Fresh & Easy Looking Into Accepting Mobile, Digital Manufacturers' Cents-Off Coupons; But the Jury is Still Out

Tesco's Fresh & Easy Neighborhood Market is looking at potentially adopting a program which would allow its stores to accept digital, paperless manufacturer's cents-off coupons, using either its own mobile phone-enabled application, or more likely by partnering with one of the existing mobile, digital couponing companies, such as Cellfire, Shortcuts or another, Fresh & Easy Buzz has learned.

As we've written about extensively, Fresh & Easy doesn't accept manufacturers' coupons - either the traditional paper or the newer mobile, digital versions - at its 147 fresh food and grocery stores in California, Nevada and Arizona.

Instead, Fresh & Easy regularly distributes its own store coupons - both via its Web site and in direct-mail flyers - in versions like $5-off purchases of $20, $6-off $30 or more and $10-off $50 or more. The store coupons are paper, either already in that form, or downloaded from the web by consumers and then printed out.

The key differences between manufacturers' cents-off coupons and store coupons like those Fresh & Easy uses are: (1) the manufacturers' coupons are for (discounts on) single items or products, while the Fresh & Easy coupons are a certain dollar amount "off" of total purchases; and (2) grocers get reimbursed by the manufacturers' for the face value of the coupons they issue that are redeemed by the retailers (plus a small handling charge), while the discount on the Fresh & Easy store coupons comes out of the grocery chain's own profit margins.

Based on the information we have, Fresh & Easy Neighborhood Market has not yet decided to go forward with a mobile, digital couponing program, but is looking into the possibility of doing so for its stores.

The easiest way for Fresh & Easy to get into the mobile, digital couponing game, something many of its competitors such as Kroger Co. and Safeway Stores, Inc. already are doing, would be to partner with a third-party company like Cellfire or one of the others.

Such companies already have the technology available to enable grocers like Fresh & Easy to adopt a program without much upfront development cost.

These companies also have relationships with the packaged goods manufacturers and marketers that issue the coupons. The total system is in place in a package for retailers.

For example, Kroger Co. which operates the Ralphs and Food-4-Less chains in Southern California; Fry's in Arizona; and Smith's Food & Drug in Nevada, partners with Cellfire for its mobile couponing system. Cellfire's system offers both traditional coupons that can be obtained via the internet and then printed out, and digital coupons available on cell and smart phones.

And Safeway operates the Vons chain in Southern California, Central California and Southern Nevada; and under its Safeway banner in Arizona.

A major key to a mobile, digital couponing system like Cellfire is that a retailer has a loyalty card program, something Kroger Co. does have but Tesco's Fresh & Easy doesn't at present. However, some third-party mobile, digital couponing systems will work for a retailer even if it doesn't have a loyalty card program.

The way this works is that a shopper merely shows the checkout clerk the various digital coupons he or she has on their mobile phone during the checkout process. The clerk then deducts the digital coupon discounts from the customer's order on the store's POS system, just as they do with a paper coupon.

This presents a problem however for Fresh & Easy, since it's stores have self-service checkout only. As such, store clerks would have to assist shoppers whenever they have digital coupons on their mobile phones to be deducted from their respective grocery purchase orders. This could be so frequent it might turn self-service checkout into full-service, which is something Fresh & Easy's senior management doesn't want to do.

Therefore, since Fresh & Easy doesn't currently have a loyalty card program, it would have to use this second alternative (the human checkout clerk) in order to be able to use the existing third-party mobile, digital couponing systems, based on the current technology available.

Barring bringing on a loyalty card program, or having store clerks assist each customer who has mobile coupons on their mobile device to be deducted, Tesco's Fresh & Easy either would have to create its own mobile, digital coupon application, or in partnership with an existing third-party mobile couponing company, figure out a way to get around these two limiting factors.

Fresh & Easy's CEO, Tim Mason, was in the past the IT marketing manager for Tesco in the United Kingdom. It was under Mason in 1996 that Tesco launched its first online grocery Web site, which was developed by Nick Lansley, a programmer and analyst in the company's IT department at the time.

