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Loblaw targets a well-oiled loyalty program

A Loblaws employee brings in shopping carts in Toronto on Wednesday, Feb. 18, 2009.


Loblaw Cos. Ltd. is racing to launch a new rewards card next year, in a bid to catch up to rivals' loyalty program initiatives – and learn more about its customers.

Vicente Trius, the retailer's new president, said at an investor conference that the company is working on a new card that it will roll out in 2013, although he didn't elaborate on the details.

Loblaw's loyalty-card efforts come just as competition is heating up with the arrival in early 2013 of U.S. discounter Target Corp. and its highly touted rewards program for U.S. customers. Domestic retailers, including Metro Inc. and Canadian Tire Corp., are also beefing up their loyalty offerings. They're intent on tracking shoppers' spending habits to help plan their own marketing and product rollouts, while also drawing customers who tend to shell out more when they use a rewards card.

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Loblaw already has a PC MasterCard, but only a minority of its current customers are estimated to use it for rewards in their grocery shopping. If the retailer wants to better profit from understanding shopping patterns, the company must take steps to bridge that gap.

"I want to have information about our customers," Mr. Trius, who has worked at international retailers including Wal-Mart Stores Inc., said at Loblaw's first investors' meeting in four years. "I want to know our customers better. I want to be able to communicate to them better."

Loblaw used the rare investor conference to shed more light on Mr. Trius's vision for the company, which builds on the base set by his predecessor: refocusing on food and expanding its financial services, private-label business and loyalty initiatives while reaching out to new Canadians and health-conscious consumers.

Mr. Trius feels the urgency today to convince investors that his strategy will help ease the pain of more investments in the retailer's crucial information technology and supply chain systems, which in 2006 got the grocer into deep trouble when it was unable to get products to shelves on time. Last week, Loblaw spooked investors by warning that its profit would fall in 2012 from last year, dragged down by a further $110-million of spending on upgrades to systems, customer service and competitive pricing.

Now, Mr. Trius' team is counting on developing a well-oiled loyalty program to provide it – and its suppliers – with a better glimpse into customers' buying patterns to help map out purchasing, marketing and new product efforts.

Kenric Tyghe, an analyst at Raymond James, said Loblaw needs to do a "complete rethink" of its loyalty offering and not just a refresh – a change that is overdue. "Not only is Loblaw a distinct laggard in the Canadian grocery loyalty space, but also … despite recent competitor launches, the Canadian grocery loyalty space remains in the dark ages," Mr. Tyghe said in a recent report, comparing domestic players to such European industry leaders as Sainsbury in Britain.

The opportunity for Loblaw "is to lead a revolution versus an evolution" in Canadian grocery loyalty programs, he said, urging it to roll out a standalone card, rather than one tied to a MasterCard as is currently the case for PC Financial, in order to gain more valuable customer information that it can also sell to its suppliers.

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Loblaw generates less than 25 per cent of its sales from customers holding its PC Financial loyalty card, Mr. Tyghe estimated based on his rough calculations. (The company would not provide a figure.) At Sainsbury, more than 75 per cent of its sales are tied to its loyalty card, he said.

Nevertheless, Mr. Trius insisted on Tuesday that Loblaw isn't lagging in the loyalty field, and said the company will leverage its new card so that it won't be an incremental cost to the retailer.

The appeal of loyalty programs to retailers is multi-faceted: they provide customer information and, according to a new study by Martiz Canada, draw better-off shoppers. The higher the income, the more cards shoppers hold and the more committed they are to going out of their way to shop at places where they collect points, it study found.

In Target's case, it provides U.S. customers a 5-per-cent discount on their purchases, while Canadian Tire is testing a rewards program that offers users 1 per cent back on their purchases and 3 per cent back on purchases made with its Options MasterCard. That far exceeds the 0.4 per cent rewards on purchases made with Canadian Tire money, or 2 per cent back on purchases made with the Options MasterCard. (In the rest of Canada, purchases made with the Options MasterCard provide 1.37 per cent back.)

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