Friday, 02 February 2018 13:00
Comment: Good deal or fire sale?
Aimia has sold Nectar to Sainsbury’s for £60m. How can this be a good deal for Aimia?
Aimia group CEO David Johnson says the sale of Nectar will allow it to focus more sharply on its Aeroplan Canadian coalition loyalty programme. He said Aeroplan is Aimia’s largest and most profitable business. Except that Aeroplan will lose Air Canada, its largest and most profitable partner in 2020.
The Nectar numbers tell a different story too.
Aimia bought the Nectar business in 2007 for £368m – over £300 million more than the £60m sale price announced this week. Plus Aimia will be paying Sainsbury’s £105m to cover liabilities related to outstanding Nectar points.
It is straightforward to see why Nectar is now less valuable to Aimia, yet remains so for Sainsbury’s not least because it will be cash positive and earnings accretive.
Nectar was launched in 2002 by Sir Keith Mills with founding retail partners Sainsbury's, BP, Barclaycard and Debenhams. At that time, it was expected that the number of partners would continue to expand into different sectors – that Nectar would become the default loyalty programme in the UK, and the concept rolled out around the world.
But life and retail is changing fast. Aimia has admitted that the expansion of Sainsbury’s beyond grocery into financial services, energy, clothing, and general merchandise, not least through its acquisition of Argos, means that it now covers many of the key categories for a typical retail coalition. So partner opportunities are much reduced.
Yet Nectar remains one of the most sophisticated and advanced customer data analytics tools in the world, making the business proposition for Sainsbury’s a no-brainer. From now on, it will have total control and ownership over its customer data, which will increase its capability for targeted marketing and customer communication. Theoretically at least.
Because the irony of Sainsbury’s is that although it has some of the best tools possible today, it hasn’t been using them nearly has well as Tesco does.
Apparently there will be no changes in Nectar partners, yet at least, and for the consumer, there should be no change to the reward structure. This in itself is a pity, because Sainsbury’s Nectar rewards are only worth 0.5p a point, half the value of a Tesco Clubcard point and nowhere near the 2p in the pound reward of Boots.
The loyalty business is watching the struggles to keep Aimia afloat with anguish and concern. No-one wants to see such a professional and respected company in trouble, yet David Johnson has a massive task on his hands. In order to cut costs, he has been working to run a leaner organisation and also to simplify operations.
In August last year it sold the Air Miles Trademarks, license and royalty agreements for Canada to Diversified Royalty Corp. The move followed the decision in May by Air Canada to leave the Aeroplan coalition in 2020 and start its own in-house loyalty programme. This left Aimia seeking a new travel rewards partner for Aeroplan.
Aimia reported a loss of C$25.1m in Q3 last year and its shares fell to less than C$2. Shares are currently trading at C$2.78 (£1.59p).