'Friends' Card Problems Make it Even More Difficult to Earn A Little 'Loyalty' at Fresh & Easy Neighborhood Market

Analysis & Commentary

On June 30 of this year we broke the news in this story [Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year] that Tesco's Fresh & Easy Neighborhood Market would be launching a customer loyalty-rewards program and card this year.

On July 18, 2011, the grocery chain confirmed our report in a press release, announcing its plans to test such a card in its seven stores in the Bakersfield, California region in October, with a chainwide roll out to follow before the end of the year.

Fresh & Easy "tested" its "Friends" loyalty-rewards card very briefly in the Bakersfield-area stores in early October, deciding to launch the card, which offers customers points they can then redeem for cash discounts in the stores, shortly thereafter, saying the brief test went so well they decided to take the card chainwide earlier than originally planned.

As part of our detailed June 30, 2011 story, we noted the comments below, which came from a source in a good position to speak about the loyalty/rewards program's development at Tesco's Fresh & Easy:

"In fact, one of our sources who's familiar with Fresh & Easy's loyalty program tells us, from the source's perspective, the program lacks expertise from a marketing, information technology and software delivery standpoint. And when it comes to loyalty programs, IT, software performance and marketing are about all that matters. Therefore, in the source's view, Fresh & Easy's loyalty program is far from ready for prime time." (Read the entire story for the full context of the paragraph above.)

Our source was, as they like to say across the pond ... "spot on."

Fresh & Easy Neighborhood Market's launching of the card has been plagued by problems, some of which we've tweeted about periodically on our Twitter feed since the October launch.

Since the launch last month, we've heard from numerous readers who've experienced various problems signing up for the card online, along with, in the case of those who didn't give up on the online sign-up process completely, having problems loading the digital points on the card, and for those who achieved that, then redeeming the cash reward points in-store.

We've also observed the problems first-hand in various Fresh & Easy stores we've visited, where we've talked to both customers and employees about the card's introduction and problems.

We also conducted an online sign-up process in-house here at Fresh & Easy Buzz to test it. The result: Numerous problems, most of which are described in this piece.

Fresh & Easy customers who've signed-up for the card in-store have reported a less painful process than those attempting to do so online, based on our reporting.

We haven't written about the problems with Fresh & Easy's loyalty card - the first heads up which was given in our June 30 story - in the blog until now for two reasons - (1) we haven't had a chance to yet (it's been a busy month), and (2) we wanted to give the grocer a decent period of time to fix the problems, which are at their most basic and most immediate technological, but also are systemic with the loyalty card scheme itself, in our analysis.

That systemic aspect has at its heart two things: The rewards points are just too low from a relative perspective, and the entire card scheme is way to complicated. Both can be fixed - and should be soon.

Nancy Luna, a writer-blogger for the Orange County Register newspaper in Southern California has been hearing similar complaints from her readers, along with experiencing the technological and related problems with the "Friends" card directly.

She wrote about her own experiences with the card today (see here). In her piece Luna also offers a number of comments from readers about their experiences signing up for and using the "Friends" card.

For her story, Fresh & Easy Neighborhood Market's corporate spokesman tells the writer that the main problem with the loyalty card has been a faulty magnetic strip on the back of the physical card, which he says the grocer is fixing with the next batch of plastic cards it orders.

But the problems we've identified since the October launch go far beyond just the magnetic strip on the plastic card.

Those problems include: difficulty with the online sign-up (Fresh & Easy's twitter feed has been filled with customer requests for assistance with this process since the card was launched in October, for example), not getting proper discounts in-store and a number of others, many of which are the same complaints voiced by Ms. Luna's readers in her piece today and communicated to use by readers of Fresh & Easy Buzz and others.

Tip: One reader told us he's solved the magnetic-strip problem by using the scanner-price gun at the checkout stand to read his "Friends" card because the card reader won't read it when it's swiped.

