Supermarket loyalty programmes may lead to higher prices - Consumer NZ

Consumer NZ is raising the alarm over how data obtained from supermarket loyalty programmes could lead to higher prices for customers, but both Foodstuffs and Woolworths deny this is the case.

The consumer watchdog said loyalty programmes like Foodstuffs' Club+ and Woolworths' Everyday Rewards allowed supermarkets to gather data about individual shopping habits, including clues as to how much people are willing to spend.

It said this data could allow supermarkets to use increasingly targeted "dynamic pricing", where prices were changed based on different variables, such as market demand or customer behaviour, rather than remaining fixed.

Consumer NZ said this type of dynamic pricing was gaining traction in Europe, with some supermarkets changing their prices multiple times throughout the day to discount items that were close to expiry or, in in one case, to beat competitors' pricing.

They used electronic shelf labels to do this, a technology that had already been rolled out in many New Zealand supermarkets.

Consumer NZ said the most extreme and controversial version of dynamic pricing was when items were priced differently for each shopper, based on an algorithmic calculation of how much each individual will be willing to pay.

Last year, an investigation by Consumer Reports found that shoppers buying groceries from several US retailers through Instacart, an online shopping platform, were shown different prices, with some shoppers paying up to 23 percent more than others.

The price fluctuations were the result of an artificial intelligence pricing tool which allowed retailers to run random price tests to gauge shoppers' reactions to higher or lower prices, with shoppers not aware of the experiments.

Following criticism of the AI tool, in December last year Instacart said it was ending the pricing tests.

Consumer NZ said there was no evidence of this in practice in New Zealand, but it was concerned that customer data could still be used to drive prices up.

"While some shoppers may love getting a 'deal' at the supermarket through loyalty programmes, there is concern that our already highly concentrated supermarket sector could grow more powerful as they push harder to collect increasing amounts of customer data," said Gemma Rasmussen, Consumer NZ's head of research and advocacy.

"The widespread collection of personalised shopping data could end up being detrimental to customers, as it greatly increases supermarkets' understanding of how aggressively items can be priced to individuals. Customers could end up paying more."

Both Foodstuffs and Woolworths strongly refuted Consumer NZ's concerns.

"We do not use dynamic pricing. We do not have any personalisation in our pricing," said a Woolworths spokesperson.

"The suggestion that Foodstuffs might use loyalty data to charge different customers different prices for the same product is simply wrong. It isn't something we do or intend to do," said a Foodstuffs spokesperson.

"Like many retailers and loyalty programmes, Club+ uses customer insights to better understand what customers value, improve our product ranges, develop promotions and deliver more relevant rewards. That's very different from using personal data to determine what an individual customer should pay for a product," the Foodstuffs spokesperson said.

Consumer NZ also concerned for access

Rasmussen said it was also getting harder for shoppers to access supermarket services without signing up to a loyalty programme, with this month Foodstuffs following Woolworths' lead and making online shopping available to loyalty programme members only.

"New Zealanders need a grocery market that works in their interests. That includes confidence that personal data is not being used in ways that disadvantage shoppers."

Consumer NZ said it also found prices across varied across regions.

"Customers across the country can walk into a store and pay very different prices for the same item. As an example, we found the same tub of ice cream from New World cost $5.99 in Orewa and $8.79 in Queenstown, while Turkish apricots varied between $48.50 per kg and $56 depending on whether you were purchasing at Alexandra or Thorndon."

Pricing, the watchdog said was also dependant on whether customers were rewards members, with the watchdog concerned that people who didn't have phone or internet access were paying more for groceries, since they weren't able to access member-only specials.

"We have received several complaints about high prices for non-members unable to access discounts. Some of New Zealand's most vulnerable are digitally excluded and may be forced to pay higher prices for their groceries," Rasmussen said.

Consumer NZ said it had reached out to the supermarkets about their loyalty cards.

It said a Woolworths spokesperson had said keeping its services accessible to everyone was "incredibly important".

"If a customer is facing accessibility barriers or challenges to shopping online, or does not have an email address or mobile phone, we encourage them to contact our Customer Care team. We are committed to working with individual customers to provide support and help them access the benefits of the Everyday Rewards programme," the Woolworths spokesperson said.

However, Consumer NZ said when it called the Customer Care team and asked if an elderly shopper with no email address could get access to a member card, the customer service representative told them an email address was mandatory, and that elderly person could try to get a card at their local store, but there were "no guarantees".

In a statement to RNZ, a Foodstuffs spokesperson said Consumer NZ's pricing examples compared stores operated by two separate Foodstuffs co-operatives.

"Our stores are also locally owned and operated, with owner-operators able to make pricing decisions that reflect local market conditions and competition in their communities," the spokesperson said.

"Club+ is designed to help customers save money by giving them access to personalised offers and rewards. Our focus remains on delivering great value for customers and competing hard on price every day."