Shifting Loyalties: UK Grocers Adapt to Post-Inflation Trends

Grocery App Downloads Cool Down as Inflation Eases Off

After surging during the pandemic — when consumers embraced online grocery delivery — and spiking again towards the end of 2022 amid rising inflation, downloads of grocery apps in the UK have declined in recent quarters. As inflation has eased, this decline has accelerated in 2024, with downloads across the grocery cohort down 29% in the first half of the year compared with the same period in 2023. By July 2024, food inflation had fallen to 1.5% in the UK, its lowest level since the end of 2021, with downloads down nearly 30% YoY in the same month.

Lidl Plus Drives Downloads with Loyalty Revamp and Gamification-Based Rewards

Lidl Plus is the only app in the grocery cohort to have seen significant YoY download growth in each month of the second quarter of 2024. According to Kantar, the discounter reached a record market share in the 12 weeks leading up to May 12, 2024. This is corroborated by Sensor Tower data, which identifies Lidl Plus as the app with the largest gain in download market share in 2Q24 YoY (up 30% YoY). A significant portion of this growth may be linked to Lidl’s revamp of its loyalty scheme, which now automatically applies coupons at checkout when customers scan their Lidl Plus app. Additionally, Lidl has been actively promoting its loyalty initiatives in the UK in recent months, including its long-running "Super Spin" campaign, where customers can spin a digital wheel for various rewards. In a seasonal twist, Lidl introduced a new Super Spin from May to June 2024, offering customers the chance to win fresh fruit with every spin. These gamification elements are part of a strategy that has been effectively employed by other grocery retailers in recent quarters, such as Asda with its Asda Rewards app. For more information on Asda Rewards, see an earlier ST report: ‘Asda vs Tesco: The Battle For Grocery in the UK’.

ASDA Trails Tesco by MAUs While Co-op and Sainsbury-Run Nectar Grow Fast 

While downloads across the grocery cohort have slowed YTD in 2024, mobile app usage has continued to flourish, albeit at a more moderate pace. MAUs for the grocery cohort were up by 4% YoY in Jul’24, following an 8% YoY increase in the second quarter of 2024. However, Tesco and ASDA have both experienced a deceleration in MAU growth recently, with Tesco’s MAUs down 6% YoY in Jul’24. Despite this, their apps remain the largest by MAUs, with the ASDA Rewards app closely trailing Tesco since mid-2023. Through YTD  2024, Co-op and Sainsbury’s Nectar have been the fastest-growing grocery apps by YoY MAU growth, per ST data. Co-op's growth has likely been driven by its strategic expansion of membership benefits, including the introduction of member prices (Member prices refer to discounts on selected products available exclusively to Co-op members) to its online shop. Additionally, its aggressive expansion into quick commerce, reportedly now covering over 80% of the UK population through partnerships with delivery services such as Just Eat, Uber Eats, and Deliveroo, might have also contributed to increased app usage. Meanwhile, Sainsbury's has been enhancing its Nectar loyalty program, notably with the launch of 'Nectar Prices.' This initiative, aimed at boosting customer engagement, has reportedly seen strong uptake, with nearly 90% of eligible online baskets now including personalized offers.

Tesco Gains App Users from Rival Platforms Amid Longest Ad Spend Streak

Co-op and Nectar Users Top Cross-App Usage with Tesco App 

Sensor Tower data reveals that Tesco is successfully attracting new app users from rival platforms. An analysis of cross-app usage in the second quarter over the past three years shows a notable increase in Tesco app usage among users of other grocery apps in the UK. This trend supports recent comments by Tesco Group Chief Executive Ken Murphy, who noted that “customers [are] switching to us from other retailers." The shift has been particularly pronounced over the past 90 days (From May 14, 2024 to August 11, 2024) for certain apps, with Co-op, Nectar, and Morrisons More leading in the share of their users also using the Tesco app. 