Today, Lansley is Tesco's resident IT guru. He would be the go-to-guy we would look at to solve the mobile, digital couponing dilemma for Fresh & Easy described above.

One of Lansley's major focuses for Tesco in the United Kingdom currently is developing various smart phone applications involving Tesco's Clubcard loyalty card program, for example.

One of the key reasons Fresh & Easy is looking into a mobile, digital couponing program is because its received numerous complaints about not accepting paper manufacturers' cents off coupons over the last two-plus years its been in business.

Additionally, since the grocer started actively asking its followers on Twitter and Facebook for feedback, suggestions and ideas starting in about mid-2009 - which Fresh & Easy responds to well on the social media sites -one of those frequent suggestions from shoppers has been that it accept manufacturers' cents off coupons. And as more and more grocers adopt mobile, digital coupons in Fresh & Easy's market regions, more shoppers have also been suggesting that it to accept the paperless coupons.

Tesco's Fresh & Easy doesn't want to accept paper of any kind. In addition to not taking paper manufacturers' coupons, the stores accept no paper personal or payroll checks or WIC Vouchers, the check-like government vouchers given to poor mothers. They do accept their own paper Fresh & Easy store coupons however.

The grocer believes the labor savings from not accepting paper checks, WIC Vouchers or manufacturers' coupons in its stores outweighs the benefits of taking them, even though virtually all of its major competitors do take all of the above.

A mobile couponing system that accepts digital manufacturers' coupons would, if it can be technologically adopted given Fresh & Easy's limitations as we described above, allow the grocer to at least capture some of the business from coupon shoppers it's not getting in its stores that it's giving away to competitors, virtually all of which welcome and accept paper manufacturers' cents-off coupons and increasingly are adopting their own mobile, digital couponing systems. And, there's a substantial amount of business from frequent coupon clipper-users out there.

We've said in numerous pieces in Fresh & Easy Buzz over the last two-plus years that Tesco's Fresh & Easy is making a huge mistake by not accepting manufacturers' cents-off coupons of all types - traditional paper, paper coupons clipped out by consumers via internet sites, and mobile, digital coupons.

It's been, and remains, our analysis that Tesco's Fresh & Easy is missing the boat by not accepting all forms of these manufacturer-issued coupons in its stores, particularly in light of the fact that consumer use of the coupons, including traditional paper ones, has soared over the last two years, and is expected to increase again in 2010.

We believe one sign that Fresh & Easy has decided not to go forward with a mobile system that would allow it to take digital manufacturers' coupons is if the grocer comes out with a digital version of its current paper store coupons, which are distributed regularly via the web, and in paper format by direct mail, and sometimes in the stores.

It's our analysis that if Fresh & Easy does this anytime soon, it will mean, at least for the foreseeable future, it has no plans for a mobile couponing program which would allow the grocery chain to accept digital versions of manufacturers' cents-off coupons in its stores.

[Readers: Click here and here (plus, see the links there) to read a selection of past posts from Fresh & Easy Buzz about the manufacturers' coupon phenomenon, mobile coupons, digital coupons and related issues and topics.]

Food & Grocery Retailing in the 21rst Century: New Study Says Younger Consumers Getting Hip to Online Coupons; Particularly Mobile Couponing

Pictured above is a graph captured today from Google Trends, showing the volume of consumer searches on the search engine for "online coupons," from 2004 to today, April 5, 2009. Notice the progression of online search for the manufacturers' discount grocery coupons.

When it comes to online manufacturers' discount grocery coupons, the younger an adult consumer is, the more receptive he or she is to the online discount offerings, according to a just-released joint-study by AOL's Platform- A business intellegence group and consumer packaged goods research firm Information Resources, Inc. (IRI).

The joint study, which utilized information provided by 36,000 IRI consumer panelists, offers the following three key results:

>The youngest market segments are the most receptive to online coupon offers, with 51% of 18-24 year-old shoppers indicating that they would be very likely to use coupons presented to them online.
>While historically ambivalent to traditional coupons, younger couples are the most likely life-stage group to use online coupons, indicating an opportunity to influence product choices within this segment.
>Young couples without children are among the respondents most likely to use a coupon they found online, followed by shoppers with younger children.

