Aimia secures major coalition loyalty renewals
Aimia, the loyalty group that owns and operates the UK's Nectar coalition loyalty programme, has signed another seven year contract, renewing its agreement with founding partner Sainsbury's for its participation in Nectar.
As part of the long-term renewal deal, Sainsbury's is extending its commitment to the programme to secure an even higher level of engagement and value for the millions of Nectar members who regularly shop at Sainsbury's. Sainsbury's will also repay the £40 million promissory note that is due to Nectar on 1st July 2012, forming part of Nectar's redemption reserve and replacing the loan note.
At the same time, Aimia is also reducing its estimate of the long-term 'breakage rate' (the proportion of loyalty points that go unredeemed, which are held in the company's accounts as a forward liability) for the Nectar programme, to reflect these higher levels of engagement.
Sainsbury's was a founding member of the Nectar programme which launched in 2002, and the supermarket chain itself has 11.5 million active Nectar-using customers. A record number of people used their Nectar cards to do their 2011 Christmas shopping at Sainsbury's, with £100 million worth of points being redeemed in that shopping period.
In addition to rewarding customers for shopping at Sainsbury's, the data collected through Nectar allows the retailer to offer its customers specific and relevant rewards and promotions which helps increase loyalty and also drives sales. Through its coupon-at-till technology, powered by Nectar, Sainsbury's is able to reward customers directly at the till with points and offers targeted to their usual shop. This provides Sainsbury's with a unique and efficient way of reaching customers, and can be a more effective use of the advertising budget.
Sainsbury's also uses Nectar data to help when opening new stores, by identifying potential locations and also to help determine what customers in that region will be buying.
According to Justin King, chief executive for Sainsbury's, "We're delighted to reaffirm our commitment to Nectar, which has played an important role in our continued success. Our insight into shopper behaviour means we can help customers by giving them offers and promotions on the items they buy every day, while the programme provides numerous other ways to collect and redeem rewards."
Rupert Duchesne, president and CEO for Aimia, added: "This renewed agreement is a win-win for all parties: it provides Nectar with a platform to deliver profitable growth for the programme and its coalition partners; it enables Sainsbury's to benefit from a unique differentiator in the highly competitive UK market; and it provides Nectar's 18.5 million members with a highly rewarding experience."
At the same time, Aimia announced that it had also extended its existing agreement with anchor partner HSBC in the Air Miles loyalty programme in the Middle East. With the signing of the extension, HSBC is increasing its investment in the Air Miles programme to provide its customers with an improved value proposition for the miles they currently hold, as well as working with Air Miles to increase the value proposition on new miles issued. Aimia will also reduce its estimate of the long term breakage rate for the Air Miles programme to reflect these higher levels of engagement.
As a result of the changes to Aimia's breakage rate estimates for both Nectar and Air Miles Middle East, the company will record a one time non-cash cumulative reduction to revenue of US$136 million in its Q4 2011 results. In addition, the adjustment to the breakage estimates and related contract renewals will result in a net full year US$10 million charge to Adjusted EBITDA recorded in Q4 2011.