Time to check in or check out?

supermarket Being a retailer is not easy these days. Although the success of Tesco – which earlier this year announced annual profits of more than £2 billion and sales of £37 billion – might suggest otherwise, there is fierce competition.

Retailers are struggling with the demands of an extended supply chain that is now stretched to encompass the global sourcing of products. Yet they also have to cope with the complex logistics required to ensure the last 50 yards of the chain work just as effectively – so customers get what they want and don’t suffer the frustration of an empty shelf.

Profit margins have been squeezed, so supermarkets have to find new ways of attracting the customer – improved services, more ways to buy, targeted marketing, shopping via the Internet, and moves into non-food areas – clothes, pharmacy services and travel.

Chief executive Sir Terry Leahy has put Tesco’s financial growth down to the broad appeal of the brand, and these moves into non-food areas.

Travel is often one of those areas cited as a target for supermarkets. But so far, both across the UK retail sector and even in the US, they have struggled to successfully integrate travel into their business models. The picture is complex, and each retailer has its own niche, vision, and issues to solve before considering offering travel services.

For example, Waitrose is adamant it is a food retailer, and has no plans to move into selling travel. The company, which operates its home delivery service in partnership with Ocado, insists its raison d’être is to combine the convenience of a supermarket with the expertise and service of a specialist shop.

Sainsbury’s has some well- documented problems of its own to solve. From being the market leader a decade ago, its share has slumped to 15.9%, behind Asda, with 16.6%, and just over half Tesco’s giant 30.3%.

The slump has come on the back of a complicated operating model. Sainsbury’s admits: “Basket size has decreased due to poor execution of the customer proposition.” Take away the marketing speak and that translates to ‘Customers are spending less because we’ve made a mess of retailing’.

Sainsbury’s is now trying to work to its strengths – food. That will be supplemented by offering general merchandise – such as cards, music and DVDs, as well as clothing and home ranges.

Sainsbury’s To You is an important service for those who want their products delivered. But Sainsbury’s admits its online performance needs to be improved and will not contribute to its profits for the next two years.

You can buy wine, flowers, kitchen products and financial services – including travel insurance – online at Sainsburys.com. But if you want to ‘buy’ travel with Sainsbury’s, its membership of loyalty and rewards scheme Nectar is the route you have to choose, ending your journey at its Nectar partner, Ebookers.

Launched in September 2002, Nectar is the largest ‘coalition’ loyalty programme in the UK, and Sainsbury’s was one of the founding members.

Each sponsor has responsibility for a particular sector, offering collectors the chance to redeem points for goods and services. In the case of Ebookers, collectors redeem Nectar points for flights on a number of different airlines.

Ebookers is positive about the Sainsbury’s/Nectar relationship, saying it means Sainsbury’s customers are likely to view Ebookers as a trusted brand.

Nectar also gives its sponsors access to data on how much consumers spend. Although details of the specific goods or services bought are not shared among sponsors, Nectar is able to target cardholders with specific products supplied by its sponsors by monitoring their buying patterns.

Tesco is not a member of Nectar, and instead operates its own Clubcard. Shoppers get one point for every £1 spent, either in-store, online, with Tesco Personal Finance or with Clubcard partners, including Avis and Marriott.

Shoppers who’ve earned 150 points or more can convert them into money-off vouchers. They can also use them to get four times their value for specific Clubcard deals or exchange vouchers for Air Miles. In addition to Clubcard deals with travel organisations such as Eurostar and a string of hotel groups, Tesco.com also offers travel through Lastminute.com.

The use of target marketing might imply that a data free-for-all applies, but there are basic rules that protect the customer. According to the Information Commissioner’s Office, there is nothing to stop Tesco or other supermarkets marketing holidays or flights to you if you’ve signed up for a Clubcard, agreed to accept marketing material, and then gone out and bought beach clothes in the middle of winter. But once you’ve indicated you no longer want that material, you shouldn’t receive it.

The privacy position is less clear regarding Radio Frequency Identification – or ‘radio barcodes’, as Tesco calls them – which have the potential to revolutionise the collection and processing of customer data. RFID will be the successor to the ubiquitous barcode, and although there are still privacy issues to be addressed, it is not unreasonable in the future to expect your boarding pass to incorporate RFID, locate you in the airport, provide you with duty-free offers, and then issue you with a ‘Hurry Up to the Gate’ warning.

Tesco is one of the drivers for the adoption of RFID, and its main rival in this area is US retail giant, Wal-Mart.

In the US, Wal-Mart has a significant travel presence, and offers facilities both on Wal-Mart.com in partnership with Vacation Outlet and One Travel, as well as through in-store vacation centres.

It offers three ways for customers to use the centres. Travel-savvy clients can book online; via a freephone number; or by walking into a location site and getting help from centre staff.

Wal-Mart says the response to ‘vacation centres’ has been positive, adding it will “grow the business as it makes sense”. However, long-term success in travel is not guaranteed and both Wal-Mart, and Amazon have had to tone down their expectations regarding travel services.

Henry Harteveldt, a vice-president and travel specialist at the Forrester research group, said there is little prospect yet of the big brands becoming successful.

He added: “Travel is the last thing retailers should be doing seriously. It’s highly complex, and both Wal-Mart and Amazon have already tried and failed. You must have a ‘footprint’, which defines where you operate. And for many, that footprint should not include travel.”

Any progress in retailers selling travel, Harteveldt argues, can only come through partnerships with specialists such as Thomas Cook, EasyJet, Ebookers, Opodo or Lastminute.

Interactive Media in Retail Group chief executive James Roper believes the web will continue to drive more efficiency, with consumers keen to book their travel online, and cut costs.

He said: “The web is asking questions of everyone in the supply chain. Sainsbury’s and Marks and Spencer have learnt that even the strongest brands can find the ground disappearing from under their feet. Partnering is the way forward for brands looking to reinvent themselves.”

Fiona McDonnell, a senior analyst in consumer markets at Forrester, suggests big brands will continue to thrive online and offer services, including travel, because of one key issue – trust.

“Consumers are not happy giving out their data, but they’ll put their trust in a brand they know. With big brands, they know what they get. Consumer data is a future business currency, and stores are just waking up to the realisation that they are sitting on a goldmine.”

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