Loyalty cards were once a way to reward repeat customers, but the data they produce is now a lucrative revenue source for supermarkets, writes Dr Nada Elnahla, School of Business 

Like the rest of the world, Ireland is seeing soaring food prices. As a result, supermarket customers are tempted now more than ever by special offers, coupons and personalised advertisements - and they need to subscribe to loyalty schemes to get those offers. According to the 2023 European Brand Loyalty Report, 41% of European consumers are more likely to participate in a loyalty programme this year compared to last. The price of their loyalty? Providing the retailers with their personal and shopping data.

The idea behind loyalty programmes can be traced back to the desire to reward customers for their patronage to encourage them to come back to the store. Nowadays, by building profiles of consumption habits, businesses can feed this data into their ordering, logistics, storage, supply chain management, mass customisation and marketing.

On average, 61.3% of European adults are members of at least one loyalty programme. In the Irish market, 75.4% of customers have loyalty memberships. My research shows that the rising number of customers signing up for loyalty schemes suggests that privacy and data protection concerns are not a very powerful disincentive, compared with perceived benefits (like paying less) and convenience (for example, when you're emailed a customised list of what you are interested in).

On the other hand, grocery retailers are currently accused of "greedflation" or exploiting the inflation to create excessive profits. However, operating profits in the retail sector have fallen. Supermarket giant Tesco revealed in early 2023 that their pre-tax profit fell due to rises in the cost of running its operations and the rise in prices that its suppliers were charging.

But with all the customer data they collect through their loyalty schemes, grocery retailers have a top-notch ability to understand customer behaviour and target their customers with personalised advertising. With 81% of customers saying that a loyalty programme membership influences their likelihood of making a purchase, retailers in general can use loyalty programmes to drive in-store engagement, while increasing customer acquisition, retention and conversion. It is no surprise, then, that grocery retailers next venture is loyalty programme data. Simply put, your data is their new lucrative product.

Retail media is not a new idea. Supermarkets have always used in-store marketing like promotions, banners, video display and tannoy announcements to boost sales of certain products. But in a post-cookie and GDPR-compliant marketing world, targeting customers is becoming more difficult. This means that supermarkets' first-party data (the shopping and behavioural data collected from customers when interacting with the brand) has become invaluable.

Moreover, it is forecast that advertising revenue from retail media channels will surpass that of television by 2028. In July 2023, Tesco became the first retailer in the Irish market to offer brands access to its new digital advertising platform on its website. With that retail giant having a 22.6% share of the Irish grocery market (according to the latest Kantar figures), this will encourage its competitors to follow suit. After all, retail media is too lucrative to ignore.

What's next for loyalty programmes?

The next step is for grocery retailers to merge their loyalty schemes with their marketing services to create an integrated offering. This means that customer data, collected through loyalty schemes, can now be used to advertise products not sold by the grocers, such as cars, holidays, or new credit cards.

This is probably going to happen sooner that you think. UK-based retailer Sainsbury's is already working on such offerings to be available by 2026. Their marketing platform will give their clients access to customer data from both online and in-store transactions that are gathered by their loyalty scheme, Nectar360.

The cost

Grocery retailers need to tread carefully when it comes to sharing their customer data. First, how can they resist the temptation of high-margin advertising sales in order not to overwhelm their customers? After all, no shopper wants to feel like a piece of meat.

Secondly, European consumers skew heavily towards brands that respect their data privacy, with 75% (rising to 83% for boomers) finding a brand's data privacy policies critically important. In addition to complying with the GDPR requirements, grocery retailers need to be transparent about respecting the zero-party data (which is provided by the customer and not inferred from their behaviour), how such data is used and with whom it is shared.

Finally, will this expected profit be reinvested into competing on food prices? Will sharing our data with other businesses mean cheaper food on supermarket shelves?

This piece originally appeared on RTÉ Brainstorm