Loyalty cards are working for the big boys such as Tesco, Sainsbury’s and The Co-op Group. But where independent stores are concerned, do the benefits of loyalty schemes justify the financial outlay? Peter Cripps reports

Asda spurns them, but Tesco's a fan. Jempson's has been at it for years, while Warner's Budgens is in the process of introducing one and CK's Supermarkets wants to follow suit this year.

Loyalty cards have always divided opinion. Andy Bond famously said you can't buy loyalty with plastic points, but Tesco and Sainsbury's recent gains in market share thanks to Clubcard 2 and Nectar suggest otherwise.

With both retailers waxing lyrical about the difference their loyalty schemes have made, it's no surprise that entrepreneurial independent retailers are hatching plans to get on board. But can they work for indies or are they best left to the big boys?

Only a few hundred indies currently operate loyalty schemes, but there is a growing consumer demand for more, according to market research company Him! A survey of more than 5,000 c-store shoppers found 10% already had a c-store loyalty card and 30% would be likely or very likely to use one.

With Tesco and Sainsbury's increasing the use of loyalty cards in the convenience arena, the case for indies to embrace the concept is stronger than ever, believes Key Points sales director Tony Scott.

Key Points, which runs loyalty card schemes for hundreds of independent retailers, says there has been a double-digit percentage increase in the number of stores joining its scheme over the past year.

Nectar, which runs Sainsbury's loyalty scheme, has received a lot of interest from indies, adds client development director Charlie Humphreys, adding that although Sainsbury's is currently its sole grocery retail customer, it won't rule out broadening its grocery base and working with indies in the future.

The rewards of a loyalty scheme can be considerable, according to Andrew Jempson, joint MD of Jempson's, which has been running a scheme at its store in Peasmarsh since 1996. The scheme has about 20,000 members and Jempson estimates that in the weeks after quarterly money-off vouchers are sent out, the business experiences a 30% to 40% uplift in sales.

Jempson plans to roll the scheme out to his other stores this year. "It's a fantastic vehicle to get people into your store," he says. "We convert the points to vouchers and it's like a second Christmas."

The benefits don't just take the form of increased sales. Loyalty schemes are a useful tool for gathering data on customers, which can be used to send targeted marketing and offers to entice them into stores. This information can also be shared with suppliers in return for better prices and greater participation in promotions.

Award-winning retailer Guy Warner, MD of Warner's Budgens, is introducing a card scheme to his store in Moreton-in-Marsh and will roll the scheme out to his other four stores if it proves a success. He already runs Taste Club, which allows customers to sign up for money-off vouchers and information about promotions.

"Taste Club has gone from being a good idea that we thought might work to a powerful tool," says Warner. "We have seen how powerful it is to know who your customers are and talk to them. Running a card scheme will provide the potential for all sorts of data."

The data-mining opportunity is also exploited by Jempson's, which uses it to send customers birthday cards with vouchers that entitle them to £2 off when they spend £10. "We get lots of people writing really nice letters to us to say thank you," says Jempson. "It's a simple thing but people remember it."

The benefits of data capture and personalised marketing are so great that Humphreys is convinced loyalty schemes will become more popular among retailers. "Tesco and Sainsbury's have very rich data and are able to deliver offers that their customers want," he says. "Increasingly it's about the haves and the have-nots of retail. As direct marketing and personalised offers become more the norm, companies need to use loyalty programmes to understand what their customers want."

Advances in technology will broaden the reach of loyalty schemes, says Andrew Mitchell, head of loyalty solutions at Novartis, which advises companies about customer loyalty. He believes future loyalty schemes will be managed through mobile phones, with consumers getting sent offers that they redeem in-store by using a barcode sent to their phone.

This technology, however, comes at a price. The costs of setting up a full-blown scheme comparable to Clubcard can be inhibitive. Even though the Budgens scheme is on a far smaller scale, Warner admits he is investing "a five-figure sum" in it. Retailers also need to strike a balance between offering rewards that are sufficient to encourage consumer participation with ensuring their generosity is not at a net cost to the business.

Independent ready-meal specialist Cook had three different loyalty cards running before it decided to pull the plug on all of them this year because the rewards it was offering consumers were "costing the business an unaffordable amount", according to the company. Despite the setback, it is still convinced of the value of loyalty cards and will run a "much improved loyalty scheme in due course", it promises.

As well as striking the right reward balance, retailers need to be sure that their shop is suitable for a loyalty scheme, adds Scott. He estimates that stores need to increase turnover by 2% to meet the costs of the rewards they must dish out under the Key Points scheme that operates in Premier, Best-One and other independent stores.

Warner admits the sums are difficult to calculate, but he believes that in the long term the benefits will outweigh the costs for his business.

For some independents, however, the costs of setting up a full-blown scheme will always make it unfeasible. For this reason, loyalty cards are better suited to small supermarkets or large convenience stores that can offer consumers a range wide enough to allow them to shop more, says Scott.

Warner concurs and says one of the best ways of creating a cost-effective loyalty scheme for independents would be for a symbol group to invest the money in creating a scheme that its retailers could use. "Symbol groups are ideally placed to help retailers set up schemes," he says. "If they did, the appetite would be huge."

But until a symbol group sets up its own scheme, independents that want to tap into this growing market are left to weigh up the costs and benefits on their own.

Spending a five-figure sum may be frightening, but as Warner says: "You have to ask yourself: can you afford not to?"

Grocery loyalty schemes on offer
Tesco Clubcard
Where? Tesco stores including Express and Metro, Tesco.com, and other ventures such as Tesco Mobile, Tesco Opticians and energy supplier E.On.
Reward? One point per £1 spent, but it is currently running a double points offer. One point is worth 1p or 4p if exchanged for Reward points, which can be spent at places such as Pizza Express and Alton Towers.

Sainsbury's, BP, Homebase, Amazon, eBay and Expedia, among others.
Reward? Every £1 spent at Sainsbury's and a host of other retailers normally earns two points, which are each worth about 0.54p in store.

John Lewis Partnership Card (credit card)
Points can be collected anywhere that takes MasterCard, then spent at John Lewis or Waitrose.
Reward? Consumers can collect one point per £1 spent at John Lewis, Waitrose or Ocado or one point per £2 spent elsewhere. One point is worth 1p and cardholders get a £5 voucher for every 500 points.

The Co-operative Group membership scheme
Points can be earned through shopping in The Co-op Group stores or other The Co-op Group businesses including banking, insurance and travel agency.
Reward? Points are redeemed through a cash payment. Their value is decided at the agm.

Jempson's Savaclub card
Jempson's Peasmarsh store. It aims to roll the scheme out to its other three stores this year.
Reward? One point earned for every £1 spent. Vouchers are sent out every quarter. There is also a Cash 4 Schools card, which accrues points in the same way but sends cash to the school of the cardholder's choice.

Key Points
Runs card schemes for hundreds of independent retailers, the biggest being Premier Card for members of Booker's symbol group.
Reward? Typically shoppers earn four points for every £1 spent. When they have collected 1,250 points, the card can be redeemed for a £4 instant discount or vouchers for retailers such as Argos.