Inflation is driving the competitive landscape in the customer loyalty and rewards space in 2023

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In the United Kingdom, food prices have continued to record higher highs over the last 12 months. Soon, the rising food prices is expected to overtake the soaring energy prices as the driving force behind inflation in the United Kingdom. Although lower prices are on the horizon, offering some relief to squeezed consumers, they are projected to remain elevated compared to H1 2022.

Higher inflation, soaring food prices, and declining disposable income meant that consumers are buying less food than normal in the United Kingdom. In fact, food prices and energy bills are the top concern of Brits. This is having a direct impact on the revenue growth of grocery retailers, whose margins are also declining. As a result, many grocery retailers are seeking to leverage the power of loyalty programs to drive consumer purchases and attract new customers.

• Sainsbury’s, in April 2023, launched a new loyalty initiative Nectar Prices. Under the initiative, the supermarket is offering lower prices to its loyalty card holders in the United Kingdom. The initiative is similar to the one offered by market leader Tesco. As part of the Nectar Prices scheme, over 300 items are provided at lower prices to the 18 million members.

In addition to lower prices, members will continue to earn points on their purchases. This points can be redeemed at Sainsbury’s or with other partners. Going forward, the firm is expected to add more product variety to the Nectar Prices schemes. Currently, discounts are offered on items including household products, pet food, and confectionery.

The launch of the initiative comes at a time when Tesco's Clubcard Prices scheme has gained widespread popularity among Brits. Notably, Sainsbury’s is not the only supermarket to dish out lower prices for loyalty members. Following the footsteps of Tesco, Co-op also introduced a similar initiative for its loyal customers in April 2023.

At the launch, Co-op offered 15 products at lower prices to its members. However, the firm had pledged to reduce the cost of more than 60 key lines in stores. This will help customers that are reeling under the cost-of-living pressure. It is worth noting that the loyalty membership is available at just £1 and offers shoppers 2p back on every £1 spent on own-brand products.

• The firm has made discounts available on all of its 2,400 food stores. As expected, the new loyalty scheme from Co-op will help the members to save £300 annually on their grocery bills.

The list of supermarkets making significant changes to their loyalty program does not end with Tesco, Sainsbury's, and Co-op. The John Lewis Partnership, in April 2023, announced that the supermarket chain is making major changes to its loyalty scheme. The new scheme, expected to be launched in 2024, will rival the likes of Tesco's Clubcard and will give shoppers more benefits than the current offerings of myWaitrose and My John Lewis schemes.

Going forward, PayNXT360 expects more and more retailers worldwide to make significant changes to their loyalty programs, as they seek to retain existing shoppers and attract new ones. In the United States, Casey’s announced an enhanced loyalty program with more savings in May 2023. In addition to savings, the enhanced programs also improve customer experience. With a focus on personalized offers, the retailer aims to attract more shoppers to its stores.

Loyalty programs, especially in times of inflation, have been experiencing strong adoption among consumers globally. This is evident from the quarterly and yearly results revealed by retailers like Starbucks. For instance,

• Despite toning down the rewards for its members, Starbucks has continued to experience strong adoption of its loyalty and rewards programs among customers. In its second quarter FY 23 financial results, Starbucks revealed that the Rewards App continues to gain popularity. In fact, the active membership increased 15% year over year to reach 31 million.

In Q2, rewards members accounted for 57% of the overall operating revenue for the firm in the United States. This is the highest contribution on record for Starbucks and represents a growth of 3% year over year. This shows that consumers are willing to take rewards, even low, and offset their purchases whenever possible.

Like Starbucks, Tesco also toned down the value of its Clubcard points. The change will see Clubcard members only doubling their points rather than tripling, which means that they get less value for their money. Despite this, the adoption of the loyalty program is projected to grow from the short to medium-term perspective, as inflation and rising food prices are having a severe impact on consumers’ disposable income.

With the margins of these supermarkets facing inflationary pressure, the higher adoption of loyalty programs can aid revenue growth in 2023. Consequently, the loyalty program strategy is projected to remain critical for these firms and other retailers worldwide over the next three to four years.

To know more and gain a deeper understanding of the loyalty programs market in the United Kingdom, click here.