By Angel Abcede

                hen grocery chains such as to pay, you’re going to ...
 The numbers retailers look to when
 considering grocery ties, or any loyalty
 system, can include the fo...
  Suiting up a location to accept loyalty can be a daunting
  task. Here are a few pieces in the logist...
Do you think grocery and c-store partnerships make the best loyalty programs?

Wider Net                                      In addition, Wendy Kobler, marketing whether with a grocery partner or not,...
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Csp Super Marketing F11 1009


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An new shift in the retail channel between supermarkets and c-stores

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Csp Super Marketing F11 1009

  1. 1. By Angel Abcede W hen grocery chains such as to pay, you’re going to have to bring “Ukrop’s has always been Giant Eagle, Jewel and new customers to the location.” interested in the gas busi- Albertsons began placing Since becoming the preferred gaso- ness,” says Larry Halley, man- pumps on their lots earlier this decade, line retailer for Richmond, Va.-based ager of corporate and retail convenience retailers rolled their eyes Ukrop’s Super Markets Inc. last year, systems for the grocery chain. and braced themselves for yet another Johnson says the chain has sold 7 mil- “But it’s not our forte. It’s cap- assault on their gasoline profits. lion gallons through the fuelperks! pro- ital-intensive and not what we do.” But in 2009, retailers are seeing a dif- gram. More importantly, he’s seen All good? Here are a few key pain ferent picture unfold. Partnerships are double-digit percentage increases in points to consider before entering into springing up between grocers and c-store volumes overall, meaning that his new a third-party relationship: operators, as a way for the former to Control. Because many partner- leverage existing fueling sites and for the latter to bump up traffic counts. “Gashasamore ships have grown from established grocery programs, the destiny of While the gas-grocery solution psychological perception of the fuel retailer’s loyalty efforts may not be for all convenience value thancashback[for could be in someone else’s hands. retailers (see Kraft/CSP Daily News groceries]orarewards “What if your partner at the end of poll, p. 214), those engaged in such point.Fuelretailers the contract decides to turn off the partnerships say it’s been a boost to their businesses. havethesecret sauce.” program or promotes it improp- erly?” says Nicole Nunn-Walker, “If all you’re going to do is vice president of marketing for reward customers you already have, customers have decided to keep buy- MetroSplash Systems Group, Dallas, that’s one thing,” says Terry Johnson, ing gasoline from the Uppy’s chain. which markets a program called vice president of marketing for Uppy’s, For Ukrop’s, the tie has proven pop- FuelLinks. “[Retailers] are seeing grocers Chester, Va., a 40-store chain that part- ular with customers, having paid out $9 get the lift by promoting things in their nered with a local grocer’s loyalty pro- million in rewards and exceeding 1 mil- store, so they’re asking, ‘Wouldn’t it be gram last year. “But in order for loyalty lion redemptions earlier this year. beneficial to use my own fuel power to O c t o b e r 2 0 0 9 CSP 209
  2. 2. Loyalty Numbers The numbers retailers look to when considering grocery ties, or any loyalty system, can include the following: 15% to 20% Lift seen in fuel sales due to grocery partnership, according to Excentus Corp., Irving, Texas 80-20 The favorable split that some c-store retailers are seeing from grocers who want to offer fuel discounts, according to ValueCentric Marketing Group, Binghamton, N.Y. 10% The percentage of convenience retailers FOOD AND FUEL: The ties between groceries and gas appear to be getting tighter that have adopted loyalty programs, as more retailers contemplate partnerships. according to ValueCentric 65% c-store numbers, creating a com- For instance, the two chains initially Percentage of 2,400 U.S. consumers in First pelling lure for fuel retailers to cap- offered 10 cents off per gallon for every Data’s “2009 Consumer Loyalty Study” who ture new customers. $50 in groceries a customer bought. belonged to a grocery-store loyalty program Cost. While not elaborating on Today, they offer 5 cents per gallon due what the company had to spend to tie to the expense. “But even that didn’t 35% into the fuelperks! program, Johnson seem to hurt the program,” he says. Percentage of consumers in that same First Data study who said their decision about says compatibility issues forced Uppy’s The Uppy’s chain had toyed with where to shop was “very” influenced by to upgrade equipment: “It wasn’t loyalty programs in the past, says John- gasoline loyalty programs. Bookstores were cheap.” So for many retailers, the cost son, but Ukrop’s approached them second at 33%. of tying to a grocer’s program—while with a plan whereby the two divided probably a fraction of the burden of costs, with the grocer paying substan- maintaining an in-house version— tially more for the discount. Other ele- promote my higher-margin [items]?’ ” may still be considerable. ments sealed the deal, such as Ukrop’s Natural fits. While issues of control Ultimately, tying in with a grocer’s reputation as a local, highly respected may linger, no one can deny the yin- loyalty program is a complex agree- business within the Richmond market. yang relationship that gas has to gro- ment. Retailers have to agree about who Uppy’s own concentration made the ceries. Rollbacks at the pump are more pays for things such as the discounts, partnership a logical move. exciting than cents off a bag of rice associated transaction fees and equip- So the chain took on the added costs cakes, say loyalty providers, and gro- ment upgrades, as well as marketing, to upgrade its store-level equipment, cery rings hit the kind of dollar range length of contracts and other issues that which Johnson says at some sites needed that make discounts truly viable. come with involved partnerships. John- to occur anyway, and gave the stores the Common attractions. Economic son says, “You’ve got to have a good capacity for pumps to “roll back” prices realities are forcing many grocery partner and see eye-to-eye with them.” as customers retrieved their rewards. chains to leverage existing assets, such “Customers are excited to save $10 and as neighboring gas stations, if they Retailer Wins have to tell someone, so they start talk- want to compete with big boxes and Uppy’s partnership with Ukrop’s has ing to the other customers or to other supermarkets that have put fuel been an unequivocal win, with cus- employees,” he says. on their lots. At the same time, the tomer response remaining strong even While Johnson says inside sales have traffic a grocery store draws dwarfs as the program evolves, Johnson says. risen because of the program, it’s not as 210 CSP O c t o b e r 2 0 0 9
  3. 3. LogisticsChecklist Suiting up a location to accept loyalty can be a daunting task. Here are a few pieces in the logistics equation: I A “box” that supports the loyalty program. House (ACH) debit transac- T-Jay Johnson is unable to partner with I A logic-control board for pumps and other electronics necessary to link the station to the loyalty program. tions. The process bypasses a grocery store at this time, he wants to I Digital subscriber line (DSL) or satellite connections. Visa and MasterCard credit eventually. He says convenience retail- I The loyalty program’s server. fees, allowing the store to pass ers in his area have ties to grocers and I A POS device that can process the program. on the savings to customers he’d like to compete against their offers. in the form of a discount. In addition, Drew Mize, vice president of product Taking this route purely A Grocer’s Perspective management and marketing for The Pinnacle Corp., Arlington, Texas, says retailers sometimes overlook from the perspective of the For Ukrop’s, the desire to augment its some of the more obvious steps and their costs: credit-fee savings, T-Jay John- rewards program with a fuel tie existed I Cards. son, store manager for for some time, according to Halley, who I Sign-up forms. O’Ryan’s Monticello, says says the company’s proprietary loyalty I Signage. he’s brought his credit-card program began in 1987 with a printed I Advertising: radio, TV, etc. use from 80% back to at least card that used customers’ phone num- I Employee training. 75%, with the difference bers as identifiers. I Web site updates. potentially reaching 10%. He Halley believes the gas-grocery con- I Incremental employee wages involved in calls those numbers “a great nection is intuitive. “It’s not like air- administration, customer service, etc. success.” lines miles, where it’s about a purchase I Maintenance including additional hardware (if For many retailers, saving you don’t have to make,” he says. “Gas necessary), spare parts, replacements, service, etc. on credit-card fees is the pri- and groceries are things we need to mary goal, according to Joe survive day to day. We need to eat. We dramatic as the sales of gasoline, because Randazza, CEO of National Payment need to work. We need to get places. that’s the product being discounted. Card Association, Coconut Creek, Fla., It’s a good fit.” “The more people there are on the lot, whose company operates the O’Ryan’s Ukrop’s chose Uppy’s not because the more there are in the store,” he says. Monticello program. “It’s a traffic-build- both chains start with U, as Halley says Other retailers believe that just being ing program,” he says. “It’s an alternate jokingly, but because the fuel chain had able to offer cents off per gallon via some form of payment that merchants can locations that complemented the type of rewards mechanism is the criti- use to change consumer behavior.” Ukrop sites; Uppy’s family history also cal element in the equation. O’Ryan’s The other two stores in the O’Ryan’s was appealing. In addition, the way Monticello, Monticello, Minn., has one Monticello chain would probably take Uppy’s paid for and executed the nec- of its three sites on a card that allows cus- advantage of the cards if a POS upgrade essary technology upgrades solidified tomers to pay via Automated Clearing were not required. And even though the partnership. “Uppy’s has got a lot 212 CSP O c t o b e r 2 0 0 9
