Coles has upped the ante on rival Woolworths, rejigging its customer loyalty program to enable shoppers to earn air miles and travel perks with the country's second largest full-service airline, Virgin Australia.
Just two months after Woolworths rekindled its partnership with Qantas, Coles has struck a deal with Virgin Australia's Velocity Frequent Flyer program which allows customers to earn status credits when they shop at Coles supermarkets, Coles Online, Liquorland or First Choice.
Status credits help Velocity members accelerate their membership status and unlock benefits such as extra baggage allowances, priority boarding and access to airport lounges.
Flybuys members will not earn Velocity Frequent Flyer points directly when they shop, but will be able to transfer as many as 138,000 flybuys points into Velocity Frequent Flyer per household per year after linking their memberships.
"We're not asking customers to change behaviour ... once they've linked to Velocity they can transfer all the points they've accrued and any future points whenever they choose," said Coles' flybuys general manager Adam Story.
Mr Story dismissed suggestions the new benefits were introduced in response to recent changes to Woolworths Rewards scheme.
After enduring a year of negative same-store food sales, Woolworths bowed to pressure from disgruntled customers in August, reintroducing Qantas Frequent Flyer points and allowing members to earn rewards on every dollar they spend in Woolworths supermarkets, BWS liquor stores and Woolworths fuel outlets.
Analysts believe the changes have been well received by Woolworths' shoppers and have contributed to a modest rebound in food sales in the first three months of 2017.
"This in no way is in response to recent changes in Woolworths' strategy," said Mr Story. "A relationship like this takes quite some time to bring to market ... this is the final piece of the jigsaw.
"We have had a travel strategy for well over two years now," he said pointing to the launch of Coles' flybuys travel site in April and a similar points-and-status credits deal last October with Etihad.
Velocity Frequent Flyer chief executive Karl Schuster said the Coles/Virgin deal was superior to Woolworths' revised partnership with Qantas.
"You can earn flybuys at 28 partners now (compared with four at Woolworths) and accelerate points through bonus offers," Mr Schuster said. "Velocity costs you less points to fly, taxes and charges are lower and we believe there's better seat availability."
Loyalty expert David Flynn, the editor of Australian Business Traveller, agreed, saying that while the exchange rate was the same, the Virgin/Coles partnership had an edge because there were more places where customers could earn flybuys and travellers needed fewer Velocity points than Qantas points to trade on a free flight.
"The ability to earn status credits is a very compelling part of the new Velocity-Flybuys hook up," Mr Flynn said. "It's frequent flyer status which gets you prize perks like airport lounge access, a more generous luggage allowance and a better chance of upgrades."
Coles is believed to have been close to a deal with Virgin in 2011, when the retailer bought out its former joint-venture partner, National Australia Bank.
However, unlike Woolworths, Coles was reluctant to pay Virgin for points and believed customers were more interested in reducing the cost of their weekly grocery shop than accruing air miles.
Announcing changes to flybuys in 2012, former Coles managing director Ian McLeod said: "There's a limited number of people who are interested in collecting points just for flights – what they really want is value in the supermarket and to get cash back at the till."
Mr Story said customers' priorities had changed. "When we initially launched the program we focused on money off at point of sale, but customers have told us over time that travel is really important to them," he said.
Coles and Velocity believe the new rewards will boost loyalty and keep customers "sticky", despite question marks over the value of loyalty schemes.
A Roy Morgan survey released last month found only 23 per cent of grocery shoppers shopped at just one of the four grocery chains and at least 77 per cent had visited at least two different supermarkets in an average four-week period.
"For both Coles and the airline this will improve loyalty because it gives customers more reasons to shop at Coles every day," said Mr Story.
"The ability to earn status credits makes this unique in the world – we really think it's going to gain a lot of traction with both sets of members."
