The Best Little Grocery Store In America

Green Hills Farms, a small family grocery in upstate New York, has big companies around the country clamoring to know the secrets behind its powerful customer-loyalty program.

Inc. case study

Green Hills Farms developed a powerful customer-loyalty program to help it compete against giant rivals. Now large companies everywhere clamor for the store's secrets

The case

Is customer loyalty for sale? The proliferation of "frequent buyer" programs suggests that companies from coffee shops to airlines to drugstores think so. But what is customer loyalty? Can you really force customers to like you? Can you turn folks who habitually shop on price into devoted patrons? The managers of Green Hills Farms say no. Nevertheless, Green Hills -- a 67-year-old grocery store that, judging by its exterior, should have folded 66 years ago -- has developed a loyalty program that has helped it successfully compete against giant rivals. It works so well that large companies from around the world now seek out the store's marketing advice. The program's secret: Green Hills knows -- really knows -- its best customers. To understand why Green Hills Farms inspires such devotion among its customers, you need to start with the turkey.

According to Green Hills CEO Gary Hawkins, the fat and frozen turkey is a symbol of all that's wrong with the bloated marketing habits of the grocery-store industry in which he competes. Specifically, he has a bone to pick with grocers who use the turkey to reward the thieves, that is, the bargain-thirsty, store-hopping, emotionally-unable-to-commit customers who methodically sweep into a store, spend a few bucks, and walk out with the big prize: a free or nearly free Thanksgiving turkey. That's the scene that plays out each November at countless supermarkets around the country. And which the Green Hills CEO detests. "The norm is to lose $10,000 to $20,000 giving away turkeys below cost to anyone who walks in the door," says Hawkins. That's a big loss for a business in an industry with notoriously bone-thin margins. For years Hawkins watched his Syracuse, N.Y., store take a hit on the free turkeys and thought to himself, "There has to be a better way."

Then one day Hawkins came to a decision that was as simple as it was revolutionary: Green Hills would stop helping the thieves and start rewarding its loyal customers.

Today when you join the Green Hills frequent-buyer program, you get more than an orange-and-green card to add to your key chain. Right off the bat, you get $15 back for spending $100. A designated "new customer manager" takes you on a personal tour of the store. Let's say you continue to spend $100 a week, which qualifies you as a "Diamond" customer. Here are some of the perks for your patronage: First, you get a free 16- to 20-pound turkey -- fresh, not frozen, from a local farm, just in time for Turkey Day. And when the Christmas season starts, finding the perfect holiday tree will be a cinch. The Hawkins family will personally select a seven-foot Douglas fir for you and give it to you for nothing. There are plenty more little extras, too: for example, the $25-off coupon in the garden shop in the spring. And six coupons throughout the year for 5% off your total purchase. Plus postcards in your mailbox announcing unadvertised specials on popular products like Pepsi, Sugardale ham, and Edy's Grand Ice Cream.

Furthermore, if you were a Diamond in 1999, you would be well stocked in the pots-and-pans department right now, having won yourself a free six-piece cookware set, an $83 value. And if you were a high-spending customer back when the tornado of '98 hit, on Labor Day, well, you know what happened after the power outages -- the store sent you a letter and a 10%-off coupon to help you restock the fridge.

In other words, Green Hills takes care of you.

But what if you shop at the store now and then, when a bargain catches your eye? What if you spend, say, $10 a week at Green Hills -- what do you get? Comparatively speaking, not much. And that's because the store not only knows who its customers are but can make meaningful distinctions among them. The bottom line: the store no longer wastes time and precious marketing dollars chasing folks who come in to pick the cheap cherries and pluck the underpriced turkeys. Says Hawkins, "It's a different way of life as a retailer, it really is."

Fighting the turkey thieves
The grocery store is an increasingly harsh battlefield for business. But doesn't every industry have its cherry pickers and turkey thieves? Consider the shoppers you know who are relentless in their pursuit of a deal. Instead of consolidating their purchasing, they're buying highly discounted products and services from a host of companies. With those customers there's no allegiance, no shortlist of preferred suppliers, and no hometown favorites. And just as often, no profits.

But what if you could find a way to turn some of those penny-pinchers into pinch hitters? And what if you had a way to ensure that your very best customers never left you? What if? Those are burning questions for managers everywhere, which helps to explain why customer-loyalty programs are hot. In the past decade there has been no lack of best-customer clubs, point programs, new twists on airline frequent-flier plans, and contests with spectacular prizes. Those programs flourish in commodity industries but can be found everywhere. Even colleges have caught the fever: one campus rewards students who faithfully attend every football game.

But perhaps no other sector has embraced the concept the way retail has. Online merchants have unleashed a flurry of new incentives for customers. But even old-line convenience stores that seem to defy the very notion of loyalty nevertheless have loyalty clubs. The result of all this purported loyalty building: the average American wallet is bulging with a rainbow-colored deck of paper, plastic, and bar-coded cards. Which has led to the inevitable next development: a "smart" card equipped with a tiny computer chip capable of storing information about dozens of loyalty-marketing programs. Some credit-card companies are already issuing smart cards for both in-store and online shopping. Imagine the possibilities for modifying product offers in real time. The possibilities extend beyond the retail sector, too.

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