Sainsbury’s decision to quit the Shell Smart card consortium (MW January 24), coming only one week after Ford’s announcement that it too was pulling out, is the most serious blow the fledgling scheme has suffered.
That no other grocery retailer will replace Sainsbury’s adds to its problems. The need for retailers was central to the formation of the consortium, but of the two still involved one, Allied Domecq, is also reviewing its position.
Shell had kept a lid on the fractures within the group since last November, when all the partners were officially said to have agreed they would continue to investigate the scheme. Shell hoped to line up replacements but, despite saying that it has spoken to more than 40 potential partners at different times, none have been signed up.
Yet the embarrassing break-up indicates a much deeper problem. It concerns the way resources are being wasted by big companies and a lack of direction over major strategic marketing decisions. Sainsbury’s quit in the week it issued a profit warning, raising doubts about whether the retailer has over-stretched itself.
Though the protagonists – Shell and Sainsbury’s – are bending over backwards to say that the consortium did not involve any firm commitment on behalf of the players, each invested 50,000 when it began. A similar amount was due last November.
Sainsbury’s official statement ten days ago said: “Sainsbury’s has decided not to be involved with the development of the Shell Smart card, but discussions between Sainsbury’s and Shell continue to identify potential opportunities for mutual co-operation.”
Sainsbury’s slightly amended this statement the following day – reflecting the general confusion surrounding the project – to say that it has decided not to become an investing partner, adding: “Sainsbury’s and Shell continue to identify potential opportunities for co-operation between their Reward programme and in other areas.”
Sainsbury’s decision means that it will now simply become a third party to the scheme in much the same way as British Gas, Asda and Boots are to the Goldfish credit card. (The Goldfish card is run by Goldbrand Development, a 50:50 joint venture between British Gas and HFC Bank.)
Yet Cellnet was assured by Shell that Sainsbury’s was not leaving the scheme even after the retailer had confirmed it to Marketing Week. As late as last Monday Cellnet was still under the impression it was a “rumour”.
Another member, Allied Domecq Retail, also failed to sign up for the second phase and is “reviewing” its involvement in the group. “We haven’t signed up to the second phase but we are currently reviewing all the options,” says a spokesman. “It is in the hands of Allied Domecq Retail and particularly Victoria Wine. Our options are still being reviewed.”
On paper the consortium was a great idea. A way of spreading the costs of loyalty across a number of companies. However, it was more than simply piggyback marketing: it required long-term commitment.
From day one it meant Sainsbury’s was working with companies that it was in competition with in areas such as petrol retailing, alcohol retailing and potentially credit cards. Yet according to sources close to the consortium, Sainsbury’s was known to be the keenest member when Marketing Week first revealed the link (September 6 1996).
Shell had opened talks with potential consortium members, led by Maurice Saatchi and Chris Fay, chairman of Shell UK, in June.
Tesco had scored several coups with its Clubcard and Clubcard Plus schemes and Sainsbury’s was under pressure in the City to come up with marketing answers to its decline. It rushed into its Reward scheme and later into announcing a banking venture with the Bank of Scotland.
At the time of the consortium announcement, Sainsbury’s director of strategic planning, Anthony Rees, said: “Working with the group will be an important catalyst in moving forward with a customer vision based on advanced technology.”
In fact, all the consortium members had an incentive to get involved. Shell was keen to impress the City following the PR disasters of Brent Spar and Nigeria and the even greater threats from Esso’s Pricewatch campaign, launched last February. Other members were also under pressure – Victoria Wine’s profits slipped 1m last year and Ford lost more than 300m across Europe in the three months to October.
One senior source at a major multinational company involved in UK loyalty schemes, says the breakdown of the consortium is the result of a Lemming-like rush into these schemes to impress the board and the City. “The supermarkets are using these loyalty schemes and joint ventures to pump up the share price.
“It is an appalling state of affairs where the strategy and future plans of companies are being determined by conversations with analysts. The needs of consumers are not the same as the needs of the City, we are in danger of losing consumer confidence,” he says.
Companies like Sainsbury’s are not merely investigating the possibility of developing schemes but are actually committing themselves in print to new ventures too hastily.
British Gas Trading marketing director Peter Henry is sceptical about the development of retailer-run loyalty programmes. He says: “Many companies have rushed into these schemes without thinking them through. If last year was the year when everyone jumped on the loyalty bandwagon, 1997 will be the year when everyone tries to get off.”
In the end, Sainsbury’s could not justify investment in the Smart card scheme to its board. One of the reasons is the level of investment in technology required to install smart card machines in all of its stores.
But the main reason appears to be the amount that would have to be spent on marketing, advertising and promotion. For the Smart consortium to enjoy any level of success it would have to be heavily promoted. Sainsbury’s is already involved in a whole host of new marketing initiatives – this was seen as an additional stretch on its resources.
A further reason is the possible dilution of the Sainsbury’s brand which could stem from association with other brands, some of which are more downmarket than the supermarket’s.
The three consortium members still definitely involved – Shell, Cellnet and Next – have little to lose from continuing. However, it might be asked whether a card which offers clothes, petrol and mobile phones is as valuable as one that could offer money off groceries and cars.
The development of loyalty consortia may be an idea before its time. The smart card may not be dead in the water but conflicts and competing vested interests make success less likely.