The Sydney Morning Herald reports that Australia's Woolworths grocery retail is facing pushback as both customers and suppliers react unfavorably to the company's new Woolworths Rewards programme. The programme's poor performance, the newspaper reports, may force the retailer to redirect "hundreds of millions" of dollars into price-cutting promotions to compete with its deep-discounting rivals.
In late 2015, Woolworths relaunched its Everyday Rewards programme as Woolworths Rewards, in which it ended its earn relationship with the Qantas Frequent Flyer programme in favor of offering members more discounted prices along the lines of the "two-tier" pricing schemes favored by U.S. grocers. The retailer reportedly invested AU $500 million on the programme relaunch.
Since the launch, the programme has received pushback along two fronts, resulting in a Catch-22 of sorts: suppliers are reluctant to invest in the programme because of poor member takeup of discounted items, while shoppers complain about the lack of promotions and the perceived poor funding rate of the programme compared to its previous iteration. Money quote from the article:
"According to analysis by the Australian Centre for Retail Studies at Monash Business School last year, the average Woolworths Rewards member stood to earn a $10 reward every 7.4 weeks after spending $107 a week. This equated to an earn rate or discount of 1.25%, compared with an earn rate of 0.22-0.42% under Woolworths' previous programme (assuming customers redeem their points for domestic or international Qantas flights). However, analysis by Fairfax Media suggests the average earn rate is about 0.5% � less than half Woolworths' 1.25% target."
The Herald quotes analysts as recommending that Woolworths punt the programme in favor of everyday low pricing to compete with the fast-growing Aldi discount chain. The problem with competing solely on price, of course, is that their can only be one low-price leader. So if it isn't you, your only choice is to continue to shave your margins until they resemble rice paper.
Could a better choice be to tweak the programme to change its perceived value to shoppers, which would in turn attract more supplier support? Woolworths certainly thinks so; they're reintroducing the option to convert Woolworths Dollars into Qantas points.
Meanwhile, the Herald quotes a spokesperson thusly: "Woolworth Rewards has allowed us to significantly increase our programme of tailored offers, sent directly to individual shoppers, and this is delivering very encouraging results." This quote implies that Woolworths is seeing increased customer spend from those who do engage- an encouraging sign. We trust that Woolworths will get the formula right sooner rather than later.
Read the Herald article here.