According to ST data, over the past 90 days in the UK, Co-op and Nectar app users were the most likely to also engage with the Tesco app, with 54% doing so. Similarly, 53% of Morrisons More users opened the Tesco app during this period, continuing a trend of increasing engagement since 2Q22. ASDA Rewards users were slightly less engaged, though still significant, with 51% also using the Tesco app. ASDA Rewards users, alongside Morrisons More users, recorded the largest YoY increase in Tesco usage in 2Q24. Notably, Waitrose was the only app whose audience was less likely to use the Tesco app in the past 90 days vs 2Q24. As a premium grocer, Waitrose’s audience may be less inclined to switch retailers in search of offers as food inflation eases.

Part of the increasing cross-app usage with Tesco can be attributed to enhanced advertising targeting efforts. In the past 90 days, Tesco has intensified its focus on users of competing grocery apps compared to the previous 90 days. Discounters have been particularly targeted, with users of ASDA, Aldi, and Lidl seeing an increase in impressions served by Tesco. Specifically, Lidl Plus and ASDA Rewards users received 6% more impressions from Tesco over the past 90 days compared to the previous 90, while Aldi users saw an 8% increase during the same period. This growth in cross-app usage also coincides with Tesco’s sustained leadership in ad spend among UK grocers in recent months, maintaining the top spot for six months between Sep’23 and Feb’24—the longest streak since at least 2019. In the UK, Tesco ad spend (Grocery-focused ads only) grew by over 30% YoY in 1H24, compared to  27% for Asda – excluding its ‘George’ home brand – and -24% for Sainsbury’s. 

Beyond Grocery Apps: ASDA Rewards Users Veer Towards TikTok, While Co-op Rides the Rails

While Tesco has intensified its ad targeting efforts towards grocery app audiences in recent weeks, Sensor Tower cross-app usage data for the UK reveals further opportunities for Tesco—and other grocers—to reach these users through ad targeting, events, or partnerships with non-grocery apps. Over the past 90 days, ASDA Rewards users have shown significant engagement with TikTok (47%), Temu (37%), and Shein (26%)—the highest cross-app usage among select grocery competitors per Sensor Tower’s Audience Insights data. This suggests that ASDA’s customer base is not only active on certain social media but also shows a potential preference for value-driven shopping experiences. For Tesco and other grocers, these apps offer strategic opportunities to deploy tailored promotions and content that align with this demographic’s interest in short-form video entertainment and bargain hunting. ASDA, meanwhile, could benefit from continuing its investment in TikTok ads; through 2024 YTD, it has outspent both Tesco and Aldi on the platform, with its ad spend rising by 17% YoY, per ST data.

While ASDA Rewards app users are drawn to fast fashion and short-form video engagement, Co-op users are more inclined towards the Trainline app (52%) and Reddit (43%). Co-op users also show slightly higher engagement with Uber Eats (28%), aligning with the retailer’s ongoing expansion of its delivery services in the UK. Tesco and Morrisons — whose users displayed  lower cross-app usage with the Trainline app in the past 90 days, have — nonetheless — already made small but strategic investments in advertising on Trainline.com through  2024 YTD, recognizing the value of reaching these audiences. Meanwhile, Sainsbury’s Nectar app users demonstrate a notable 47% cross-app usage with LinkedIn, indicating that this audience may include professionals who highly value loyalty programs. Sainsbury’s competitors might consider leveraging LinkedIn to target a professional demographic that appreciates the added benefits of loyalty and reward programs.

Loyalty Ad Spend Surges, with Smaller Supermarkets Leading Growth

Sensor Tower data reveals that UK grocers are intensifying their investment in loyalty ads (Methodology: Loyalty ads were identified using specific keywords within the creative content. The keywords used include: ‘Clubcard’ for Tesco, ‘Nectar’ for Sainsbury’s, ‘Member’ for Co-op, ‘Rewards’ for ASDA, ‘More’ for Morrisons, and ‘Coupons’ for Lidl. For Morrisons, specific steps were taken to exclude instances where 'More' was used as a generic adjective, to ensure that only ads directly related to the 'More' loyalty scheme were included), even as food inflation begins to ease. Collectively, impressions from loyalty ads increased by 26% YoY in 1H24 among leading UK grocers, including Tesco and ASDA. However, smaller supermarkets led the growth in ad impressions, with The Co-operative Group and Morrisons recording the fastest increases – both up over 100% YoY in 1H24. This surge in loyalty-themed advertising appears strategically timed, as retailers may aim to retain customers who, amid falling food inflation, might be less responsive to promotions and at risk of reverting to pre-inflation shopping habits and preferred grocers. Declining inflation could also challenge supermarkets' higher-margin private labels, as consumers may shift back to branded products. Additionally, a potential price deflation in certain categories could pressure retailers' margins due to fixed costs—such as wages and supplier contracts—set during periods of higher commodity prices.

