Source: Albertsons
Will a Prime-style subscription service take Albertsons business to a new level?
Albertsons is following the playbook of some of the most cutting-edge figures in retail and launching its own subscription service with an important Amazon Prime-style perk.
The program, called FreshPass, allows subscribers to get unlimited free grocery delivery, reports Progressive Grocer. FreshPass, which is an optional service added to Albertsons’ existing apps, costs $99 per year or $12.99 monthly. With a subscription, shoppers get free delivery on orders of $30 or more.
The grocer is offering a 30-day free trial with five percent off of some of its private label products and ongoing perks, like food and wine experiences, to incentivize adoption. Albertsons is also launching two other new digital offerings — a Deals & Delivery app and an upgraded loyalty program. The loyalty program, called Albertsons For U, will automatically fold in members of the grocer’s earlier program.
The cost of Albertsons’ FreshPass program is about on par with Walmart’s new Walmart+ subscription service (which offers unlimited free delivery and various other perks) and about $20 cheaper per year than Amazon Prime.
Even before the novel coronavirus pandemic, surveys indicated that a majority of customers preferred free, fast shipping on e-commerce orders. The drastic uptick in the use of grocery delivery since the beginning of the pandemic has found grocers competing to provide such services at a greater scale than ever before.
Some of the biggest names in retail, however, are beginning to make customers pay a premium for the privilege of fast delivery in some cases. Amazon recently announced that grocery delivery from Whole Foods, which has until now been free with Amazon Prime membership, will cost an additional $9.95 in some pilot markets.
Albertsons, once considered a laggard among grocers, has undergone the process of enhancing and revamping its operations over the past few years. The chain has piloted micro-fulfillment centers for online orders, in-store robots, automated grocery pickup kiosks and other new omnichannel technologies.
The grocer also went public in June of 2020, finally completing its IPO after several failed attempts.
- Albertsons Launches Amazon Prime-Style Membership Program – Progressive Grocer
- Survey says consumers want online orders shipped fast and free – RetailWire
- Walmart Plus: price, free trial, and all the details on Walmart+ membership – What Hi-Fi?
- Prime Members will have to pay for grocery deliveries from Whole Foods – RetailWire
- Will Albertsons have robots filling online grocery orders in its stores? – RetailWire
- Albertsons pulls off downsized IPO after years of trying – Reuters
Discussion Questions
DISCUSSION QUESTIONS: Will a membership program with unlimited free delivery work for Albertsons and its existing customers? What will Albertsons need to do to differentiate its offer from others offering similar subscription services?
Poll
Loading …BrainTrust
Matthew Brogie
CEO, Repsly
Christine Russo
Principal, Retail Creative and Consulting Agency
Albertsons’ FreshPass program is a necessary step to keep up with the competition and retain its “loyal” customers. Since several other grocers offer subscription delivery services, the best way to differentiate is based on speed of delivery.
Introducing a membership program is a smart move, but Albertsons is still playing catch-up. The pandemic made it clear that delivery services are important to some customers, and it’s very likely that these services will still be in demand post-pandemic. Offering free and low cost delivery have become table stakes, and so Albertsons’ offering may be comparable to others, but it’s still substantially a “me too” offering. This is a good move, but it’s unlikely to cause shoppers to switch to Albertsons.
Albertsons has done some good stuff online and has seen its digital business grow rapidly. The FreshPass will appeal to its core online shoppers and will help it to lock in loyalty. In general terms, it represents a pivot by grocery players to start recouping some of the high costs of delivery from consumers. That may initially cause some erosion and churn, but given everyone is moving in the direction of charging this will probably be limited over the longer term. As a side note, while Albertsons has done good things online, a lot of its store are awful. Shaw’s and Safeway are particularly bad and are far from being the cheapest around – so they’re incredibly bad value for money!
Let’s learn from the best. Amazon taught us Prime membership works. And, rather than just watch, Albertsons has taken action. Membership programs are great to help increase sales, reduce churn and more. For this to work, Albertsons must offer a membership with value that makes the price irrelevant.
You gotta love the marketing genius that gave us Amazon Prime. “Free delivery.” Except it’s not free. You pay for it up front. But after that it feels free. And now Albertsons will take advantage of that mindset. Smart.
