Zeroing In On Grocery & Pharmacy Gift Card Program Opportunities
January 14, 2019
The 2018 Merchant Gift Card E-Commerce Evaluation, conducted by NAPCO Research and sponsored by CashStar, offered key insights into how merchants are performing when it comes to gift card ecommerce opportunities. Evaluating 100 brands against 100+ criteria, it’s presented results are indicative of a larger industry trend toward valuing gift cards, both physical and digital, as a revenue-generating product.
This year’s evaluation introduced a new vertical: Grocery/Pharmacy. The category included five merchants: Food Lion, CVS Pharmacy, Kroger, FreshDirect, and Walgreens. While many of these merchants may be considered late bloomers in terms of ecommerce, this category is quickly growing into one of the fastest-growing online retail categories.1 The addition of this category reflects its increasing strength in the retail world, as illustrated in the insights below.
How Grocery/Pharmacy Merchants Stack Up
Traditional retail categories captured top scores in this year’s evaluation. Department stores held the highest average as a vertical, with a score of 55 percent. Health and beauty trailed closely, averaging 52 percent, with home goods matching that score.
While grocery/pharmacy fell into the categories achieving the lowest average scores, scoring 28 percent, this category has the potential to ramp up gift card programs quickly. NPD Group projects that 20 percent of grocery shopping will happen online by 2025—a significant jump from the 2-4 percent this category experienced just last year.2 This estimate points to a lucrative opportunity for retailers in the space who effectively leverage gift cards online.
Highs and Lows and Grocery/Pharmacy Woes
Compliance with the Department of Justice’s Americans with Disabilities Act (ADA) Standards for Accessible Design was a criteria addition to this year’s evaluation, which awarded a maximum of two points based on the compliance of the merchant’s purchase page when viewed on a desktop site. The standards state that all electronic and information technology must be accessible to people with disabilities. Food Lion—a member of the grocery/pharmacy category—was one of nine merchants to achieve the maximum of two points for purchase page compliance. CVS Pharmacy also received two points, highlighting this category’s ability to adapt to a shifting digital landscape, particularly as it relates to gift cards.
While certain grocery/pharmacy merchants may shine in specific areas, the category as a whole has some catching up to do. Four of the five merchants in this category all scored in the bottom half of merchants when looking at overall score:
- CVS Pharmacy – 29%
- Kroger – 26%
- FreshDirect – 21%
- Walgreens – 11%
Only Food Lion made it into the top 50 merchants, with a 51% total score.
Tips for Gift Card Program Growth
Many of the key takeaways from this year’s evaluation were highly applicable to the grocery/pharmacy segment. We outline a few of these below.
Self-Use Gift Cards in Demand
A recent study from Blackhawk Network found that 69 percent of consumers have purchased a gift card for themselves.3 The top reason consumers say they purchase gift cards for themselves is to shop online, according to a recent survey by Blackhawk Network and Leger. That survey also noted that 46 percent of consumers purchase self-use gift cards is to receive a discount or take advantage of a promotion. Seventeen percent purchase for budget reasons.
If 20 percent of grocery shopping will happen online within the next seven years, this is a huge imperative for grocery merchants to consider online gift card programs. A Google search of “grocery budget” yields 317 million results, and even the USDA provides monthly grocery budgeting guidelines.4 Given the average U.S. consumer’s propensity to budget for groceries, there is alignment between that need and one of the reasons consumers purchase self-use gift cards. Merchants can tap into this consumer demand to boost gift card program results.
Promotional Opportunities Abound
Gift card programs are more than a sales channel; merchants should leverage gift cards as promotional tools to incentivize specific consumer behaviors. Unfortunately, this advice seems to have fallen to the wayside as the number of merchants that offered gift card promotions and/or used gift cards as incentives in e-commerce marketing programs remained stagnant between last year and this year.
This presents a key opportunity for grocery and pharmacy merchants, many of which offer loyalty programs that could benefit from a promotional boost that taps into gift cards. Merchants like CVS Pharmacy that have apps centered around rewards programs can utilize gift card promotions to garner consumer buy-in and to promote usage of those apps.
Looking Ahead: Path to Gift Card Success in Grocery/Pharmacy
The two areas for improvement above present a quick path to optimization for those in the grocery and pharmacy segment. Catering to self-use gift card buyers is as simple as creating an easy path to purchase that removes steps related to gifting (e.g., adding recipient’s information, personalized messaging). Improving the customer experience for this consumer segment can result in quick wins.
Similarly, implementing gift cards as promotional tools is a lucrative opportunity for grocery and pharmacy merchants. Strategizing and executing campaigns that offer gift card incentives can drive loyalty program sign-ups and engagement. Merchants should recognize the value of gift cards extends beyond revenue generation.
These two areas of focus are important; however, it will be crucial for ecommerce brands to master the “A,B,Cs” of effective gift card programs above all else. Taking advantage of quick wins is just one part of a holistic gift card strategy that starts with the basics, tests different gift card approaches, and continually iterates based on analytics and learned insights. Perfecting gift card ecommerce is an ongoing process that requires a solid foundation built on best practices as well as the ability to be flexible according to each merchant’s unique objectives.
While both grocery and pharmacy merchants have a long road ahead, they also have easy opportunities to see tremendous gains in the short term. Recognizing the unique way that grocery and pharmacy consumers value and use gift cards can help inform and streamline the path to purchase on ecommerce channels. Looking beyond the sales opportunities and leveraging the promotional aspects of gift cards can also go a long way in optimizing other programs, including loyalty and rewards.