Report: Key Findings on Loyalty-Based Pricing in Grocery (CMA)
The Competition and Markets Authority (CMA) recently carried out a comprehensive analysis of loyalty pricing in the UK food sector, addressing concerns about its fairness, transparency and impact on consumer behavior. Loyalty pricing, which involves offering discounted prices exclusively to members of supermarket loyalty programs, has become a prevalent strategy among major retailers. This report summarizes the CMA’s findings and analyzes their effects on shoppers, market competition and consumer law enforcement.
2. Loyalty Pricing Overview
- Definition:Loyalty pricing refers to dual pricing, where products are sold at lower prices to loyalty program members and higher prices to non-members.
- Adoption:Almost all major UK supermarkets, including Tesco, Sainsbury’s, Morrisons, Co-op and Waitrose, have adopted some form of loyalty pricing.
- Revenue Impact:Between November 2023 and January 2024, loyalty promotions accounted for more than £5 billion in revenue, representing 22% of total grocery sales at supermarkets offering these promotions.
3. Main conclusions of the CMA
3.1 Consumer perceptions
- Equity concerns:
- 43% Shoppers believe it is unfair that lower prices are restricted to loyalty program members.
- Barriers such as limited digital access, data privacy concerns, and minimum age requirements contribute to perceived inequity.
- Trust issues:
- 55% Consumers think prices for non-members are inflated to make loyalty discounts seem more attractive.
- Solo 60% trust that loyalty pricing represents genuine savings.
- Satisfaction with savings:
- Despite skepticism, 69% Shoppers agree that loyalty pricing offers good savings for members.
3.2 Consumer behavior
- High membership rates:
- 94% of UK grocery shoppers are members of at least one loyalty program, with an average of 3.1 memberships.
- Tesco Clubcard (77%) and Sainsbury’s Nectar (57%) are the most popular plans.
- Greater commitment:
- 27% of shoppers joined at least one loyalty program in the past 12 months, motivated primarily by lower prices.
- Purchasing habits:
- Loyalty prices influenced 27% of consumers to move more of their purchases to supermarkets that offer these programs.
3.3 Internships in supermarkets
- Varied Approaches:
- Tesco leads with the broadest loyalty pricing strategy, offering more than 8,000 products under its Clubcard pricing scheme.
- Sainsbury’s Nectar Prices program has expanded to include approximately 7,000 products.
- Integration with Technology:
- Supermarkets are increasingly using artificial intelligence and customer data to personalize offers and improve engagement. Some examples are Sainsbury’s Your nectar prices and Tesco specific coupons.
- Types of promotions:
- Dual pricing, bundle promotions, and multi-purchase discounts are the most common forms of loyalty pricing.
3.4 Barriers and challenges
- Accessibility issues:
- Digital-only schemes and data-sharing requirements exclude certain demographic groups, such as older adults or those without smartphones.
- Solo 3% of regular food shoppers are not members of any loyalty programs, citing complexity and lack of perceived value as key reasons.
- Transparency and compliance:
- The CMA expressed concern that loyalty promotions could mislead consumers, particularly where prices for non-members are perceived as inflated.