Sainsbury's shows little loyalty to Nectar

Nectar, the loyalty card anchored by J Sainsbury and Barclaycard, faces uncertain future after the two major backers signalled they would cut back their involvement with the scheme.

Nectar, the loyalty card anchored by J Sainsbury and Barclaycard, faces uncertain future after the two major backers signalled they would cut back their involvement with the scheme.

Justin King, the new chief executive of Sainsbury's, has told Nectar's parent company, Loyalty Management UK, that he wants to slash the supermarket giant's £20m annual budget for promoting the scheme and offering Nectar cardholders discounts and free gifts.

Sainsbury's review follows dissatisfaction at Barclaycard over the performance of the Nectar scheme. It stopped offering the scheme to new cardholders in June, when it decided that longer "0 per cent" finance offers were more significant in tempting customers.

Although Sainsbury's has several years still to run on its contract with Nectar, it has significant leverage with which to demand new terms, since its 14 million-strong customer base is the most significant of all the participants.

Loyalty Management lost £40m in the two years to 30 September 2003. Sainsbury's launched Nectar after Tesco poached the contract to offer AirMiles with its loyalty card.

Sixteen companies are now members of the Nectar scheme, but recent joiners, such as ebookers, are more marginal players. Companies which signed up earlier include Debenhams , Ford and Vodafone.

Brian Sinclair, the client services director at Loyalty Management, said Nectar was continuing to grow. "It's the best possible investment. We are confident that our sponsors feel that," he said.

Loyalty Management says that more than half of all UK households participate in the Nectar scheme and the 16 sponsors account for 40 per cent of the average household's spending.

Mr King announced a review of the extent of Sainsbury's participation in Nectar as part of his new strategy to turn around the company's ailing fortunes. His performance has failed to dampen bid speculation, however, with suggestions over the weekend that the veteran financier George Magan - the founder of Hawkpoint merchant bank and now chairman of Lion Capital Advisers, a private equity firm - is attempting to establish a consortium to make a £5bn bid.