Sainsbury’s is paid £100m by Aimia to take Nectar off its hands – and the lessons to learn

I have been telling anyone who would listen for the last couple of years that it was inevitable – to me – that Sainsbury’s would take control of Nectar from its Canadian owner Aimia.

Over the last few years Nectar has lost partner after partner, with Homebase and British Gas the latest to exit.  If Sainsbury’s had walked away then Nectar would, literally, be worthless.  It was only a matter of time before Aimia realised that the best it would ever achieve was a negotiated exit.

(Or, as the press release put it: “Selling the Nectar business to Sainsbury’s was the optimal risk-adjusted outcome for Aimia”.)

Sainsbury’s will have had a good laugh as it negotiated this:

Sainsbury’s is paying £60m to Aimia for the business and its associated companies and joint ventures

…. but Aimia is paying £105m to Sainsbury’s to account for the number of unredeemed Nectar points in circulation

…. plus a further £55m to Sainsbury’s as a ‘net working capital adjustment’

Depending on how you treat the working capital adjustment, Sainsbury’s has therefore been paid either £45m or £100m to take Nectar off Aimia’s hands.

In pure cash terms, we know that the press release states: “Adjusting for and giving effect to the Nectar transaction, Aimia’s net cash and liquidity position will be reduced by approximately $174 million.”

Of course, Sainsbury’s is on the hook for future Nectar redemptions.  The majority of those will be in a Sainsbury’s store, however, and the supermarket can now change the redemption rate – or kick out other redemption partners to increase in-store use – to ensure that it makes a decent profit on the £105m it received.

For Aimia this is another body blow.  The main part of the company is Aeroplan, the Air Canada loyalty programme which was sold off.  Air Canada announced last year that it was starting a brand new loyalty scheme and severing all ties with Aeroplan, leaving Aimia in serious trouble.  I explain that story in detail in this article.

Imagine if IAG sold Avios for £3bn – which is what it is worth based on £200m of operating profit – and then in a few years time announced that it was relaunching BA Miles, severing all ties with Avios and leaving Avios shareholders – and members, who could no longer redeem for flights – up a rather wide creek and paddle-less.  That is what happened to Aimia with Air Canada.

What should the industry learn from this?

There is a lesson here for Clubcard and Avios.

Loyalty schemes with revenue based redemptions do not work.

Customers like ‘gamification’.  Customers like the fun of thinking they are being smart and they are maximising the value of their points.  When customers can find ways of getting outsize value from their points, they will go out of their way to collect them and focus their spending on products that can offer them.

No-one cared about Nectar.  Since 1 Nectar point was worth 0.5p in 95% of cases, people just treated it as cashback.  However, it was cashback that involved effort to redeem.  If you saw a product in Sainsbury’s offering 100 bonus Nectar points, you just got annoyed because you would have preferred them to offer 50p off upfront and save you the faff of spending them.

To give it credit, Nectar has been trying harder over the last year or so.  The Nectar app has had a few decent deals from time to time, mainly with Virgin Trains.  However, even here they messed up.

Almost all Nectar offers are targeted.  Very few are open to all.  This means that we can’t write about them on Shopper Points, so they don’t get circulated.  They also don’t get discussed on moneysavingexpert, hotukdeals and other ‘deals’ sites.

Nectar may have felt it was being clever using only targeted offers, but in reality it was costing itself a small fortune in free publicity.  As an example, note the big plug we gave to Tesco on Head for Points and Shopper Points yesterday for its current LEGO bonus points deal.  If that had been targeted, we wouldn’t have written about it.

If you have a stash of Nectar points, don’t worry about spending them quickly.  They are totally safe for now.  The question now is whether Sainsbury’s is willing to be adventurous and bring in more exciting redemption and earning options.