"What's particularly remarkable about the study results is how open young people are to the idea of using coupons online – even though clipping coupons from the newspaper really hasn't been their thing," says J. P. Beauchamp, senior vice president, IRI Consumer & Shopper Insights. "I think we’ll be seeing consumer packaged goods manufacturers jumping on this trend – using online coupons to court a new generation of consumers and build loyalty during these cost-conscious times." [We don't think the finding that young people are "so open" to using online coupons is remarkable. In fact, it makes intuitive sense that 18-24 year olds would be so receptive to online coupons. Most spend more time online today than they do watching television, for example. And the Internet and the Web is to today's 18-24 year olds what the telephone was to 18-24 year olds in the 1970's and 1980's.]

Based on input from more than 36,000 IRI panelists gathered in September, 2008, the study gauged consumer usage of traditional newspaper coupons and interest in digitally distributed online coupons.

"The research comes at a critical juncture, when American families are extremely value-focused and eager to stretch their buying power, yet newspaper circulation (and thus the traditional vehicle for coupons) is in steep decline," says Mark Ellis, senior vice president of the AOL/Platform-A business intelligence unit.

AOL owns and operates an online manufacturers' grocery coupon service called Shortcuts.com. The service allows shoppers to search for and download online manufacturers' grocery coupons using a cell phone or other personal digital device right in a supermarket or other format store aisle. The product item discount value of the coupon is downloaded directly onto the shoppers store loyalty card. The discounts are then given to the customer at check out and printed out on their receipt.

"This data highlights a number of trends that are converging to make online couponing an appealing option for consumer packaged goods manufacturers, Ellis says. "We have an economy that makes coupons much more relevant to the average consumer, a rising generation of families totally at home with the Internet, and an overall decline of the newspaper and its Sunday circular distribution. There's clearly a huge window of opportunity here."

The AOL/IRI study reports that more than 90 million consumers (78% of retail shoppers) currently use traditional newspaper coupons, with nearly one out of every four of the newspaper coupon clippers likely to be at least 65 years old.

Additionally, It also suggests that nearly four out of every 10 shoppers – a total of 40 million consumers – would be very likely to use coupons accessed online. Not surprisingly, the younger the consumer, the more comfortable they were with the idea of accessing coupons online. After all, consumers aged 18-24 years old, the top online grocery coupon demographic, according to the study, were literally born into the era of the Internet. Conversely, consumers over 40 have had to adapt to the Internet and its various offerings.

As a result, younger consumers are early adopters to everything digital and online; it's coded in their DNA. For older consumers it's a more learned behavior. But one shouldn't discount the fast-growing numbers of older consumers who are going online to search for and download manufacturers' grocery coupons. It is significant, and growing rapidly in the current recession.

Older consumers may be late adopters in some cases, but when they adapt they tend to go big online. For example, people over 40 are the fastest-growing consumer segment signing up for the social networking site Facebook, according to data released by the company in March.

AOL, which is owned by Time-Warner, obviously wants to get more consumer packaged goods companies to use its Shortcuts online coupon service, along with getting more consumers to regularly use the site to obtain the coupons.

But the study's results basically fit with Fresh & Easy's Buzz's independent research, which finds online consumer coupon use fast-growing, particularly among adult consumers 18-35, but also those 40 years old and over. Most of the online use by consumers at present involves downloading manufacturers' (and in cases where retailers like Tesco's Fresh & Easy and others that offer store coupons) coupons from Web sites, printing the coupons out, and taking them to the supermarket to redeem.

Right now it's all about obtaining value, a theme we write about often when it comes to food and grocery shopping. [Related value proposition reading. April 1, 2009: Competitor News: Bashas' Chain Launching 10,000-Plus Item Storewide Price Slashing Program This Week in its Arizona Supermarkets. March 2, 2009: Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy. March 11, 2009: Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Changes its Promotional Advertising Flyer to 'Weekly;' Something We've Been Suggesting For About A Year.]

AOL/Platform-A and IRI agree with our value is currently King assessment.