Fresh & Easy's loyalty-rewards card was developed in-house and by its Dunnhumby firm in the United Kingdom, which it now owns 100% of. Dunnhumby has an office in the U.S., in Ohio, but could not develop the card for Fresh & Easy because the U.S. branch has an exclusive loyalty card program deal with Kroger Co., as we noted in our June 30 story.

It's clear our source was correct in June when he said the technology behind Fresh & Easy's loyalty card was not ready for prime time, evidenced by the numerous problems consumers are having signing up for it and using it in the stores.

We should say the rank-and-file employees at Tesco's Fresh & Easy - from the people answering the many complaints and questions on Twitter to the workers in the stores - have been working hard and doing their best to fix the problems and make the card work for customers.

But we should also say: They shouldn't have to be using their time to do so. Senior management and CEO Tim Mason should have made sure the card, the technology behind it, and the launch was "ready for prime time."

Why then did CEO Tim Mason decide to launch the "Friends" card chainwide in October?

He was made aware of the potential technological problems, our sources say, including the one who gave the heads up in June. And, of course, the caution was right there in our June 30 story, for all to see. The blog does get a number of daily hits from the El Segundo, California USA zip code.

We can't answer that question fully, although a prime motivator behind the card is the hope among senior management that it will allow Fresh & Easy to stop issuing its deep-discount store coupons on a chronic basis.

That hasn't been the case so far this month however. The grocer has issued online coupons good for $10-off purchases of $50 or more coupons via its "Friends" e-mail program four times this month. The first one coming out November 2, followed by another voucher on November 9, a $10-off-$50 coupon on November 16, and another of the same value today. Fresh & Easy has also distributed the coupons in its paper-version advertising circulars this month.

But specific motivations aside, this isn't the first time Fresh & Easy has launched a program it wasn't ready to handle, although this is the first major instance of doing so in a big way in the Philip Clarke era.

Clarke replaced Terry Leahy as CEO of United Kingdom-based Tesco in March of this year. Fresh & Easy Neighborhood Market was Leahy's baby, and was launched in the U.S. in 2006, the first stores opening in November 2007. There are currently 184 Fresh & Easy markets in California (135 stores), Nevada (21 units) and Arizona (28 stores).

Since becoming CEO of parent company Tesco, Clarke has taken a very hands-on approach with Fresh & Easy, which in his previous positions as head of corporate IT and chief of European and Asian retail operations at the United Kingdom-based retailer he had virtually no involvement with from 2006-2010.

For example, Clarke visits Fresh & Easy's corporate headquarters in El Segundo, California and the distribution campus in Riverside County near-monthly, along with visiting stores regularly when he's in Southern California. Three of his regular stops, for example, are the Fresh & Easy markets in Manhattan Beach, Burbank and Whittier, where he talks with employees regularly.

Clarke has also initiated numerous changes at Fresh & Easy, the in-store bakeries and coffee bars being installed in about 100 of the 184 stores being two of the most significant, since becoming CEO of Tesco in March.

The loyalty card is also something he promoted, as it takes as its inspiration Tesco's ClubCard, which has proven to be very successful for the retailer in the UK. Leahy, Clarke and Mason are all big fans of the Tesco card.

But the Fresh & Easy "Friends" card is a card of a different matter - it's a different type of loyalty card (100% rewards) for a different type of grocery chain (small-format only; Tesco operates multiple formats in the UK) that's located in another country (the U.S. and not the UK.)

The "Friends" card program problems we describe and those described in the Orange County Register story have existed since the first day of the chainwide launch in October. Whatever test there was in Bakersfield obviously didn't serve any real purpose. Tests are supposed to spot such technological problems, after all.

We've talked to a number customers who like the card despite the problems - although most tell us they feel it's too complicated a scheme, and that the points aren't high enough relative to purchase amounts to make the savings significant.

For example, it takes 500 points to equal a $5 discount.