  4. 4. RETAILERS SKEPTICAL OF GROCERY TIE Do you think grocery and c-store partnerships make the best loyalty programs? Wetzel, vice president of marketing for 15.8% Yes Excentus, Corp., Irving, Texas, which Yes, as part of a operates the fuelperks! program. 24.8% larger coalition of stores. But the ability of many chains and independent grocers to establish the kind No, c-stores should run 59.4% their own standalone programs. of fueling network that, say, a Giant Eagle has done is limited. “We’re seeing Source: Kraft/CSP Daily News Poll. Based on 101 respondents. a continued movement toward grocers partnering with c-stores as opposed to of skin in the game with us,” he says. another major grocery player in the area building their own,” Wetzel says. “[They] As far as numbers go, Halley says the had a fuel program. Ukrop’s designed want to leverage existing assets in the economy puts a haze on determining the basic elements of its loyalty program field as opposed to going through the success. He prefers to ask where the to outdo the competitor’s reward-expi- expense and operational learning company would be without the pro- ration dates and usage terms. process of running fuel stations.” gram. “In our analysis, it helps keep loyal In addition, cents off a gallon of gas customers loyal,” he says. “The spend- The Gas, Grocery Equation seems to resonate with customers, says ing rate continues to be good for our The move by hypermarkets into gaso- Nunn-Walker of MetroSplash. “Gas has [loyal customers]. And that’s important line was one reason many of the larger, a more psychological perception of because they have other options.” regional grocery stores started installing value than cash back [for groceries] or The move was also strategic, because pumps on their lots, according to Scott a rewards point,” she says, pointing out how the c-store acts as the redemption outlet for grocery discounting. “Fuel retailers have the secret sauce.” But supermarkets can be a new resource for untapped traffic. Jim Nevill, president of Midax Inc., Virginia Beach, Va., says supermarkets act as an anchor for the gas-grocery loyalty tie because of the sheer numbers they draw to their lots. “We identify that our realm of people will go to a grocery four times for every one time to a c- store,” he says. “And [supermarkets have] the critical mass to a make a con- tribution [to the discounting].” What concerns some is that grocery stores carry many of the same products that c-stores do. Ideally, a customer who has purchased groceries will then move to the gas station and potentially go into the store for a follow-up purchase, according to Anton Bakker, president and CEO of Outsite Networks, Norfolk, Va. “Hopefully it won’t have the effect of cannibalizing c-store sales,” he says. 214 CSP O c t o b e r 2 0 0 9
  5. 5. Wider Net In addition, Wendy Kobler, marketing whether with a grocery partner or not, Providers such as Nevill of Midax manager for Fiscal Systems Inc., Madi- lies a more basic issue: that of simple, believe the potential for more loyalty son, Ala., says the system needs to pro- store-level execution. Brooks says keep- programs to crop up is high. At least vide relevant customer-tracking ing restrooms clean, making sure 51% of regional and local grocers, information. On top of that, “a busi- cashiers dress professionally and inter- which some consider still as fragmented a channel as convenience retail, have ness has to know how to use the information,” “Themore act well with con- sumers, and always yet to adopt a program, he says. she says. people there looking for ways to The number of c-store retailers who Training. The simple areonthelot, “surprise and delight” have embarked on programs could be act of a cashier asking themore people are all steps as low as 10%, according to Roger for the customer’s loy- therearein toward building loyalty. Brooks, vice president of loyalty mar- alty card during a trans- “All that is bigger keting for ValueCentric Marketing action is a critical aspect the store.” than the card,” he says. Group, Binghamton, N.Y. Part of the that must be engrained into staff Editor’s Note: Last June, Excentus reason is the difficulty of executing pro- behavior. filed a patent-related lawsuit against grams. He mentions some common Marketing. Retailers have to com- Pleasanton, Calif.-based Safeway. At stumbling blocks: municate to customers that the program press time, the grocer had discontinued Multiple, limited POS. Integration is exists and then continually promote the its PowerPump rewards program, with key to allowing all stations in a retailer’s program to generate activity. a spokesperson saying the move was not network to accept the loyalty program. Beyond executing a loyalty program, related to the lawsuit. I O c t o b e r 2 0 0 9 CSP 215