The “dairy” in United Dairy Farmers Inc. is a draw for many consumers who head to the company’s local convenience stores for ice cream—especially this month when the retailer’s loyalty program is offering extra discounts on gasoline to encourage sales of its hand-dipped scoops.
While the privately held convenience-store chain owned by the Lindner family of Cincinnati ran a loyalty program for 10 years designed to encourage gasoline sales, its latest digital effort, which uses Paytronix’ artificial intelligence (AI) software, aims to bring more consumers into its stores for ice cream and other items.
UDF’s decision to invest in a new loyalty program aimed at driving in-store traffic began during COVID-19 in 2020. Today, its “Four for Forty Ice Cream Cones and Cups” promotion offers 40 cents off the per-gallon gas price when U-Drive loyalty members buy four scoops of hand-dipped ice cream from January through March. It’s designed to encourage people to return to eating UDF’s ice cream by the cone and reverse the issue of fuel customers who rarely enter the convenience store.
“The fact we can use our own ice cream products, on which we make really nice margins, to incentivize people is really a differentiator for us,” said Denise Jenkins (pictured), vice president of marketing, insights and loyalty at UDF, based in Cincinnati.
Informed Offers
By offering an incentive for consumers to register for its loyalty program, UDF receives more information about how its members shop. “We can see not only what people are buying, we can see how frequently they’re coming to make a purchase. We can predictably determine when it seems to be that they’re slowing down on visiting us, when they’re slowing down on how much they’re spending with us. And then we can offer them something of value that we think would appeal to them based on the things they like to buy from us,” Jenkins said. “This is a great way to do one-to-one marketing,” she said, by offering fuel customers a special offer to redeem in the store.
UDF provides loyalty customers with relevant offers they’ll appreciate. The program’s success with consumers led Newsweek magazine to rank it 14th overall in a field of 239 with a score of 9.14 in its feature, Americas Best Loyalty Programs 2023. The ranking, published this month, was based on survey responses from 4,000 loyalty customers on which programs offered worthwhile rewards and which ones they’d recommend to others. Rovertown designed and hosts UDF’s app, and Paytronix provides loyalty strategy, software and data management. UDF pays a monthly subscription fee to Paytronix, Jenkins said.
While UDF also hopes its ice cream sales at the counter return to peak levels, it believes the shift in consumer behavior during COVID-19 to more at-home eating wasn’t just temporary. So the company is rolling out an order-and-delivery program to one-third of its 172 stores this year, Jenkins said. Its stores are in Ohio, Kentucky and Indiana.
Historical Fact
Ironically, UDF, which opened May 6, 1940, when it encouraged consumers to give up the milkman and instead buy fresh milk in its convenient neighborhood locations to avoid a delivery fee, now sees a future in home delivery for customers willing to pay for it.
UDF’s new loyalty program offers registered members 6 cents off per gallon, plus the ability to stack rewards with special offers. The program also notifies members when gas prices are about to rise at the pump. For consumers who don’t want to provide personal information and opt-in for special messages, UDF offers an option where they can receive 3 cents off at the pump by entering just a phone number, Jenkins said.
The company relies on a loyal clientele, and it’s willing to reward them with special promotions, Jenkins said. “Our loyalty guests saved our bacon” during Covid-19, she said. “They were coming more frequently, and they were spending more money. Even though we were losing overall transactions, they were keeping the lights on.”
Bouncing Back
In 2020, when Covid-19 shelter-in-place orders took effect, convenience stores saw sales decline about 20%, said Andrew Robbins, founder and CEO of Paytronix, a technology company providing loyalty programs to UDF and other retailers and restaurants.
UDF noticed a decline in sales and turned to Paytronix for a more sophisticated loyalty program. “The prior program did not allow us to do one-to-one marketing. So we were not able to reach our loyalty guests with offers based on their personal purchasing preferences or on the frequency with which they visited our stores. We also did not offer a birthday bonus to our guests. And we did not have U-Drive pricing across the store at that time,” Jenkins said. The U-Drive program provides discounts on merchandise for U-Drive account holders.
Targeted Offers
In its second full year working with Paytronix on a digital loyalty program involving artificial intelligence to gather insights on consumers’ shopping patterns to target offers more effectively, transactions from loyalty customers rose 13%, while nonloyalty transactions dropped 8% through October 2022, Jenkins said. "That to me is pretty drastic, when you look at what loyalty really means,” she said.
UDF is investing more on loyalty than it did in prior years, Jenkins said, noting the payoff varies because the margins achieved are dependent on fuel-price fluctuations and many discounts are stacked.
“We generate profits by maximizing the visits and share of wallet that we get from our loyal guests. Loyalty guests visit more frequently and spend more than non-loyalty guests,” Jenkins said.
Despite giving away some margins to entice consumers to sign up, privacy apparently remains a concern to some customers. Some customers are aware of the program but are willing to pay more to avoid having their personal information to be used for marketing purposes. “Those people are becoming fewer. More of them are aging out,” Jenkins said.
Transactions Rise
The company saw its loyalty transactions climb to about 37% of its transactions in 2022 from about 26% or 27% in the first quarter of 2021, Jenkins said. UDF wants loyalty to reach 40% of transactions this year, Jenkins said. “We’re seeing people be more active and coming more frequently. So we really care about that,” Jenkins said.
Loyalty programs aim to help convenience stores deliver the right offer at the right time. “If you can hit a price point with value and convenience, you’ll get business,” Robbins said.
It’s a concept UDF has been successful at from its start, well before loyalty programs gained a stronghold. By increasing its stock of toilet paper and other essentials during the pandemic, it offered customers the products they wanted when other retailers faced low inventory due to strong demand.
The items people bought during the pandemic shifted based on the environment, Jenkins said. “There was this massive out-of-stock problem. People were going to certain places and couldn’t get toilet paper,” she said. “We tried to stock up.”
Besides essentials, consumers sought instant gratification at a nominal price by buying treats, Robbins said. “We saw some rise in treats,” he said. While some people postponed vacation travel, they could splurge on treats like ice cream and candy. “If you’ve ever been to a UDF, they have the best ice cream, just unbelievable,” Robbins said, “wicked ice cream.”
Consumption Patterns
The rise of remote work brought a disruption in buying patterns, as people lunched at home but snacked during the day and stopped by their neighborhood c-store for a treat. “Convenience stores are in fact convenient. So you go for a walk during the day. Maybe you take a break at 11 between Zoom meetings and you go for a mile and pick something up,” Robbins said.
UDF’s new loyalty program offers registered members 6 cents off per gallon, plus the ability to stack rewards with special offers, such as 3 cents off your next gas purchase with a fountain-drink purchase. The retailer gives 5 cents off the per-gallon price of gas when members spend $25 in the store over multiple visits. It also has a summer version of its Four for Forty promotion, where it gives a whopping 50 cents off the gas price when members buy five malts and shakes from May through August. But many offers are tailored to registered members' shopping preferences.
Test Marketing
Paytronix’ use of artificial intelligence and one-to-one marketing predicts the most relevant categories of merchandise for each member and pushes relevant in-store offers, such as a fountain drink, coffee or ice cream. “If it’s not effective, we can move to the next tactic and also do it at just the right time,” Robbins said.
UDF also uses old-fashioned ABC test marketing, Jenkins said, where marketers try changing prices or introducing certain products versus a control group to see whether the tactic lifts sales.
The small footprint of most convenience stores makes it easy to test, Jenkins said. Within a couple of weeks, they will know if the A or B attempt is successful. “We’re constantly learning,” she said, “and taking a process-improvement approach.”