We don't think this is a particularly insignificant discount, based on our experience in the industry. However, Fresh & Easy shoppers are used to getting coupons from the grocer for $5 off purchases of $20 or more, so their frame of reference regarding it taking 500 points, which requires a shopper to spend $100 to obtain, is based on the coupon value they've been getting regularly for years in the "friends of Fresh&easy" e-mail-based program, which the loyalty card is now the central aspect of. From that perspective, we understand why many customers feel requiring 500 points to get a $5 cash discount is too low in terms of the spend-to-points ratio.

Fresh & Easy has heard this complaint from customers because it's now offering two-times the regular point value on the card between now and the end of the holidays. However, come January 1 the grocery chain is going to have to figure out what to do about the point value, because it is something many shoppers are not happy with.

Additionally, the more points Fresh & Easy offers on the card, the more discounts it gives out. Those discounts to customers don't come out of thin air or from the Tesco Santa Claus. Instead, the discounts come out of Fresh & Easy's gross margins.

For example, Fresh & Easy is offering Jenni-O frozen turkeys for 39-cents pound, which is already at or below the grocer's cost. Last week they gave 500 bonus points to "Friends" card holders who bought one of the birds, which is a $5 cash discount that can be redeemed in-store.

But Fresh & Easy also issued a $10-off $50 store coupon the same week, which can be used to turn a $50 purchase, which might include a frozen Jennie-O turkey or two, into a $40 purchase.

The point: All these discounts come out of margin, which at Fresh & Easy must be raised demonstrably from its current negative 30%-plus level (trading margin) in order for Tesco to meet its objective of breaking even with the chain by February 2013, the goal CEO Clarke has set. Heavy discounting like that described above makes achieving that extremely difficult.

These technological problems with the "Friends" card can be fixed, although its late November and they haven't all been fixed yet. But damage has already been done.

In terms of the overall loyalty/rewards card scheme, simple and significant are two key variables for any successful program. Therefore, Fresh & Easy must make its program more simple overall and make the points system more significant to shoppers, if it wants the card to do what it hopes it will do. And it needs to do that soon.

Meanwhile, as we were the first to report in this story on November 10 [Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market], Simon Uwins, who was Fresh & Easy's cheif marketing officer and had ultimate responsibility for the launch of the loyalty card program, has left the grocery chain.

Responsibility for the loyalty scheme now falls to John Burry, who has taken on the marketing responsibility at Fresh & Easy, along with keeping his previous responsibility as the grocer's chief commercial officer (head of buying and merchandising). His new title is chief customer officer.

Burry, who had a very full plate already - the center of which features a heaping serving of gross margin improvement as job one - must now make room on that plate for fixing the loyalty card program, which was Uwins' ultimate responsibility before he left two weeks ago.

We will offer some detailed analysis on the loyalty card program at Fresh & Easy in an upcoming story.

But for now the difficulties couldn't come at a worse time for the chain. The October-December holiday sales period is a key selling season for all grocery chains, and particularly for Fresh & Easy because it needs to hit sales goals that have been set relatively high for the period.

Fresh & Easy's employees need to be focused 100% on merchandising and in-store customer service for the Thanksgiving and Christmas period, which are the top two sales holidays in the grocery business in the U.S., rather than having to spend valuable time dealing with technological problems related to what was too early of a chainwide roll-out of its loyalty card, which is something the source in our June, 2011 story made clear for all to read - offering it as an intentional heads up.

Related Stories

November 18, 2011: Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers

July 17, 2011: Send in the Clowns: Did You Hear the One About Fresh & Easy Neighborhood Market Launching A Customer Loyalty Program?

June 30, 2011: Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year

February 2, 2010: Dunnhumby; Trial Balloons By Media; and Fresh & Easy's Loyalty Card Marketing Trap

December 8, 2009: Analysis: Why A Loyalty Club Card Program Makes Zero-Sense For Tesco's Fresh & Easy USA.