MANCHESTER — Belvita fruit crunch, Crimble’s Big Choc Macaroons, Elvive Colour Protect shampoo — all among the many goods Brits purchase in vast quantities everyday, and all painfully expensive in U.K. supermarkets as the cost-of-living crisis continues to take its toll.
At a growing number of supermarkets, relief is available only to those shoppers who are willing to surrender reams of personal data and enrol in one of the increasingly popular — albeit controversial — loyalty card programs, which grant access to a second tier of heavily reduced prices.
Holders of retail giant Tesco’s flagship Clubcard can now get that £3.40 fruit crunch for only £1.75, £2.95-worth of milk for just £1.75, and £1.65 of Big Choc Macaroons for a quid. Steals, the lot of them — but only if they download the Clubcard app.
Discount schemes are now so widespread that there are even signs that they risk messing up the calculations of the Bank of England and the government, at a cost of billions of pounds to ordinary Britons. Loyalty card-related sales have accounted for around a quarter of total U.K. supermarket sales since April, when Sainsbury’s launched its near-identical Nectar Prices initiative, according to data shared by consumer insights firm Kantar U.K.
Loyalty schemes — and the valuable data extracted from them — have been key to the supermarket businesses model for decades, generally operating on point-based systems that indirectly qualify shoppers for price reductions. But now supermarkets are openly taking advantage of a fraught economic situation to expand that data collection effort massively. Although the schemes are free to use, that raises serious ethical questions. A family with few accessible supermarkets, unable to accept deliveries, could easily find itself with no alternative but to sign up for a loyalty scheme in order to keep costs down.
“Everyone has a club card these days because fundamentally you can’t afford not to,” said Jake Hurfurt, the head of investigations at Big Brother Watch, which among other things monitors companies’ privacy policies. “Some of the discounts are quite stark, and now the decision whether to do it is much more pressurized.”
The supermarkets argue they have little choice either, motivated by the need to compete with German discounters Aldi and Lidl, which have grabbed 18 percent of the U.K. market by prioritizing super-cheap own-brand products. With margins under constant pressure, U.K. peers “have to be open to anything that’ll help them maintain their share,” said Kevin Bright, global manager of consumer pricing at McKinsey & Co. “It’s an arms race.”
Personalized inflation experience
Tesco alone says 21 million U.K. citizens have Clubcard memberships, accounting for a full 80 percent of its sales. Sainsbury’s, meanwhile, claims to have seen 1 million sign-ups to its Nectar Prices initiative since it launched in April. Morrisons and Co-ophave rolled out similar schemes.
The sheer breadth and depth of discounts make them unignorable. Discounts run as deep as 50 percent, and most — if not all, in the case of Tesco — are only accessible through loyalty schemes. Sainsbury’s offers discounts on 3,500 product lines, and at Tesco it’s a full 8,000. Some unnamed retailers are even displaying promotional deals in such a way that obscures the standard selling price, according to the Competition and Markets Authority.
“I don’t have a Clubcard or anything and I don’t want one,” said Rick, a post-doctoral researcher. “But it’s genuinely unaffordable without one.” He says he’s now trying to source his groceries from small, local stores instead.
The sign-ups provide a vital source of revenue for supermarkets, which both sell the data on and use it to generate insights into consumer behavior. Only last year, Sainsbury’s chief marketing officer, Mark Given, described data as the “hidden profit stream for many big retailers.” While customers have the option to limit the amount of data they give up, the various terms and conditions make it clear that shoppers who allow full, unmitigated tracking will be fully rewarded. Sainsbury’s even offers a third tier of discounts based on users’ purchase history — a kind of personalized inflation experience.
Enough people are paying reduced prices that the Office of National Statistics, the U.K.’s official data-gatherer, is planning to include loyalty schemes’ discount data in an updated measure of inflation that will draw on supermarket scanners. Typically the ONS only takes discounts that are available to all into account, but the spread of loyalty discounts is making it hard to assess the actual price paid by the bulk of consumers.
“It’s on the radar,” said Philip Gooding, a senior statistician at the ONS.
And it’s costing the U.K. taxpayer billions
The initiatives may well be exerting a hidden effect on inflation, according to analysis by Paul Donovan, global chief economist at UBS Wealth Management. Unlike the ONS, Donovan used data from the British Retail Consortium, which includes discount data, revealing that the actual annual rise in grocery prices ran anywhere from 2.7 to 4.1 percent below the ONS-reported measure so far this year.
That might look like splitting hairs to some, but it has some big unintended consequences. If the ONS’s methodology is overstating actual food prices, and thus actual inflation, then the Bank of England could be setting interest rates on the basis of the wrong information, raising the risk of an unnecessary rate hike. Equally, it would mean that the U.K. government has been overpaying interest on the vast £617 billion wedge of its public debt that is linked to the Retail Price Index.
In June, when the U.K. paid £9.3 billion in inflation-linked interest, the BRC’s food inflation measure stood at 14.6 percent, while the RPI’s food sub-index stood at 17.3 percent. Food and non-alcoholic drink accounts for just under 10 percent of the ONS’s overall price basket for calculating inflation. Over the last six months, the category has contributed between 1.5 and 1.76 percentage points to the RPI.
“I think you can reasonably say that roughly 0.5 percentage points of the inflation component in paying index-linked debt at the moment is due to the unreported price discounting,” Donovan told POLITICO. That would suggest the government will pay over £3 billion more in interest than necessary this year. As such, the poor consumer’s desperate bargain is generating the fund manager’s windfall at the expense of all taxpayers.
Tesco and Sainsbury’s declined to comment.
