Supermarket Credit Cards

Supermarket finance has put on a new coat with the advent of co-branded supermarket credit cards, such as the new Woolworths credit card and the Coles Group Source card. Retailers used to offer exclusive-use store cards to provide consumer financing for customer purchases. Now supermarkets have teamed up with banks to replace their store cards with general purpose cards packaged as rewards credit cards.

The new supermarket rewards credit cards thus serve dual purposes. As store credit cards, they help to foster customer loyalty and drive up sales; as co-branded credit cards, they are accepted in millions of other stores (outside the sponsoring supermarket) and merchants all over the world.

Let us take a look at the rewards credit cards of the two largest retailers in Australia, the Woolworths credit card and the Coles Group Source card.

Card Features

Most analysts believe the features of the two credit cards are generally similar. Interest on new purchases is 18.99% per annum, while interest on cash advances is 21.99% for both cards (as at 7 March 2009).

The interest-free period is up to 62 days for the Coles Group Source card, and only 55 days for the Woolworths credit card. But this feature is relevant only to those who pay in full the amounts due for each month; for those who carry a balance, the critical element is the interest rate (or annual percentage rate) rather than the interest-free period.

Balances transferred from other cards attract 5.99% interest for the first six months on the Woolworths credit card, but the Coles Group Source card does not impose any interest over a similar period.

Woolworths credit card charges a $49 annual fee, however, while the Coles Group Source card has no annual fee at all.

Earning rewards points

Control of the Woolworths credit card is maintained by the retail group, unlike the Coles Group Source card which actually belongs to the GE financial group. In a way, this has influenced the character of their rewards credit cards programs.

The Cannex research group says a cardholder earns points more quickly on the Woolworths credit card, but the rewards points from Coles Group Source card have greater dollar value.

With the Woolworths credit card, you earn 1 point on every dollar spent irrespective of where you made the purchase -- within or outside the Woolworths group. But if you buy within the group, you get an extra point (or 2 points) on every dollar and even a total of 3 points per dollar if you buy Woolworths Select items.

On the Coles Group Source card, you need to be enrolled in the FlyBuys program in order to earn points. You earn 4 points on every $5 dollars (or 0.8 points on every dollar) of spending within the Coles group, assuming you can present the two cards (Source and FlyBuys). This earnings rate is capped at a maximum 80,000 points per year (or $100,000 of spend); beyond that, you earn only 1 point per $5.

Redeeming points

The Woolworths credit card issues you a shopping card every four months, which you can spend only at any Woolworths retail outlet or petrol station. You need at least 3,450 points to earn the minimum $20 value on the shopping card -- that's a ratio of 172.5 points per $1 of value. Don't wait too long to use the shopping card: it expires after 90 days.

The Coles Source card transfers your earned points to the FlyBuys account every three months. At FlyBuys, your points have a much longer life of three years, and can be exchanged for flights, vouchers, small appliances, and other traditional rewards items. With only 2,500 points you can get a $20 gift card -- that's a ratio of only 125 points per $1 of value.

In addition, you earn a fuel discount voucher worth four cents on a minimum $30 purchase made anywhere, plus another four cents if you spend that amount in certain Coles outlets. That's a total of 8 cents per litre of potential discounts.

If you use the respective cards exclusively within the Woolworths or Coles group, you are likely to earn more rewards with the Coles Group Source card. But if you also use the cards at outside merchants, it is possible (depending on your usage pattern) to earn more rewards using the Woolworths credit card.