According to the Australian Financial Review, Woolworths Limited (ASX: WOW) is believed to be considering distancing its Everyday Rewards program from the Frequent Flyer program offered by Qantas Airways Limited (ASX: QAN).
Citing sources close to the company, the AFR believes Woolies may axe the Qantas offering in a bid to save costs, as it stares down the barrel of falling profit margins within its supermarkets business.
Whenever a holder swipes or scans their Everyday Rewards card at a Woolworths supermarket, Big W, BWS or Cellarmasters store, they can earn Frequent Flyer points, get discounts on purchases and even the ability to save four cents per litre on fuel.
The Frequent Flyer points can then be used for a weekend getaway or put towards something special. However, to attract new members and prompt its customers to return to its stores Woolworths pays for the right to offer the Frequent Flyer points.
Woolworths, like many large retailers encourages shoppers to sign up as members for not only their loyalty, but also to encourage spending at its partnering stores. As the rise of 'Big Data' continues it will be an increasingly important source for direct marketing campaigns.
However, the ongoing push by rivals such as Wesfarmers Ltd (ASX: WES), the owner of Coles, Bunnings Warehouse, Officeworks, Liquorland, Kmart and Target; Costco Wholesale Corporation and German giant Aldi, may force Woolies to — at least partially — abandon its rewards program just eight years after it began.
Woolworths is also rumoured to be considering its options in its petrol station joint venture with partner Caltex Australia Limited (ASX: CTX).
Foolish takeaway
I have exposure to Woolworths through my family's share portfolio because I believe it has a lot of promise over the long term. Indeed, while Woolworths' management is often criticised for venturing into the Home Improvement market through its ownership of Masters, especially with Bunnings Warehouse dominating the sector, I think it holds great potential over the next 10 years. History has proven that most markets have room for at least three major competitors to be profitable.
Therefore, while dumping the Qantas Frequent Flyer agreement may appear viable in the short-run, I believe it's paramount Woolworths does not burn its bridges with its most loyal shoppers. As Australia's most profitable grocery retailer, Woolworths has sufficient room to move on profit margins to lower prices in store. Potentially hurting the Woolworths brand is something that cannot be afforded at this time, in my opinion.
Do you think Woolworths should dump the Frequent Flyer program? I encourage you to share your thoughts in the comments section below.
