News: Whole Foods loyalty efforts attract investor attention

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By: RickFerguson |

Posted on February 25, 2016

The Motley Fool�s recent report on the long-gestating efforts of US grocer Whole Foods to build out a mobile loyalty programme highlights a welcome development for the global loyalty industry: thanks to success stories such as Starbucks, investors are using investment in customer loyalty as a �buy� sign for a company�s stock.

The Motley Fool article details the progress of Whole Foods� efforts to launch their mobile loyalty programme, which has been in the works for over two years and, according to a recent statement by Co-CEO Walter Robb, would expand into �a new market� in Q3 2016.

From a shopper experience standpoint, the programme doesn�t appear to be groundbreaking: it delivers targeted digital coupons to shoppers� mobile devices. That�s it�no points, no rewards, just another discount-based loyalty programme. It�s in the potential of the accumulated programme data that Motley Fool sees the real value of the programme. Money quote:

�The investment in a digital affinity programme may be taking time, but on the positive side, work to date is yielding management new insights into Whole Foods' business� the company has gathered a trove of information that sorts patrons into five distinct customer segments. The segments have been tokenised, meaning the company is tracking mobile users' shopping habits and preferences within these as-yet undisclosed categories, and analysing the data.

"Beginning to glimpse customer types and purchase behavior trends, both of which can be opaque when a company is simply ringing up SKUs on a register, is a prerequisite to targeting shoppers with specific, personalised offers. And ultimately, pitching unique offers to enrolled customers is the type of activity Whole Foods' platform should enable in the future. It's a bitter and expensive truth in the retail industry, but an affinity programme that lacks action on accumulated data is, after a period of time, simply a glorified sales flyer.�

Amen, Motley Fool. What�s really exciting from an industry standpoint is the value that a financial adviser like Motley Fool places on the retailer�s investment in customer loyalty. Among the key points in the article:

  • Starbucks has shown the way. The article points out that the Starbucks� reward programme is associated with 22% of all U.S. transactions and �is driving significant �incrementality.� In other words, the �My Starbucks� programme is causing customers to visit more often, and tack on additional items to their orders. Incremental sales are a fine way to boost margins, if you can capture those extra patron visits.�
  • Investing in customers now will pay off later. The article notes that the company has taken its time in rolling out the programme, and that its margins have been compressed slightly as a result. But: �it makes sense to pull loyal customers repeatedly into stores, and frankly, this is worth the investment of even 100 to 150 basis points of gross margin in the near term.�

The Bullet Point: Convincing shareholders that an investment in customer loyalty now can pay dividends later has long been a challenge for loyalty marketers. If this positive reaction to Whole Foods� investment is any indication, Wall Street has finally taken notice. Says the Motley Fool article: �If Whole Foods can gain even half of the basis points in margin that Starbucks has added to its P&L, it will be worth both the initial investment, and the long wait, for the complete launch of its affinity programme.�

You can read the Motley Fool article here.

--Rick Ferguson

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