In the study they say: "Value-focused promotion is clearly the strategy of choice right now in the consumer packaged goods (CPG) market, evident in the fact that eight out of Platform-A’s top 10 CPG clients use value-based messaging in their online advertising. And, many of these advertisers are already taking advantage of the innovative approaches to couponing available online, such as AOL’s Shortcuts.com. Launched in 2008, the site allows consumers to apply online coupon promotions directly to their grocery loyalty cards, making coupon discounts paperless and automatic at checkout.

Kroger Co., which operates the Ralphs supermarket chain in Southern California and in California's southern Central Valley region, Food 4 Less in Southern California and Nevada, and the Fry's and Smith's Food & Drug chains in Arizona and Nevada (all markets where Tesco's Fresh & Easy has its current 116 grocery and fresh foods markets), is using AOL's Shortcuts.com service, along with Cellfire Mobile, a competitor. [You can read about the development in this March 19, 2009 piece: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack.]

Platform-A is AOL’s digital marketing and advertising business. It includes AOL.com, AIM, MapQuest, Advertising.com's third-party networks and other services.

Platform-A also includes TACODA's audience insights and behavioral targeting; Quigo, a site- and content-targeting solution; ADTECH, an international digital ad serving business; Third Screen Media, a mobile ad serving network; and buy.at, an affiliate marketing solution.

AOL's Platform-A currently has operations in the United States and in nine European countries: the United Kingdom, France, Germany, Denmark, Finland, Netherlands, Norway, Spain, and Sweden. It also operates in Japan through a joint venture with Mitsui corporation.

Online couponing and Tesco's Fresh & Easy

Fresh & Easy Buzz's research indicates that the only consumer segment that's began to develop some retail brand loyalty to Tesco's small-format, combination grocery and fresh foods Fresh & Easy stores thus far are younger consumers in the about 18-34 year old age range.

It is among this general age range that our research finds the most shoppers having an affinity for the Fresh & Easy concept, model, format and way of doing business.

Among the 18-35 year old age cohort, our research shows those aged about 18-29, the same basic age cohort indentified in the AOL/IRI study as being the most active (or willing to use) manufacturers' online coupons, to be the age group that appears to generally like Fresh & Easy the most. In other words, the younger the adult is the more they seem to like Fresh & Easy, based on our research and analysis.

Unfortunately for Tesco's Fresh & Easy, its stores do not accept manufacturer-distributed grocery coupons. As a result, until the grocer changes that operations practice and starts taking the ocupons, it can't tap into the potential opportunity that presents itself. That opportunity being that the same consumer age group our research shows likes Fresh & Easy the best happens also to be the age group that uses and is willing to use manufacturers' grocery coupons the most. [Related reading - March 7, 2009: Analysis & Commentary: The Seven Retail Operations Changes Tesco's Fresh & Easy Neighborhood Market Needs to Make to Help it Get On the Success Track.]

Fortunately (accept from a profit margin perspective) for Tesco's Fresh & Easy, it does sometimes issue its own store brand discount coupons (the $5 off purchases of $20 or more and other value variations) online on its http://www.freshandeasy.com/ Web site, as well as using Twitter.com to sometimes promote the availabilty of the store coupons at the Web site.

The downside between manufacturers' item coupons and retailers'-own store coupons though is that in the case of the manufactuers' coupons, online or paper, the manufacturer pays the retailer back for the discount value (plus a five cent or so handling charge per coupon) of the coupon, which means the discounts don't come out of a grocry chain's profit margins.

Retailer store coupons though come directly out of the retailer's profit margins. For example, if a shopper buys $30 worth of groceries and uses one of Fresh & Easy's $6-off store coupons, Tesco loses a whopping 20% on the transaction. In the low margin grocery business that 20% is a significant percentage to lose. This is one key reason why Tesco's Fresh & Easy has dramatically reduced the distribution of its deep-discount store coupons since the first of this year, much to the dismay of many shoppers who became used to using the coupons as a regular habit at the stores.

