SUPERVALU INC. (SVU), The Kroger Co. (KR): Can Grocery Stores Survive Without This Key Marketing Tool?

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The fallout from the National Security Agency’s massive spying program on the American public — and on foreign, friendly nations — continues to mount. The idea that the government is compiling dossiers of every phone call you make, every email you write, every text you send is chilling in its Orwellian breadth.

Similarly, Facebook Inc (NASDAQ:FB)‘s acknowledgment that it creates “shadow profiles” of its members — that it takes the information you voluntarily provide it and trolls the Internet to gather even more information about you that you didn’t authorize it to have — and then accidentally revealed it all, has led more than one person, myself included, to cancel their Facebook account.

Increasingly, individuals are worried about personal information being stored in databases that are subject to hacking or simply sloppy coding, and things that once seemed innocuous, like what you buy at the local supermarket, now can be viewed in a more sinister light.

While supermarket titan Albertsons hasn’t said so, its decision to eliminate loyalty cards at all of its grocery stores could become a key marketing advantage if it frames its decision in the right way.

SUPERVALU INC.

Bought out earlier this year from SUPERVALU INC. (NYSE:SVU) by private equity firm Cerberus Capital Management, Albertsons has decided to forgo compiling individual customer shopping habits through loyalty cards at all of its brands, including Acme, Jewel-Osco, Shaw’s/Star Market, and its namesake stores. Shoppers might not be aware of the treasure trove of data contained in those plastic store cards you swipe at the beginning of your checkout procedure, but they’re a marketer’s dream.

Albertsons decided that rather than give special pricing to loyalty card holders, they will give everyone the same low everyday price. At a time when SUPERVALU INC. (NYSE:SVU) and The Kroger Co. (NYSE:KR) are accelerating their efforts to create more comprehensive loyalty systems as a means of fending off not only the likes of Wal-Mart Stores, Inc. (NYSE:WMT), but also Amazon.com, Inc. (NASDAQ:AMZN), which has entered the grocery aisle, does taking a step backward, as Albertsons is seemingly doing, mean it won’t be able to effectively compete?

As with most things, it depends. While Albertsons won’t be able to customize a shopping experience or push particular items to customers — as The Kroger Co. (NYSE:KR) might, with its new smartphone app that will be tied to its loyalty card — management says data gathered on the individual level is not as important as knowing what to sell in a particular neighborhood.

And there are examples of grocery chains that don’t have loyalty cards that thrive as well as survive. Most notably, Whole Foods Market, Inc. (NASDAQ:WFM) engages its customers in other ways without the need for any Big Brother database. While that might be more the exception rather than the rule because it’s something of a niche player, the organic grocer does show it needn’t be a fatal flaw to forgo the loyalty card.

Yet there are risks inherent, because shoppers do become attached to certain ways of doing business. When J.C. Penney Company, Inc. (NYSE:JCP) abandoned its “doorbuster sale” policy for everyday low pricing, believing consumers would be wise enough to understand they were getting a better deal, the venerable department store chain was brought to its knees as it learned that, no, shoppers really do prefer the illusion of a sale. They want to be fooled into thinking they’re getting a better price, and they abandoned Penney in droves. While the store quickly raised the white flag in defeat, it’s still not certain it will be able to survive the mass defections the policy change wrought.

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