Competition Authority Initiates Inquiry into Grocery Store Loyalty Programs

Supermarket loyalty schemes are under investigation by the competition watchdog due to concerns that brands are offering the majority of price promotions only to members.

The Competition and Markets Authority (CMA) will commence its investigation in January as part of its ongoing review of rising food prices. The investigation will focus on determining whether loyalty schemes, commonly used by supermarkets, are harming the majority of consumers and limiting market competition.

The investigation will also examine if consumers are being deceived by loyalty price promotions, and the obstacles certain customers may encounter in accessing these pricing schemes, such as the requirement to use smartphones or share personal data.

Supermarkets are incorporating loyalty schemes into their marketing strategies, using them in both in-store and broader creative efforts. This has sparked questions about how these pricing strategies affect consumers and competition, leading the CMA to announce a review in January 2024.

Tesco, the largest supermarket in the UK, has significantly promoted its Clubcard scheme and experienced substantial growth as a result. In the first half of its financial year, the company reported an 80% increase in Clubcard sales penetration in the UK and Ireland, with 7.5 million UK customers using their Clubcard membership at the checkout, a 62% increase year-on-year. CEO Ken Murphy emphasized the significance of Clubcard in their personalization plans, noting that 86 million personalized coupons were distributed to nearly 6 million customers in the first half.

Natalie Berg, a retail analyst at NBK Retail, states that the CMA will be investigating the potential existence of an artificially created "two-tier" system, where consumers who do not sign up for loyalty schemes are penalized with higher prices. She remarks, "I'm surprised an investigation hasn't happened sooner."

Berg notes that the rapid expansion of loyalty schemes by supermarkets and retailers like Boots, driven by food inflation, technological advancements, and increased digitization, has contributed to the issue. The CMA will also be examining whether "member pricing" genuinely offers savings, or if retailers are simply inflating non-member prices to give the impression of a discount.

Charlie Huggins, the manager of the quality shares portfolio at analyst Wealth Club, stated that despite savvy shoppers using multiple loyalty cards and shopping around, consistent pricing should be implemented for all. He expressed a preference for supermarkets to follow Aldi's example and eliminate loyalty schemes altogether, as loyalty pricing can be confusing and hinder price comparisons for consumers.

Outside of supermarkets, other food and beverage retailers are placing greater emphasis on loyalty programs. For instance, Greggs' loyalty program accounted for 13.1% of in-store transactions scanned using the app during the 13 weeks leading up to September 30, marking a significant increase from 10.6% in the first half of the year.

The CMA found that certain food brands have raised prices even more than the actual increase in production costs over the last two years, particularly in categories such as milk, ready meals, and baby food. This investigation concluded that some suppliers have benefited from these price hikes, which have surpassed inflation rates.