Britain's Tesco takes on discounters with paid-for loyalty card

By James Davey

LONDON (Reuters) - Tesco (NASDAQ: TSCO) will next week become the first major British supermarket group to offer a subscription customer loyalty scheme, the latest weapon in its fight to stem the market share gains of German-owned discounters.

Along with other leading UK grocers Sainsbury's (OTC: SBRY), Asda (part of Walmart (NYSE: WMT)) and Morrisons (NYSE: MRW), Tesco has been losing share to Aldi [ALDIEI.UL] and Lidl, who have been aggressively opening new stores.

The big four have been fighting back with initiatives that aim to differentiate their offers versus the discounters, and Tesco, Britain's biggest retailer, said on Tuesday it would launch an enhanced version of its Clubcard scheme from Nov. 8.

Some 19 million Clubcard subscribers will be able to upgrade to Clubcard Plus for 7.99 pounds ($10.27) a month, which in addition to giving loyalty points redeemable for money-off vouchers will also offer 10% off two in-store shopping trips of up to 200 pounds per month.

That will equate to a maximum saving of 40 pounds.

They will also get 10% off selected Tesco brands in-store, such as F&F, Go Cook, Tesco Pet and Fox & Ivy, and will be entitled to double data from Tesco Mobile. And they can apply for a Tesco Bank credit card with no foreign exchange fees.

Tesco said Clubcard Plus holders could save more than 400 pounds a year.

Analysts at Barclays said Clubcard Plus should theoretically appeal to many shoppers. "In practice it's hard to judge the deterrent effect of the monthly fee, but early membership numbers from Casino's similar French scheme seem promising," they said.

They estimate Clubcard Plus could deliver a 2.5 percentage point sales boost, but said the impact on profit is harder to judge.

Tesco's biggest rival Sainsbury's recently overhauled its no-fee Nectar scheme, allowing shoppers to boost loyalty points by pre-selecting offers on certain products.

Clothing and food retailer Marks & Spencer (NYSE: MKS) also plans to re-launch its underperforming Sparks program.

Discounters, which focus on low prices, regard loyalty programs as a costly waste of time and have used their advertising to lampoon previous schemes as over-complicated.

But the Barclays analysts said the fact that mainstream grocers have re-committed to their schemes, despite paring back unproductive costs in other areas in recent years, suggests they pay off through higher sales and valuable consumer data.

Earlier this month Tesco said its CEO Dave Lewis will step down next summer after six years in the job.

(Reporting by James Davey; Editing by David Holmes)

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