Tesco follows Amazon playbook with paid loyalty card

London

TESCO plc is hitting back at Amazon.com Inc and discounters that are stealing its lunch by borrowing from the US e-commerce giant's own playbook.

Britain's largest retailer this month introduced Clubcard Plus, a subscription-based loyalty plan where customers pay a monthly fee to receive special deals.

It expands on Tesco's existing points-based system with a business model more in line with Amazon Prime, Costco Wholesale Corp or even Netflix Inc.

Tesco is the first of the big four UK supermarket chains - which also include J Sainsbury plc, Asda Group Ltd and Wm Morrison Supermarkets plc - to introduce a subscription-based loyalty programme. They're all trying to find ways to boost sales amid the shift to online shopping and fierce competition from discounters Aldi Stores Ltd and Lidl Ltd.

"The costs are very hard to estimate" with the new Tesco offering, said Bruno Monteyne, senior analyst for European retail at Sanford C Bernstein. "The customer demand is hard to estimate as well, but those are the risks of innovation: if you don't try, you don't innovate."

Clubcard Plus holders pay a monthly fee of £7.99 (S$14). They then receive 10 per cent off two shops per month of as much as £200 each, as well as a constant 10 per cent off Tesco brands including F&F, Tesco Pet and Go Cook. The service is limited to in-store purchases.

The rollout hasn't been completely smooth. Tesco withdrew some ads for Clubcard Plus earlier this month after push-back on social media from former Spice Girl Mel B, whose image was featured in the campaign.

The retailer hasn't yet disclosed details on initial uptake among customers. There are about 19 million active users of the original Clubcard, which Tesco introduced in the 1990s as a way to reward frequent shoppers and gather data on their purchasing patterns. Those users have the option to sign up for the subscription service.

Though some customers may baulk at the fee, those who pay for the subscription will be "making a material emotional and financial engagement with the brand", Mr Monteyne said.

The subscription is "like deciding to sign up for the gym - you will feel the pressure to go to the gym," he explained. "Once you decide to become member of a club, I wonder if consumers will subtly change their behaviour and will be more likely to see what Tesco does in a positive light."

Though none of the large traditional US grocery chains has introduced a similar subscription model, Tesco isn't the first to do so in Europe.

France's Casino Guichard-Perrachon SA launched the Casino Max Extra loyalty programme in June and has been "highly successful", according to its third-quarter earnings statement.

It said more than 110,000 members had signed up in September and it aims to double the total number of subscribers by the end of the year. BLOOMBERG