It's our analysis that Tesco is missing a huge opportunity to tap into the fast-growing online manufacturers' grocery coupon trend by not accepting the coupons in its 116 Fresh 7 Easy markets in California (Southern and Bakersfield), southern Nevada and Metro Phoenix, Arizona.

Additionally, since Tesco isn't using a loyalty card program at Fresh & Easy USA like it uses at Tesco in the United Kingdom, it can't utilize paperless online manufacturers' grocery coupon services like AOL's Shortcuts.com and Cellfire Mobile, both which allow retailers to accept the online coupons without any paper transactions.

The primary reason Tesco's Fresh & Easy doesn't accept manufacturers' cents-off coupons, just as it doesn't take WIC vouchers or paper checks from customers, is because the retailer believes the labor savings of avoiding store-level paper transactions (although last time we looked cash is still paper money, as are the Fresh & Easy paper store coupons) outways the benefits of accepting the paper coupons and checks from shoppers. We disagree with this based on extensive experience and our research and analysis.

Therefore, if Tesco's Fresh & Easy did use a loyalty card scheme, it could utilize the various paperless manufacturers' grocery coupon services and still avoid handling the paper coupons. But it can't since in order to use services like Shortcuts and cellfire a retailer must has a loyalty card system in place.

Therefore it's a "lose-lose" proposition all around regarding manufacturers' coupons for Fresh & Easy until it changes its operations policy, which would be the smartest thing to do since paper manufacturers' discount coupons are still the vast majority of those used by shoppers, or the grocer brings in a loyalty card program.

Conclusion: Competitive advantage

It's our analysis that those food and grocery retailers like Kroger Co. that have adopted the use of paperless coupon technology like Shortcuts and Cellfire for their stores have in their hands what will increasingly become a competitive advantage.

This is particularly the case because more and more consumer packaged goods companies are signing up with the paperless coupon services, offering their coupons with them in addition to elsewhere online and in the traditional paper formats like Sunday newspaper inserts and direct mail.

Additionally, consumers are increasingly buying smart phones like Apple's 1-phone and others. These units make going online anywhere a breeze. This superior protable digital technology will result in more consumers of all ages using digital media, including online manufacturers' coupons.

Lastly, the power of combining the ability for shoppers to obtain online coupons via their handheld devices right at the point-of-purchase, in the supermarket aisle, is powerful. For example, a shopper can check Shortcuts.com or Cellfire Mobile right in the cleaning products aisle in a Kroger Co. store before deciding which brands to buy. They can then download a coupon for a particular brand of laundry detergent, household cleaner, paper towels and the like, buy those brands, and get an instant discount on each of the items at checkout.

The store is increasingly where the action -- and marketing -- is. Therefore the obtain at the point-of-purchase manufacturers' paperless coupon technology is only going to continue to grow, in our analysis. Those retailers that are early adopters, like Kroger, will reap the most competitive advantage from the technology, we believe.

Select related stories from Fresh & Easy Buzz:

>March 19, 2009: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack

>March 9, 2009: Consumer Use and Retailer Redemption of Manufacturers' Coupons Soaring Says Leading Redemption Company in the U.S.; But Not at Tesco's Fresh & Easy

>March 7, 2009: Google & Yahoo - The Tale of the Search Engines: An Analysis of How Tesco's Fresh & Easy is Losing Out By Not Accepting Manufacturers' Grocery Coupons

>February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

>February 12, 2009: Consumer Use of Manufacturers' 'Cents Off' Coupons Continues to Grow: The Latest American Rage: Home Coupon-Clipping and Coupon-Trading Parties

>December 12, 2008: December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>September 4, 2008: >September 4, 2008: News & Analysis: Tesco's Fresh & Easy Launches New Direct Mail Promo Piece Full of $5-Off Discount Coupons; Is it Taking Deep-Discounting Too Far?

>December 22, 2008: December 22, 2008: Marketing: Tesco's Fresh & Easy Launches E-Mail Promo Alert Program; Something Fresh & Easy Buzz First Suggested it Do Many Months Ago

[You can follow Fresh & Easy Buzz around on Twitter.com at: www.twitter.com/freshneasybuzz.]