When asked if the cost of living crisis was fuelling a surge in loyalty card sign-ups, Tesco chief Ken Murphy told reporters: “You’d be mad to shop without a Clubcard.”
Customers were looking for lower prices and, at Tesco, they could get them by scanning their Clubcards. Last year, the number of Clubcard members rose above 20 million.
It is not just Tesco: Sainsbury’s added 3 million new Nectar card customers last year, taking total membership to 18 million.
More than eight in ten people in the UK now hold at least one loyalty card, according to a recent survey from Mintel. A fifth of those said they were members of four or five programmes. Around 14pc held six or more cards.
The popularity of loyalty schemes has grown as supermarkets have followed Tesco and overhauled their promotions to offer cheaper on-the-shelf prices for members, rather than focusing on points that can be redeemed in future.
Savings often seem significant. A basket of seven branded essentials at Tesco would cost a shopper 19pc less when using a Clubcard, according to figures compiled for the Telegraph by Assosia. That is equal to £5 off a £26 shop.
At Sainsbury’s, it is a similar picture. Nectar card holders are able to save 18pc on a basket when swiping their cards to buy products including Heinz baked beans, Anchor butter and Andrex toilet paper, according to Assosia.
Tesco and Sainsbury’s are in the lead when it comes to offering the biggest range of on-the-shelf discounts for members, though other supermarkets are now racing to bolster their own loyalty schemes.
Yet, while lower prices for members seems like good news for shoppers, regulators are not so sure. Amid a wider drive to weed out any profiteering in the grocery market, this month the Competition & Markets Authority (CMA) will begin a review of how grocers are using loyalty card prices.
Chief executive Sarah Cardell said in November that only offering discounts to loyalty card members raised a number of questions about competition in the supermarket sector.
The watchdog is expected to look at whether the schemes make it harder for shoppers to compare supermarkets to spot the best prices, given the two-tier pricing systems for members and non-members.
Discounters argue loyalty cards are obscuring prices. Aldi’s UK chief Giles Hurley told The Telegraph this weekend that what customers wanted was “clear, transparent prices so they know how much they’re spending long before they get to the till”.
“We’ve seen hundreds of thousands of customers come to Aldi for the first time in the past year, not because of a fancy promotion or the illusion of saving money, but because our prices are consistently found to be the lowest in the UK.”
At the same time, concerns are mounting that the spread of loyalty pricing is unfairly punishing shoppers who either choose not to sign up or who simply cannot.
Consumer group Which? last year accused supermarkets of engaging in “dodgy tactics” to try to push shoppers onto schemes.
The group claimed both Sainsbury’s and Tesco had raised prices of products in the run-up to launching a loyalty card promotion to create the illusion that shoppers are getting better value. Prices for regular, non-member shoppers would increase by £2 or £3 in the days before promotional Nectar or Clubcard prices were launched, Which? claimed.
Sainsbury’s argued at the time that the investigation failed to recognise that base prices had been increasing throughout the year because of inflation. It said: “Our promotional rules around Nectar Prices are informed by the guidance from Trading Standards.”
Tesco responded to the claims by saying: “All our Clubcard Price promotions follow strict rules, including considering how they compare against prices in the market, to ensure they represent genuine value and savings for our Clubcard members. These rules have been endorsed by our Trading Standards Primary Authority.”
The CMA is expected to look into Which?’s claims.
What is clearly true is that supermarkets are nudging shoppers into signing up for loyalty schemes through pricing.
But who pays for these cheaper deals? While shoppers could be fooled into thinking it is the supermarkets themselves that are simply accepting lower profits, customers are paying a price by handing over their data.
“Data is the new oil,” says Tim Mason, the architect of the Tesco Clubcard. “Businesses that generate very good data, in theory, have the opportunity to do things that are more valuable than businesses that don’t.”
The data that supermarkets are able to gather is particularly valuable, Mason says.
“People visit a lot, they spend a lot of money and they spend it across a wide variety of different products, which gives you a granular picture of who that person is.”
A better understanding of customers can help supermarkets squeeze more sales out of them.
“You can think they’re spending everything they’ve got with you, but they are a very long way away from that,” says Mason. “If you give them value where they need it, talk to them about things that they don’t even know you do, you would be amazed at the headroom you can create from loyal customers.”
Mason now runs Eagle Eye, a software company specialising in loyalty schemes and data.
He launched the business after stepping down as Tesco deputy chief executive and has worked with retailers including Waitrose, Morrisons and Asda on their loyalty schemes.
“Given that a supermarket can know who its shoppers are, it seems almost a dereliction of duty not to know,” Mason says. “Because you can make your business so much better.”
Supermarkets sell the insights they get from customers’ buying habits to other companies - Paul Childs/Reuters
Industry insiders compare it to the way tech companies such as Spotify, Amazon or Netflix use customer data to recommend songs, products or films to them.
Data is not just important to help drive up a supermarket’s sales. It can open up new income streams.
Supermarkets have started selling “insights” to other companies. Customer data is anonymised by supermarkets but used to build archetypal customers that can give other businesses an idea of what a typical person might be interested in buying.
Estimates suggest that Tesco and Sainsbury’s alone are making £300m a year from selling this in-house data. Both control the proprietary technology behind their own data analysis systems, unlike rivals.
Shore Capital’s Clive Black says: “In the next two to three years, a quarter of a billion pounds of incremental trading profit could come into Tesco from its data analytics side”.
Sainsbury’s, too, is likely to get a major boost. Black says: “This is only becoming more and not less important.”
Retail expert David Sables says grocers are essentially engaging in a “sort of bribery by pushing all their promotions through their loyalty cards to collect the data, sell the data and better steer their strategy”.
He is quick to add: “It’s all very clever and quite legitimate.”
For supermarkets, the hope is that regulators decide against interfering. Tesco’s Murphy is adamant that the loyalty card boom is only a good thing. Prices for members are lower, he says.
“We’re trying to offer our customers a more relevant and personalised shopping experience,” he said recently. “We are still very much at the early stages of what we believe is possible”.
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