Subscription services work well to increase share of wallet from those customers already frequently shopping the brand, since there is no longer an incentive to quick run to the closest store when you just need a few things. They can also nudge a few mid-tail customers to allocate much more share-of-wallet to the provider. However they often reduce the incentive for less frequent customers to shift more share-of-wallet. In Albertsons case, I think the $30 minimum order is important. Brands should watch out, though, because if the economy turns south and customers evaluate where they are spending their monthly income, many will realize they have racked up $300-$500 in subscriptions and those will be the first to cut.
I believe Albertsons needs to collaborate more with complementary brands to attract new customers and build richer customer insight based on what their customers spend elsewhere. Improving the personalized experience will have more impact.
This new subscription service will make Albertsons more competitive by making loyalty lucrative. Research shows subscribers tend to spend at least twice as much as non-subscription shoppers.
Subscriptions will deepen Albertsons’ connection with consumers from short-term transactions to long-term relationships. And while fast, free delivery is costly, it’s what consumers now expect and reward.
Private labels are a great start to differentiate Albertsons from its grocery rivals. In addition, the retailer can allow e-grocery shoppers to personalize their orders like specifying which products they do not want to substitute. Offering same-day pickup and delivery options can also help Albertsons boost shopper satisfaction and loyalty.
Since Albertsons’ successful IPO last year, they have been making big investments in technology. For example, they are piloting the use of micro-fulfillment centers (MFCs) which will be a key enabler to delivering on this type of subscription service.
Nobody owns the grocery subscription service yet (automatically replenishing frequently purchased items to the customer’s home), but Albertsons might be beating Amazon to the punch. Who has a more intimate understanding of your nutritional needs and wants than your favorite grocer? They understand your recency, frequency and monetary value, the Holy Grail of retail.
I’m not sure if that price point will be so convincing. With Amazon Prime, subscribers are getting videos, free, faster shipping on the e-commerce side, and special member item discounts in-store at Whole Foods. With Albertsons, it seems like you’re only getting delivery and some private label discounts and “perks.” But you are getting delivery, and that’s more than Whole Foods is offering today.
This is Albertsons simply keeping up. For a grocer with limited assortments and no media offers, it’s going to be difficult to convince customers to subscribe to yet another delivery service outside of Amazon. If they can find a way to differentiate themselves, say offer faster delivery, curated assortments, or an easier shopping experience, then they will have something that I believe would offer a value proposition their customers would be interested in.
Timing is everything, as they say, and I worry that the timing of this move by Albertsons is concerning. For one, they have to fight membership overload (because how many paid grocery programs does one really need?). Second, they must steal share from Walmart and Amazon membership programs. Finally, the recent news of the Amazon $9.95 per delivery test is an ominous warning that $10 to $12 a month is not enough to cover the costs, even for Amazon. I wish them well, but I do think they have a tough road ahead to make this work.
Albertsons’ “Prime-like” subscription program is a must for keeping the banner competitive. Shoppers continue to search for ways to make life easier without giving up quality. Delivering exactly the products that customers want, extremely quickly, is crucial to leveling up this kind of service. In order for Albertsons to gain and hold incremental sales through this program they will need to continue to innovate on product availability and speed of delivery while keeping the cost of these conveniences very low.
A free delivery program supported by a membership fee is a much better idea than just free delivery. The concept should attract more customers to the Albertsons family and will bolster the relationship with Albertsons. Subscription/membership programs work for Amazon, Costco, BJ’s, and RH. It can work in grocery.
Prime-style subscription service by Albertsons will be a hit with their core customers and may move some non-core customers to increase frequency and basket size. Overall, a good move by Albertsons at a time when the Delta variant is dominating headlines.
The short answer is yes. Loyalty breeds retention — it’s a smart move.
Albertsons’ FreshPass won’t appeal to everyone, but for core shoppers who value fast delivery it’s a great addition. Beyond that, this step gives Albertsons something to talk about as it tries to retain shoppers – even those not likely to sign up.
I agree with this move by Albertsons, albeit it’s a bit late. Profitability will be dependent on their ability to continually evolve and hone their operating procedures as well as deepen the love affair with shoppers who use this service. The nickel of advice that I would give Albertsons is to apply deep analytics on every aspect of their offering, from pick up/delivery windows to product substitutions when an out-of-stock (OOS) occurs to margin erosion to forensic SKU profitability. Uncovering insights on these sub use cases will pay huge dividends and unlock new ways to drive differentiated value to shoppers.
