In their frenzy to win customers' allegiance, supermarkets are offering loyalty cards, boxes of chocolates, hair-dos and now uniformed helpers. But not, it seems, cheaper food. By Rosalind Sharpe
The nation's grocery shoppers are becoming more promiscuous. A housewife who, a few years ago, might have been faithful to Sainsbury's all her life is now dallying with Safeway's and flirting with Budgen's. Young singles are all over the place - in and out of Marks & Spencer, popping into convenience stores (of which there are 40 per cent more than there were five years ago) to pick up what the trade calls "top-up" and "distress" purchases. Last year, the Institute of Grocery Distribution, which keeps an eye on these things, disclosed that all of the major supermarket chains except Asda had been steadily losing loyal customers since 1993.

This worries them more than you might think. It's not that they want us to start running around in bomber jackets with "Pro Tesco Mori" or "The Kwik and the Dead" on the back. But the big multiples have traditionally depended on loyal customers - defined by the IGD as people who spend 70 per cent of their budget in the same store regularly - for half their turnover. There is a growing feeling that in their rush to build more and more stores and conduct high-profile battles about a few pennies off here and there, the supermarkets have forfeited their customers' trust.

Can they blame us if we have become cynical? Anybody can see that the supermarket sector is saturated. Apart from the discounters, like Kwik Save, the multiples sell more or less the same things, for more or less the same prices. A recent report by the Institute for Public Policy Research accused them of behaving like synchronised swimmers. We don't need more stores, and we don't need more goods in them. We might want the same goods more cheaply, but that isn't what we're going to get. Instead, in their efforts to persuade us that there is in fact something to choose between them, the supermarkets have started adding bells and whistles to the basic service. Hence the coffee shops and Post Office counters, the dry-cleaning services and in-store creches. Last week, it was 4,500 new helpful hangers- on at Tesco. But the idea the supermarkets are most excited about and have invested most in - not disinterestedly, as we shall see - is the customer loyalty card.

It's not a new idea: the Co-op divvy, defunct for several years now, was its forerunner. By accumulating points based on the amount of money customers spend, they earn a discount on future purchases or services. Thus there is an incentive to stick with one store, and perhaps spend more. In return, the shopper is "rewarded" for loyalty. Not handsomely - the discount on most of the schemes works out at 1 per cent, usually paid in the form of vouchers - but since people have to buy groceries anyway, it's better than nothing. Some schemes offer added bonuses such as discounts other stores or restaurants. Tesco, Safeway, Sainsbury's, Somerfield and the Co-op have all jumped on the bandwagon, while Budgen has gone one step further by issuing a Visa credit card (APR 22.4 per cent) with money-off deals attached.

Whether they work is doubtful. According to a report in the Grocer, the retail industry's trade magazine, Sainsbury's figures showed a decline of 1 per cent when a Tesco's Clubcard was available nearby. On the other hand, there's nothing to stop customers from holding three or four different loyalty cards and building up points on all of them. In other words, they can be as promiscuous as ever, and still get the discount.

Certainly, the schemes are costing retailers a lot of money. Sainsbury's Saver Card is reported to have cost pounds 30m to set up. Tesco, which launched the first national scheme, in February 1995, has so far spent pounds 10m on postage alone, sending quarterly mailshots to 6.5 million Clubcard members. By comparison, the biggest pay-out to date - pounds 235 worth of vouchers to a woman who runs a nursing home and buys all her supplies at Tesco - seems insignificant. Altogether, including money-off vouchers, coupons and special promotions such as free turkeys at Christmas and in-store hairdressing evenings, Tesco claims to have handed pounds 150m back to its customers in just over a year.

You don't have to be cynical about supermarkets to suspect there might be something other than your loyalty in this for them. There is: the basic information you provide about yourself when you fill in the membership form.

Since the widespread introduction of electronic scanning at supermarket checkouts just 15 years ago, retailers have spent millions of pounds on computers that keep track of the their stock from supplier to distribution centre to shelf with minute accuracy, down to the last bag of carrots or tube of toothpaste. What they have hitherto known nothing at all about is who is buying it.

From the supermarkets' point of view, the loyalty cards give the customer an incentive to provide them with information: who you are, what sort of household you live in, how many children you have. These details can then be linked to the information provided by the till every time you shop: whether you are a monthly or a weekly shopper; a regular buyer of catfood or Pampers; a convenience-food person or a fresh produce type.

Supermarkets are hungry for this kind of information because they think it will lead them, via the information superhighway, to retail paradise: one-on-one marketing. The chief executive of Tesco, Sir Ian MacLaurin, talks about a return "to the kind of personal relationship and knowledge base" that characterised retailing years ago, as if the woman in the corner shop who knew what type of tea a customer liked would have a clue what a "knowledge base" was.

The idea is that by analysing past spending habits - "data-mining" is the buzz term - the retailers will be able to predict shoppers' behaviour, and target their marketing accordingly. To some extent, this is already happening. In May, Tesco will be sending out a magazine to Clubcard holders, which it has produced in five versions to suit five different age-bands. If the technology works, customers should get a magazine about overseas travel if they are students, about children if they are parents, and so on. Last year, the Co-op in Cardiff sent its 1,000 highest-spending customers a box of chocolates. It also sent a letter, in October, to customers who had earned 250 points on its loyalty scheme, saying that if they took their total up to 500 points by Christmas - tried harder, in other words - the store would double the total.

Will this really make shoppers like supermarkets more, or switch chains, or stay loyal? Will it increase profits? At present, these sophisticated systems can barely be covering their costs.

If supermarkets were serious about stealing each other's customers, they probably would do better to cut their prices. British multiples have far higher profit margins than their counterparts in Europe or North America. This is partly to their credit: they have some of the most efficient distribution systems in the world. But why not pass on the benefits? If one of the chains shaved a few percentage points off its margins, it could provide the same service, still make a profit - and consumers would benefit. That would be real competition. All this fighting about our loyalty may be no more than a distraction.


Aylesbury, in Buckinghamshire, is a prosperous town with 47,000 inhabitants and four supermarkets: Safeway, Sainsbury, and two Tescos. How loyal are local shoppers?

Maureen Keyworth, 48, secretary, spent pounds 131: "I get everything at Tesco. I use my Clubcard but I think prices have gone up since they brought them in. I don't think the database is an infringement of my privacy - people haven't got that much privacy in that sense any more. I wouldn't be interested in special promotions - I get enough junk mail as it is. What I would like to see is self-scanning. That would save a lot of time."

May Cox, widow, spent pounds 18: "I can't drive. When my husband died I had to sell the car, so now I come to Sainsbury's in the centre of town because I can get here on the bus and go home in a taxi. I'm not particularly loyal. If another supermarket opened round the corner from me I'd go there."

Jason Cavill, 27, car salesman, spent pounds 40 plus pounds 150 on petrol for showroom cars. "I shop wherever it's convenient. I have a Tesco Clubcard but I haven't used it today, even though I've bought pounds 150-worth of petrol. It's sitting there on the front seat, but it's too much hassle, all these different cards."

Shirley Corke, 58, administrator, spent pounds 40. "I suppose I do three-quarters of my shopping at Sainsbury's and the rest at Tesco. I've been coming to this Sainsbury's for 18 years. It's the nearest thing we've got round here to a corner shop - the others are all too big. I do have a Tesco Clubcard. I think my name must be on every database in the country as it is, so one more won't make a difference."