Tesco:

Tesco led the market in loyalty ad impressions in 1H24, surpassing 700mn. While impressions from loyalty ads increased by nearly 20% in 1H24, the share of loyalty impressions relative to its total ad impressions fell by 20ppts between 1H23 and 1H24. This decline suggests a greater shift towards non-loyalty advertising in the first half of 2024. However, unlike some of its competitors, Tesco has consistently promoted its Clubcard loyalty program throughout the past year. From Jan’23 to Jul’24, Clubcard promotions were sustained month over month, with notable ad impression spikes, particularly during the Christmas season.

Co-op:

Among leading UK supermarkets (Asda, Co-op, Lidl, Morrisons, Sainsbury’s, and Tesco Plc.), Co-op recorded the fastest increase in loyalty ad impressions between 1H23 and 1H24. The share of ad impressions from loyalty ads rose by 4ppts to 10%, the fourth-highest. This surge in loyalty impressions aligns with Co-op’s robust membership growth, which saw members surpass 5mn. This growth is further reflected in Co-op's financial performance, where the food business reported an 11% increase in FY23 underlying operating profit to £154mn.

Morrisons:

Morrisons reported the second-fastest increase in loyalty impressions among UK supermarkets, with its share of loyalty ad impressions rising to 22% of its overall impressions in 1H24—the highest in the studied cohort. This marks a significant shift, as Morrisons has overtaken Tesco, which led with 37% in 1H23. This increase in loyalty advertising aligns with Morrisons' intensified focus on retention and loyalty under CEO Rami Baitiéh. Baitiéh has recently emphasized the importance of these areas, as evidenced by the planned revamp of the "More" loyalty program. The updated program is set to include a significant expansion of exclusive member pricing and an increase in hyper-personalized offers, positioning Morrisons for further growth in an increasingly competitive market.

Key Takeaways

• After a surge during the pandemic and a spike in late 2022, downloads of grocery apps in the UK have declined in recent quarters, with a 29% YoY drop in 1H24 

  • Lidl Plus was the only app in the grocery cohort (Aldi, Asda, Asda Rewards, Co-op, Lidl, Lidl Plus, Morrisons, Morrisons More, Tesco, Nectar, Ocado, Sainsbury’s Groceries, and Waitrose) to record significant YoY download growth in each month of 2Q24, also leading in download market share (App downloads for grocers with multiple apps (e.g., Morrisons Grocery and Morrisons More) have been combined)

    gains for the quarter (up 30% YoY). This growth may be linked to Lidl’s recent revamp of its loyalty scheme

• Despite a slowdown in downloads, usage has continued to grow, with MAUs up 4% YoY in July 2024 following an 8% increase in 2Q24. Co-op and Sainsbury's Nectar led in UK MAU growth YTD in 2024

• Over the past 90 days, Tesco has attracted app users from competing apps, with Co-op, Nectar (Nectar is a loyalty program that includes a number of partners. However, Sainsbury's—owner of the scheme—remains the cornerstone of the Nectar program. As such, Nectar data can be used to gauge Sainsbury's customers' usage of its loyalty offerings), and Morrisons More leading in the share of their users – over 50% – also engaging with the Tesco app

• ASDA Rewards app users demonstrate significantly higher cross-app usage with TikTok (47%) compared to competitors, with ASDA also leading in TikTok ad spend during 1H24  

• UK grocers are ramping up loyalty advertising amid falling food inflation, with ad spend up 14% YoY in 1H24 and impressions increasing by 26% during the same period 

  • Co-op and Morrisons recorded the strongest increase in loyalty ad impressions, both up over 100% YoY in 1H24. Notably, Morrison’s share of ad impressions from loyalty ads rose to 22% of its total impressions, overtaking Tesco to become the no. 1 among the grocers in the studied cohort