U.K. chain debuts paid loyalty card

Tesco is hitting back at Amazon.com and discounters that are stealing its lunch by borrowing from the U.S. e-commerce giant’s own playbook.

Britain’s largest retailer last month introduced Clubcard Plus, a subscriptionbased loyalty plan where customers pay a monthly fee to receive special deals. It expands on Tesco’s existing points system with a business model more in line with Amazon Prime, Costco Wholesale Corp. or even Netflix Inc.

Tesco is the first of the big four U.K. supermarket chains — which also include J Sainsbury PLC, Asda Group Ltd. and Wm Morrison Supermarkets PLC — to introduce a subscription-based loyalty program. They’re all trying to find ways to boost sales during the shift to online shopping and fierce competition from discounters Aldi Stores Ltd and Lidl Ltd.

“The costs are very hard to estimate” with the new Tesco offering, said Bruno Monteyne, senior analyst for European retail at Sanford C. Bernstein. “The customer demand is hard to estimate as well, but those are the risks of innovation: If you don’t try, you don’t innovate.”

Clubcard Plus holders pay a monthly fee of $10.25. They then receive 10% off two shops per month of as much as about $260 each, as well as a constant 10% off Tesco brands including F&F,

Tesco Pet and Go Cook. The service is limited to in-store purchases.

The rollout hasn’t been completely smooth. Tesco withdrew some ads for Clubcard Plus last month after push-back on social media from former Spice Girl Mel B, whose image was featured in the campaign.

The retailer hasn’t yet disclosed details on initial uptake among customers. There are about 19 million active users of the original Clubcard, which Tesco introduced in the 1990s as a way to reward frequent shoppers and gather data on their purchasing patterns. Those users have the option to sign up for the subscription service.

Though some customers may balk at the fee, those who pay for the subscription will be “making a material emotional and financial engagement with the brand,” Monteyne said.

The subscription is “like deciding to sign up for the gym — you will feel the pressure to go to the gym,” he said. “Once you decide to become member of a club, I wonder if consumers will subtly change their behaviour and will be more likely to see what Tesco does in a positive light.”

Though none of the large traditional U.S. grocery chains has introduced a similar subscription model, Tesco isn’t the first to do so in Europe. France’s Casino Guichard-Perrachon SA started the Casino Max Extra loyalty program in June and has been

“highly successful,” according to its third-quarter earnings statement. It said more than 110,000 members had signed up in September and it aims to double the total number of subscribers by the end of the year.

Discounters, Aldi and Lidl have eschewed loyalty setups altogether in the U.K., although Lidl has a loyalty app in Germany, Poland, Austria, Denmark and Spain. So far, the two companies have been able to gain market share in Britain on lower prices alone.

The risk is that Tesco “simply gives up gross profit to its most loyal customers for little or no benefit,” said Clive Black, head of research at Shore Capital.

Tesco rolled out its Clubcard Plus about a month after announcing that Ken Murphy will take over from Dave Lewis as chief executive officer next summer. Lewis, who took the helm in 2014, led the company’s recovery from an accounting scandal, cutting thousands of jobs and pulling back from some international markets.

When he comes on board, Murphy will have to wrestle with a growing U.K. retail crisis that has been exacerbated by Brexit.

“We need to see stability and growth in the base, plus the benefits of extra growth initiatives” like the Clubcard, Monteyne said.