more relevant, engaging, and easier-to-use loyalty programs.  Here are some examples of how Metro, 7-Eleven, and Wakefern have transformed their programs from print to digital:

  • Expanded reward program options. 7-Eleven has moved from a paper-based punch card program for coffee and a few other items (e.g., buy 6 cups of coffee and get 1 free) to a mobile points-based program that rewards shoppers for everything they buy.  The program also provides shoppers with bonus point offers (e.g., buy 2 Cokes and get 500 bonus points) that provide value without discounting.
  • Digital coupons. Wakefern was an early adopter of digital coupons; in total Wakefern has delivered over 1 billion digital coupons since it launched its program in 2011.  Digital couponing also offers a simple way to deliver surprise and delight offers.
  • New ways to communicate. In China, Metro delivers its entire loyalty program, including registration and all communications, via WeChat, the popular messaging and social media app.  Metro has also incorporated real-time communication and heavy gamification to better appeal to its Chinese customers.
  • Affinity clubs. 7-Eleven offers frequency clubs customized to what customers like – for example Diet Coke vs. Red Bull.
  • 3rd party partnerships. Retailers can extend their loyalty programs by partnering with 3rd  parties. Most obviously, retailers should work with CPGs to create and fund digital coupons and other promotions.  APIs also make it much easier to work with a broader range of partners.
  • AR and gamification. Retailers can use AR and gamification to create richer and more fun shopping experiences.  7-Eleven for example is using AR to create a Pokemon Go type game to promote the upcoming Dead Pool movie.

More than just the loyalty program

It’s important to set a broad vision for building loyalty.  7-Eleven’s vision, for example, is to make every visit more valuable.  This broad vision provides a platform for not only its loyalty program but for other innovations.  Some options we discussed during the session:

  • Incorporate a broader set of capabilities. 7-Eleven is adding multiple new tools to its digital experience to engage shoppers beyond its loyalty program, including a digital wallet, the ability for gas customers to pay at the pump with a phone scan, money transfers, integrated e-commerce delivery, and in-store pickup.
  • Leverage new technology to improve the overall customer experience. Retailers increasingly see out-of-stocks as a loyalty issue: shoppers get annoyed when the item they want is not on the shelf, reducing the likelihood they will come back next time.  To reduce out-of-stocks, Wakefern is experimenting with computer vision technology mounted on shopping carts to identify areas of out-of-stock and prompt store associates to replenish shelves.  Wakefern is also developing AI solutions to improve forecasting and replenishment.  Lastly, no article on loyalty or retail would be complete without mentioning Amazon Go, which is creating a checkout-free shopping experience for the company’s Prime loyalty program members.
  • Deliver value-added services. Metro’s loyalty program is focused on its wholesale customers, including retailers and restaurant owners.  In addition to cash back, Metro provides loyalty program members with access to exclusive professional content and advice, relevant insurance services, and even recycling options for used cooking fat.

Personalize, personalize, personalize

Personalization is the core of a modern loyalty program.  Although retailers collect vast troves of data on consumer behavior, they often struggle to take advantage of it.  Retailers need to invest in the technology and talent to make personalization come alive.  This means investing heavily in analytics and also recruiting the right talent and partners to bring in new skills.

To stay ahead of the curve, Metro, 7-Eleven and Wakefern are testing artificial intelligence to automate and enhance their personalization programs.  By identifying hidden patterns in consumer behavior, AI can allow retailers to more tightly align incentives and consumer preferences.  For example, most offers today are personalized based on what you already buy.  AI, however, can uncover latent demand patterns – the items consumers don’t buy today but might like to buy at the right time and price.

 “Always be in beta”

Ok, I stole this quote from the other panel I moderated on startup food and beverage companies.  But I think it applies even more to loyalty.

Retailer loyalty programs often launch with great fanfare.  There are months (and sometimes years) of careful loyalty program design.  There are launch parties in-store.  There is a slew of online and offline marketing.  There are training sessions for store employees.  That all lasts about two weeks.  After that, most loyalty programs sit unchanged for years. Eventually even the best-designed programs risk becoming little more than background noise, undermining their value to create customer engagement and incremental sales.

Instead, marketers need to continuously enhance and upgrade loyalty programs to keep them fresh.  7-Eleven is in a period of rapid innovation, rolling out a new mobile rewards program and testing new features such as chatbots, scan and pay, on-demand ordering for delivery or in-store pickup.  Wakefern has also continued to evolve its loyalty program, first launched in 1989, by adding digital coupons, digital wallet integration, smart kiosks in store and more.  Wakefern also continues to test new concepts such as scan and bag and AI to better personalize offers.  Metro has also remade its loyalty program from paper-based to digital.

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How can established retailers build the capabilities and skills needed to execute these best practices? One critical strategy is to tap startup innovation to deliver the next generation of shopping experiences and “create value beyond the check.” This doesn’t necessarily mean creating a corporate venture capital fund or making a lot of equity investments. While such tools can be a part of a partnership approach, it is more important to find and scale technology that will drive the next phase of growth and figure out how best to incorporate that technology.  At a minimum, established retailers need to:

  • Create a strategic roadmap for external startup innovation that identifies critical opportunities where startups can accelerate growth.
  • Develop a process for identifying and evaluating startups for partnering. Retailers need to establish a systematic process, not an ad hoc effort.  While corporate VCs or Silicon Valley offices can surface opportunities, startup innovation ultimately needs to be owned by the operating executives responsible for delivering results.
  • Create game plans for piloting and scaling startup partnerships. Retailers need to ensure they move at the right speed.  Startup innovation can’t move at the typical 3-5-year pace of internal IT investments.  At the same time, retailers need to tailor the pilot process to the stage and resources of the startup.  It is better to rapidly test and learn in a limited number of stores than to go broad too quickly only to have startup run into cash flow, manufacturing, or supply chain problems.

About the Authors

Ken Fenyo Headshot
Ken Fenyo
West Coast Markets Lead

Ken leads our Consumer Markets team developing client relationships and benchmarking tools.

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