Can Grocery Stores Survive Without This Key Marketing Tool?

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'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. 

Bought out earlier this year from SUPERVALU (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 and Kroger (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, but also Amazon.com, 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 Kroger 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 (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 (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.

Right now the IRS is mired in a scandal over its targeting of individuals and groups because of their political beliefs, and next year it will take the lead in implementing Obamacare, causing many to worry that sensitive health issues will be in the hands of an agency that has proved itself all too willing to be used as a pawn in the stratagems of political operatives. Someone's personal shopping habits could be used to prove or disprove a medical claim or a tax deduction.

That's why Albertsons needs to position its move as a blow against intrusive information hoarding. Don't simply say the marketing data can be gathered other ways; in a period of heightened consciousness about privacy concerns, taking a leadership role in not collecting massive amounts of personal shopping habits that can be compromised by the government or hackers would put it in the express lane of consumer mindshare.

Secret dossiers. Email snooping. Spy vs. spy. It's like a bad Robert Ludlum novel. Yet the information retailers gather can provide massive amounts of information about you, your shopping habits, and your personal history. There are 3 Companies Ready to Rule Retail in The Motley Fool's new report, including one of the most innovative that eschews such practices. Uncover this top stock and two more for free! Just click here to read more.


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