Waitrose, the upmarket British grocer has been the centre of much media attention over the last few weeks, all over their policy of giving away free coffee to their customers. It seems there are lots of people who don’t like the idea and are getting hot under the collar. Social media is reacting, customers are complaining, politicians are getting involved, local business owners are upset.
This all comes about because in 2011 Waitrose developed a plan to get more footfall into its shops, rather than discount its prices which can be up to 50% more expensive than its rivals, it started to give away a free coffee and a free newspaper to all their My Waitrose card holders, their free to join loyalty programme.
All you needed to do was to come into the store and show your card to get a free coffee, if you bought a newspaper with other items the cost of the newspaper was deducted from your bill as well. A win – win for everyone you might think. The company was very happy with the increase in footfall it was getting and the scheme seemed to be working, as the net effect was people were spending more money when they visited the store to get a free coffee. Waitrose became the 2nd biggest provider (we can’t say seller) of coffee in the UK seemingly overnight, just behind McDonalds! The queues for coffee were the longest of any in the store.
Then the customers started complaining that it was attracting the ‘wrong type of customer’ to their oasis of poshness and causing health and safety issues with the potential spilling of hot coffee! ‘Please don’t turn Waitrose into a soup kitchen’ a customer posted on the Waitrose facebook page.
The local business’s complained it was unfair competition, with one coffee shop owner taking Waitrose to the Office of Fair Trading. They decided to take no action.
MP’s have waded in, Andy Sawford the Labour MP for Corby wrote to all MP’s with Waitrose in their constituency saying that it was having a detrimental effect to small businesses.
It now costs Waitrose £150,000 per week to run the scheme, which gives away 1,000,000 cups of coffee a week, that is probably quite an underestimate of the cost. The capital cost of a few hundred coffee machines that are not generating any revenue, the repair and maintenance and staff costs need to be included here as well.
The problem is it’s business is still falling, as in March 2015 Aldi overtook it in terms of market share. Fundamentally Waitrose pricing is at the top end of the range and with growth of the discounter, it’s never been easier to save money on your grocery shopping and their price difference is up to 50% more than the discounters. So although they have been getting more customer traffic for their free coffee, their overall customer spend must be declining.
They are now trying to tighten up the criteria for the free coffee, which is causing even more furore on social media and in the press. This is a natural reaction as when you give something away and then try to start charging, people’s value perception of that product is very low. Coffee has has a big value gap in as much as it is a low-cost product with lot’s of added value. That added value is normally provided in the environment of the coffee shop that serves it. When it’s from a machine then that added value is eroded.
Their loyal customer base, the same one that complained about attracting the wrong sort of customers, now feels entitled to a free coffee!
The moral of the story, know your customers needs and desires and the type of new customers that you want to attract. Set up a limited time offer and review the results carefully, you can then extend and delight or stop and not disappoint your customers.
Here is a link to a buzzfeed post that sums up the situation really well.