Sainsbury swipes £60m Nectar loyalty card to boost earnings, insights

Sainsbury's spend £60m to acquire the right to operate the Nectar loyalty programme in the UK from parent company Aimia Inc.

Sainsbury's paid Aima for the UK business assets, colleagues computer systems and licences to run the Nectar scheme in the UK.

The FTSE 100 supermarket group said the transaction will be immediately cash positive and earnings accretive.

"We expect goodwill to be generated as a result of the acquisition and the alignment of accounting policies," Sainsbury's said in a short statement on Thursday.

Nectar cards allow shoppers to build up loyalty points from shopping at places including Sainsbury's, Argos, Debenhams, BP garages, eBay, Carphone Warehouse, Apple stores and on Virgin trains, with the points being redeemed via cash or vouchers from 19 partners, including trips to Thorpe Park or Pizza Express.

"Acquiring Nectar supports Sainsbury's strategy of knowing its customers better than anyone else. There is no change for customers as a result of the acquisition and they should continue to collect and redeem their Nectar points as normal."

STRATEGIC PROGRESSION

Nectar's UK managing director last year said Sainsbury’s trialled a system using micro-location data on an app to track customers’ locations in-store and use this insight to influence their behaviour in real time to drive sales.

Having generated what Nectar describes as a “sustained sales uplift” and a 7% increase in the number of visits to the supermarket, the trial was extended to 20 Sainsbury’s stores, according to Marketing Week.

Sainsbury's acquisition of Nectar, potentially enables the grocer to rival the functionality of the much-vaunted Tesco Clubcard, said analyst Paul Hickman at Edison Investment Research, bringing strategic insights into longer term trends to help adapt its business to 21st Century retail.

“Although the switch towards online shopping habits is increasingly sharply defined in the non-food retail sector, the approach from traditional food retailers has been more nuanced. Tesco claimed the early high ground with Tesco Direct and the Clubcard," Hickman said.

The acquisition of Nectar comes as Sainsbury's last month made significant changes to the management structure of its stores and as the company adapts the format of many of its stores to incorporate its acquisition of multichannel general merchandise retailer Argos, which was part of a strategy to adapt to the structural changes of the retail industry and boost its same- or next-day delivery options.

Hickman noted Sainsbury’s recent diversification away from its traditional grocery business, with openings of Sushi Gourmet and Patisserie Valerie outlets within its stores as well as Argos, which has contributed to dramatic growth of its online grocery channel.

"Increasing effort is going into enhanced joint promotional planning and product cross-selling, which is precisely the area where Nectar can contribute," he said.

"The acquisition of the UK’s largest loyalty scheme brings with it a comprehensive consumer database across a wide range of sectors which will enable Sainsbury’s to better understand its customers’ behaviour and increase opportunities for targeted marketing across its brands, Sainsbury’s, Argos, Habitat and Tu Clothing.

"Potentially, the acquisition enables Sainsbury to rival the functionality of the Tesco Clubcard, including both minute-by-minute consumer spending habits, also bringing strategic insights into longer term trends that will help it adapt its business to the 21st century retail reality.”

As the grocer announced strong third quarter results in January, chief executive Mike Coupe still retained a cautious tone when he said that market conditions "remain challenging and we are cautious about the consumer environment in the year ahead".

The news of shop-floor rejig followed close after, which will see the grocery chain cut thousands of jobs as it reduced the number of management roles in each store but gives remaining roles more responsibility and better pay.

Staff were told that the role of deputy manager will be replaced by a smaller number of operations managers, with the more junior management roles of department manager, team leader and store supervisor combined under the new title of customer and trading manager.