Do Safeway’s personalized deals have legs?

June 02, 2011

Safeway’s three-market test of just for U pricing seeks greater shopper loyalty. Is it built for the long term?

Safeway’s just for U pricing program could secure short-term loyalty from its most frequent shoppers. But at what cost for the CPG companies that fund it? And what will be the discounts required to keep them as customers in the future? 

To catch readers up, Safeway is testing just for U in Hawaii, northern California and Chicago markets. A shopper signs up and gets personalized deals based on past purchases. The shopper adds these deals to his or her frequent shopper Club Card for automatic pricing at checkout. Also loadable to the card: Club specials, categorized by aisle, and digital coupons. Three ways to save, all conveniently loaded to the card without any clipping of paper coupons.

Yet The Lempert Report has more questions too about the strategy’s effectiveness over time. For example, in test markets, what is the proportion of grocery spend on just for U-priced products? How is the program affecting trip frequency, basket size, market share and other key measures? Is just for U designed to affect long-term loyalty – even if savings can’t remain as extreme in the future?

We pose these questions because we feel CPG companies funding the just for U savings might find it unaffordable over the long term.  As the program is currently structured, the steep price savings offered to select shoppers can be used repeatedly until the offers expire, which can be as long as 90 days. It appears that CPG is taking on excessive financial liability in order to help Safeway to make a value statement. Safeway needs to be accountable and institute steps that keep savers from over-buying. If shoppers can buy vast quantities at unnaturally low prices, they could create out-of-stocks in Safeway stores (we’ve seen extreme couponers do this) and potentially attempt to resell goods in secondary markets (such as flea markets).

At some point, CPG might push back and say it won’t pay this much for Safeway distribution. Another risk for Safeway:  This extreme favoritism could turn off other potential Safeway shoppers who aren’t among the 20% that provide 70% of Safeway’s sales. The segregation is akin to two people in the same row of a jet flight – the one who paid $800 for the seat feels like a chump vs. the other who paid $350. 

Safeway is an innovative marketer and will certainly refine the program to maximize consumer appeal. As keen as its loyalty goals may be, however, the program will have to prove out in performance to keep CPG motivated to fund it.