Nectar programme triples profits
Increase driven by popularity in grocery sector and new partners
Coalition loyalty scheme Nectar tripled its profits during 2013 to £65.309m, up from £21.133m in the previous year.
The company said a 12% rise in revenue (to £266.859m) in 2013 was driven by an increase in the issuing and redemption of points in the grocery sector and in points issued by new accumulation partners.
The Aimia-owned company – which is registered as Aimia Coalition Loyalty UK Ltd – also won an ongoing court case in 2013 on the VAT it should pay when compensating merchants for redeemed Nectar points, resulting in the addition of nearly £56m to its income statement.
A significant part of the profitability is based on estimates of ‘breakage’ – the number of points collected that are not expected to be redeemed by members. The company said breakage could decline as the programme expands and has a greater variety of rewards available.
Nectar directors said they were confident it could continue to grow by increasing the number of collectors and improving their engagement with the programme through continued expansion of rewards and new accumulation partners. It has signed up First Group and Virgin trains as new partners this year.
Despite the increase in profits Nectar, which has 19 million members, faces intense competition in the loyalty marketing sector from new and existing competitors who may target its sponsors and members.
Major competitors include Tesco Clubcard, and the newly-launched Morrisons and ePoints schemes. The Morrisons Match & More scheme offers points and provides a price match guarantee against rivals Aldi, Lidl, Tesco, Sainsbury’s and Asda. Online currency ePoints has openly positioned itself as a competitor to Nectar and has signed up 2,000 retailers with major names including Boots, John Lewis, Londis, House of Fraser and Sports Direct.
Nectar may also be impacted from the fallout out at its partner Sainsbury’s which faced a social media backlash in October after announcing it is changing the way customers earn Nectar points and halving the reward from two points per pound spent to one. Instead, it will be introducing personalised offers, special deals and bonus Nectar points.