Just how sweet has Nectar’s first year been? Anne Bruce reports

But, while the top-line results will invariably look good on paper, it may be harder to make the ‘benefits-to-Sainsbury’ story stack up.

For, in the year since Sainsbury replaced its Reward scheme with Nectar, the retailer has delivered poorer sales growth than all its rivals and lost the number two spot to Asda.

As Nectar approaches its first birthday, industry watchers will be waiting to hear what the multi-retailer loyalty card programme has delivered to its partners, and in particular to Sainsbury.

It was on September 10, 2002 that 10.5 million UK households were mailed in a blaze of launch publicity. Sainsbury, BP, Debenhams and Barclaycard were the inaugural partners, with Loyalty Management UK (LMUK) running the scheme on their behalf.

However, LMUK has chosen to mark the one-year milestone on September 16 - the date information packs were first available in store. Coincidentally this is the same day Tesco reports its interim results.

Both LMUK and Sainsbury are keeping details under wraps, preferring a ‘big bang’ media approach rather than a trickle of stories. And no doubt there will be a raft of impressive statistics unveiled on the day.

LMUK founder Keith Mills says Nectar has exceeded expectations, signing up more than its target 50% of UK households in its first year. Thresher, Vodafone, Adams and Ford have since come on board and more partners will be announced on September 16. Nectar will also use its birthday to launch an advertising campaign with its partners, focusing on the rewards available.

“Despite initial operational problems on our website, Nectar has been a phenomenal success story,” says Mills.

“Nectar’s not been a success. You just have to look at Sainsbury’s sales performance over the last 12 months to see that,” comments one analyst.

The company’s hopes that Nectar would generate a boom in sales have been dashed, says another. Its latest sales figures, for the quarter to June 21 2003, showed a rise of only 0.3%, including petrol, on the same period a year ago. This compares to Tesco’s 5.8%.

“Sainsbury has consistently lost market share since Nectar launched. It’s another case of outsourcing, using someone else’s brand and giving away part of its own,” says the analyst.

If Sainsbury attributes major sales uplifts to Nectar on September 16 it raises serious questions about its underlying performance, adds another.

“With just 0.3% sales growth, how bad is the business if you take Nectar out?”

However, Sainsbury says it is pleased with the way Nectar is developing.

“We have always said that sales build-up will come over time,” says a spokeswoman. “We now have two million more cardholders registered than we had with Reward and have been able to increase our direct marketing database.

“Customers really like the scheme as they are able to earn 70% more points with Nectar and they are enjoying the wider variety of rewards. Nectar also provides us with a wealth of data which we are using more and more in conjunction with trading to help shape our offer.”

The problem is that Sainsbury cannot wait for this “sales build-up”. It needs to generate real benefits now from the data it is collecting. But analysts question how meaningful this data is at the moment.

“A key benefit for Tesco, with its Clubcard, is access to sales data. Sainsbury can’t get data back for six weeks so the benefit in terms of instant feedback is lost,” says one. LMUK’s Mills says a complex bit of data could take as much as six weeks to process, but “bread and butter” data is available within days.

Given time, a good loyalty scheme can revolutionise a business. You only have to look at how Tesco used Clubcard to surpass Sainsbury for proof of that.

But take Tesco out of the equation and the fastest growing grocery retailers - Asda and Morrisons - do not have a loyalty card scheme.

As one analyst says: “I call them promiscuity cards. People don’t shop at a retailer for a piece of plastic, they shop there because the prices and products are right.”

City opinion, it seems, is that Sainsbury fell into a honeytrap when it launched Nectar.