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Key Findings on Loyalty Pricing in the Groceries Sector (CMA)

Report: Key Findings on Loyalty Pricing in the Groceries Sector (CMA)

The Competition and Markets Authority (CMA) recently conducted an in-depth review of loyalty pricing in the UK groceries sector, addressing concerns about its fairness, transparency, and impact on consumer behaviour. Loyalty pricing, which involves offering discounted prices exclusively to members of supermarket loyalty schemes, has become a prevalent strategy among major retailers. This report summarises the CMA’s findings, exploring its effects on shoppers, market competition, and compliance with consumer law.

2. Overview of Loyalty Pricing

  • Definition: Loyalty pricing refers to dual pricing, where products are sold at lower prices to loyalty scheme members and higher prices to non-members.
  • Adoption: Almost every major UK supermarket, including Tesco, Sainsbury’s, Morrisons, Co-op, and Waitrose, has adopted some form of loyalty pricing.
  • Revenue Impact: Between November 2023 and January 2024, loyalty promotions accounted for over £5 billion in revenue, representing 22% of total grocery sales at supermarkets offering these promotions.

3. Key Findings from the CMA

3.1 Consumer Perceptions
  • Fairness Concerns:
    • 43% of shoppers believe it is unfair that lower prices are restricted to loyalty scheme members.
    • Barriers such as limited digital access, data privacy concerns, and minimum age requirements contribute to perceived inequity.
  • Trust Issues:
    • 55% of consumers think non-member prices are inflated to make loyalty discounts seem more appealing.
    • Only 60% trust that loyalty prices represent genuine savings.
  • Satisfaction with Savings:
    • Despite scepticism, 69% of shoppers agree that loyalty pricing provides good savings for members.
3.2 Consumer Behaviour
  • High Membership Rates:
    • 94% of UK grocery shoppers are members of at least one loyalty scheme, holding an average of 3.1 memberships.
    • Tesco Clubcard (77%) and Sainsbury’s Nectar (57%) are the most popular schemes.
  • Increased Engagement:
    • 27% of shoppers joined at least one loyalty scheme in the past 12 months, primarily motivated by lower prices.
  • Shopping Habits:
    • Loyalty pricing influenced 27% of consumers to shift more of their shopping to supermarkets offering these schemes.
3.3 Supermarket Practices
  • Varied Approaches:
    • Tesco leads with the most extensive loyalty pricing strategy, offering over 8,000 products under its Clubcard Prices scheme.
    • Sainsbury’s Nectar Prices program has expanded to include approximately 7,000 products.
  • Integration with Technology:
    • Supermarkets increasingly use AI and customer data to personalise offers and enhance engagement. Examples include Sainsbury’s Your Nectar Prices and Tesco’s targeted coupons.
  • Promotion Types:
    • Dual pricing, bundle promotions, and multibuy 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 demographics, such as older adults or those without smartphones.
    • Only 3% of regular grocery shoppers are not members of any loyalty scheme, citing complexity and lack of perceived value as key reasons.
  • Transparency and Compliance:
    • The CMA raised concerns about the potential for loyalty promotions to mislead consumers, particularly when non-member prices are perceived as inflated.