Air Miles hits turbulence after Sobeys and Safeway pull out of program

The long-running Air Miles rewards system could be facing turbulence after the withdrawal of one of its only remaining national grocery chains from the program, say experts in the Canadian loyalty points industry.

In early June, Canadian grocer Empire Company Ltd. announced it would be switching loyalty programs to Scene+, best known for its acceptance at Canadian movie chain Cineplex. Empire owns Sobeys, in addition to Safeway, Foodland, some IGA stores in Canada, FreshCo, Needs, Thrifty Foods, Les Marches Tradition, Rachelle Bery and Lawtons Drugs.

The shift will occur between August 2022 and the first few months of 2023, with the Sobeys company taking one-third co-ownership of Scene+ alongside Cineplex and the Bank of Nova Scotia.

It's a change to Canadian habits that could be difficult for Air Miles to recover from, according to industry watchers, after years of shoppers pulling out the familiar blue Air Miles cards at stores such as Safeway and Sobeys.

"To call it even the final nail in the coffin could be a little dramatic, but it wouldn't be too far off," said Ricky Zhang, founder of Prince of Travel, a website that tracks and compares travel reward systems in Canada.

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"Losing the Sobeys and Safeway partnership is very much a major blow, and it's only the latest in a series of major blows that they've suffered in recent years," said Zhang. Those blows include losing the Liquor Control Board of Ontario and Lowe's hardware stores from the Air Miles network in 2021. As well, Staples Canada will no longer offer Air Miles as of July 2022.

According to Zhang, Air Miles have been one of the weaker options on the Canadian loyalty market in recent months, and these developments are not going to help things.

"Air Miles, last year, had tried to kind of rebrand itself and come out with a bit of a refreshed flight reward redemption system for people to use their Air Miles," he said in an interview with CBC Radio's The Cost of Living.

"It hasn't seemed to deliver extra value compared to before. And so I do find the program is very much, unfortunately, in a bit of a stagnant state."

Air Miles parent stock sinks by nearly half

It's not just points watchers saying that Air Miles is in trouble without Sobeys. Markets reacted badly to the announcement.

After news broke that Sobeys and its other brands would be leaving Air Miles, the company stock price plummeted by more than 40 per cent.

While there have been significant fluctuations in many stock markets in the days following the Sobeys announcement, the Air Miles parent company stock, which is traded as LYLT on NASDAQ, has not risen and fallen with general trends in the days since. The stock fell after Sobeys and Safeway pulled out, and stayed where it was.

If you're already an Air Miles collector, I think the future looks more dim than it looks bright.- Ricky Zhang, princeoftravel.com

According to stock filings and media releases from Air Miles parent company Loyalty Ventures, Sobeys represented about 10 per cent of the parent company's earnings in 2021 (before interest, taxes, depreciation and amortization are taken into account).

Sobeys stores, along with Safeway and its other brands in Canada, accounted for more than $21 million Canadian in earnings for Air Miles' parent company last year, according to calculations derived from annual financial statements.

Business isn't just to sell data, but points themselves

Rewards systems such as Air Miles operate by selling points to retailers, which they hand out to customers as an incentive to shop. The reward company uses the money that comes in from selling those points to buy the rewards.

While Sobeys would not agree to an interview with The Cost of Living, it told The Canadian Press the grocery chain did not have to pay for its co-owner status in the Scene+ program because of "the opportunity" it brought to the table.

"They stand to take a greater share of the overall profit," said Erin Murray, vice-president of marketing with Points, a technology company that works with dozens of reward companies around the world, including Air Miles, Aeroplan, IHG and Hilton Honors.

LISTEN | Hear from the rewards company first hand on Cost of Living. 

Cost of Living8:46Is it the beginning of the end for Air Miles?

According to Murray, when a company owns its own rewards program (or at least a significant portion of it), it can make sure that everything the program is doing matches the goals of the retailer instead of having to co-operate and negotiate with an external business.

"They're moving over with an ownership stake.... They're making sure that however [loyalty program] members are being rewarded is completely aligned with what their overall objectives are," said Murray.

Air Miles says the skies are clear

For its part, Air Miles has said its confident it can turn this into a "growth opportunity" and has pointed out in public statements that Metro grocery stores in Ontario will still accept the rewards card.

The company has said that customers can earn Air Miles from hundreds of stores that may not accept the card in person through an online shopping portal. It also said new deals are under development, but would not provide details to CBC Radio.

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In an interview, the company told Cost of Living that Sobeys departure could leave room for another grocery store or chain to join the program. However, with other major grocers such as Loblaw or Save-on-Foods offering their own, in-house point systems, it's unclear what retailers would remain unhitched, so to speak.

"We're having lots of great conversations with many brands that haven't been able to engage with our models in the past," said Rachel MacQueen, senior vice-president of marketing with Air Miles.

Air Miles still remain available on major credit cards, such as those from BMO and American Express.

"Our credit card partners enable you to earn miles everywhere you shop. So no matter what grocery store you shop with, when you pay with an Air Miles credit card, you're going to get miles," said MacQueen.

The Air Miles executive also pointed out that the company offers a significant benefit to its member retailers — cross-promotion to new customers.

For example, someone who needs fuel for their car but also shops at an unrelated business that offers Air Miles may see a rewards offer for the Shell gas station without having gone to Shell.

"So collectors that aren't currently shopping at Shell … Shell can now put offers out to customers that they don't currently have with them. An incentive or a motivation to say, hey, come fuel up at Shell and get miles," said MacQueen.

With ten million collectors, according to MacQueen, that potential is nothing to be sneezed at.

Should you switch to Scene+?

Regardless, Sobeys and its affiliated banners have indeed sneezed at said potential. Air Miles will not be awarded at Sobeys stores in Atlantic Canada by August 2022, with the rest of the country following suit by the end of March 2023.

Canadians who love their Air Miles won't need to fear losing them at this point, as the reward system is not going anywhere.

As an alternative, the Scene+ program through Sobeys promises more rewards than just the movies, such as travel. In an emailed statement, Scene+ co-owner Scotiabank said that free groceries will eventually become an option as well.

But reward maximizers like Zhang point out that if you relied on grocery shopping to save points for a free dream vacation, you'll need to rethink how you get your free stuff as it could take you much longer to get enough points without weekly supermarket trips.

"If you're already an Air Miles collector, I think the future looks more dim than it looks bright," said Zhang.

Those who chase the biggest bang for the reward buck say if you are a few thousand short miles of that trip to Hawaii, but you always got your miles at Sobeys, you may not be able to hit your goal on your original timeline.

If you want to leave on a jet plane, you'll need to earn a lot more and quickly — by August if you are in Atlantic Canada.

Or you can always settle for a blender instead.

The Cost of Living airs every week on CBC Radio One, Sundays at 12:00 p.m. (12:30 NT).
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