Although a me too subscription service, the action is appropriate. Despite an annual or monthly fee, customers perceive these services as free, since there is no additional charge (beyond order minimums) to receive the free unlimited delivery of grocery items. However the more that this service is offered by competitors, the more it becomes the ante of online shopping. The challenge is to develop the next differential advantage that will take competitors time to emulate. Albertsons has been doing some good things lately and has revamped their leadership to address the changing customer. Ironically, one of their biggest challenges going forward for Albertsons and other brick-and-mortar retailers is to ensure that the in-store experience is a positive one; as we eventually move out of the latest Delta variant surge of COVID-19 and customers return to in-store shopping.
Will FreshPass push Albertsons ahead of the competition? Unlikely. However such a program will be a necessary tool in their toolkit. I’ll be looking for their “secret sauce” and how they begin to differentiate their program from competitors who have gotten out of the starting gate ahead of this announcement.
As is well known, this is primarily a loyalty play with delivery services as a perk. Yes. It should work, Albertsons ranked highest in increased foot traffic across all grocery stores during the pandemic with strong continued loyalty. If expanded with other perks for shoppers the program can establish Albertsons in the same category as a BJ’s or Sam’s Club with annual fees, that will allow it to step away from being targeted as a Me-Too-Little-Too-Late grocer — which at $65B in sales they clearly are not. The logistics to offer this program must be mind boggling.
Smart move, and will bring in added revenue to cover the cost of delivery. Even at breakeven on the program, they’re bringing in a loyal (but select) customer base. People will buy this not for the brand, but for the convenience.
The past eighteen months have given rise to a substantial segment of grocery shoppers preferring curbside pickup or home delivery. This new Albertsons program, one of three announced this week, will help cement loyalty with the latter segment, provided speed and consistency in meeting delivery times is achieved. Albertsons is waking up from its slumber and may soon be viewed as an innovator.
The problem I see here is Albertsons banners (Safeway, Vons, etc.) have terrible pricing and mixed service/quality levels. In CA, the Albertsons banners (Safeway, Vons) often have higher everyday pricing than Whole Foods on the same items. They have the ability and product quality to do a very good job, but they often do not do a very good job for a variety of reasons on freshness; outrageous pricing being their biggest problem at this point.
I suppose this is one of those things they can try and see how much traction it gains. They already built the interface to facilitate the program with the whole Drive Up and Go program. But generally speaking, I think there are too many subscription programs out there and this one may get lost. Amazon Prime continues to be the winner, and it offers so much more than any of these others.
Bed Bath & Beyond was heavily pushing a subscription discount program in its stores earlier this year — past couple trips there, no mention of it and little marketing beyond in-store signage that was easily lost. CVS has a subscription program called Carepass which has been in place for a while and few people want, and is putting significant increasing pressure on store employees and store management to get sign ups — people are quitting from CVS due to the pressure over this program. As a customer I absolutely hate hard sells in-store for subscription programs. I will shop at other stores that do not engage in these tactics.
The reason Prime is powerful and unique is the assortment that Amazon provides and the attached media service. For a grocer to offer a subscription program, it will help protect their grocery base (especially given the Delta variant keeping a section of population at home), but I am not sure it will steal business from Amazon customers who are paying for prime for the other categories.
Albertsons is certainly entering into a very congested subscription and loyalty space. However, there is time to play, compete and drive new customer engagement. While at the surface, it appears as though Albertsons is seeking to expand their customer base, the incremental costs of acquiring a new customer could cost five times more than retaining an existing customer.
This subscription service, enhanced loyalty program, and free delivery model are more of an engagement strategy to retain Albertsons’ existing customer base. By increasing customer retention by 5%, Albertsons and other grocers/retailers could increase profits by 25% or more. The success rate of selling to a customer you already have is 60-70% while selling to a new customer is 5-20%.
It will be interesting to see how this plays out.
In favor of a pay for member program as a way to lock in loyalty. However, connecting the fee to home delivery drives shoppers to more expensive behavior. BOPIS is a much more compelling economic model for a supermarket than a model which encourages home delivery as an entitlement of membership. Maybe it’s inevitable and U.S. consumers will adopt the delivery as primary model of UK consumers but I don’t see the benefit in rushing to the more expensive delivery approach when shoppers seem willing to assume the delivery cost by picking up orders at store. There’s also the erosion of store trips inherent in moving to a higher reliance on delivery. That’s a second economic blow to a supermarket. Time will tell.