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Uwe Stueckmann, vice-president of marketing at Loblaw, announces the new loyalty program in Toronto on May 6, 2013.

Fernando Morales/The Globe and Mail

As it launches a digital rewards program, grocery giant Loblaw Cos. Ltd. envisions the day when it will no longer distribute print flyers.

The retailer is racing to reduce its print flyer costs, and shift those expenses to its new PC Plus smartphone loyalty program – and eventually shave those costs considerably.

It's about being "able in the future to eliminate all of our paper flyers, and be only digital," Vicente Trius, president of Loblaw, said on Monday.

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As consumers move more to online for their shopping research and purchases, retailers are following them to capture their business and operate more efficiently.

Loblaw is trying to move faster into the cyber world, betting on a digital loyalty program even as rivals, including U.S. newcomer Target Corp., aggressively tout their own rewards plans.

"Retailers are recognizing that having a significant number of customers online could improve communications," said Len Kubas of media and flyer consultancy KubasPrimedia. "That could be the start of customizing marketing communications to what customers are buying, very much like what Amazon is doing."

Mr. Kubas said that flyers will not disappear, but they will probably decline in numbers and become more tailored to customers' demands in different neighbourhoods. "From everything I've seen, flyers do deliver results for retailers."

Kenric Tyghe, retail analyst at Raymond James, said Loblaw's first steps into digital rewards are necessary ones in Canadian retail. "Flyers are not cost effective," he said. "They don't allow you to target a specific consumer … Our grocery promotional landscape is in the relative dark ages."

Still, merchants have talked for years about scaling back on the number of flyers they distribute, for both environmental and economic reasons, yet they increasingly generate more print flyers. Even so, Loblaw's latest initiative signals an attempt to target customers more tightly with offers that are more apt to respond to particular needs, based on past shopping preferences. Shoppers Drug Mart Corp., for example, now sends personalized e-mails to customers in its Optimum loyalty program based on what they might be more likely to buy.

Loblaw launched its PC Plus smartphone rewards program on Friday, with offers that are tailored to individual members. Already in the first three days, it signed up "tens of thousands" of people, said Uwe Stueckmann, Loblaw's senior vice-president of marketing.

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It's a more efficient way to run customer promotions, he said. The saving "comes out of less promotions on flyers and that money – let's say you spent 100 [dollars] on flyers, you might spend 80 and 20 goes into customized offers to our customers through PC Plus," Mr. Trius added during an analyst conference call. "We definitely believe as a company that eventually all flyers are going digital … Definitely the savings are substantial."

Loblaw's initiative comes two months after Target rolled out its first stores in Canada along with its rewards plan, which gives customers a flat 5-per-cent discount on almost all purchases made with the chain's credit or debit card. Domestic retailer cards reward an average of about 1 to 2 per cent of spending, and grocers' cards generally provide between 0.8 and 1 per cent savings.

Loblaw's PC Digital, in its 44 Loblaw stores in Ontario , will expand it to all its banners – including its Real Canadian Superstore and Provigo in Quebec – except its discount chains No Frills and Maxi by the end of the year. It is counting on being able to collect better information from its customers, tracking customer shopping behaviour to help understand what it should stock on its shelves or what it should ditch.

Mr. Stueckmann said the PC Digital plan is similar to Safeway's "Just For U" program, which in its first two quarters of operation last year bolstered that grocer's same-store sales by 1 to 1.5 per cent, Safeway has said. It expects the plan to increase those sales by as much as 2 per cent once it hits a higher level of maturity, it has said.

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