The race to acquire a share of El Al’s frequent flyer club is boiling. After Bank Hapoalim, Electra and Phoenix have already expressed interest in the veteran club, now Shufersal and Bezeq are also joining negotiations. The deal currently underway is a 30% acquisition of the club at a value of at least $ 250 million – significantly higher than the value of El Al itself, which is traded on the stock exchange at a value of about NIS 590 million (about $ 190 million).
Prior to the Corona era, in January 2020, a report was published by On Point Loyalty, which analyzes data on frequent flyer clubs of airlines, which estimated the club’s value of EL AL At $ 566 million. However, an external valuation initiated by EL AL at the time gave the date a value of about $ 300 million.
There is a fundamental difference between the two new entrants in the acquisition of El Al’s club: Bezeq does not have a customer club (and there does not seem to be a real possibility of one). Shufersal, on the other hand, operates one of the most prominent and largest customer clubs in the retail industry, and only a minority of the chain’s customers are not members.
El Al plane / Photo: Shutterstock
Why does everyone want El Al’s frequent flyer club? Probably because of the numbers. The Play Card Club has about 2.4 million members, but the focus is on credit card holders who number about 350,000 members. The club generated a profit of about $ 25 million a year for El, given the relatively high billing cycles of club members on their credit cards and membership fees they pay (several tens of shekels a year) as well as royalties and income from currency conversions. The annual turnover of Play Card holders NIS 30 billion Some of the members of El Al’s club are not residents of Israel.
And El Al is not alone. A glance at the reports of large public companies such as Shufersal, Hamashbir Latzarchan, Rami Levy and Fox shows how critical a large and strong customer club is for the large groups. This is partly due to the information they provide about the customers.
The Fox Club is growing steadily
We recently received further proof of the high value of customer clubs, with Shufersal and Bank Discount Sign a strategic cooperation agreement for the establishment of a digital wallet based on Discount’s “Paybox” payment platform. As part of the transaction, which was completed last July, a dedicated company was established, to which the bank transferred the assets of Facebook and Shufersal granted it the exclusive right to digitally access its customers’ club. The value of the assets that each party brought to the transaction is estimated by them at NIS 107 million.
The huge deals in the field of customer clubs should not surprise anyone. A look at the financial statements of the public companies in the economy shows how important the clubs are to them, and they invest a lot of effort in increasing them and adding added value to the customers and themselves.
Fox Has been reporting for several years on a consistent growth in the number of customers at its Dream Card club. The club was launched nearly eight years ago, and by the end of 2018 it already had 1.5 million members and memberships. As part of the annual report for 2020, it has already reported 1.83 million – a growth of about 16% in two years. Joining the Fox Club involves a one-time fee of about NIS 70.
The Harel Wiesel fashion group ended 2020 saturated with corona closures and restrictions with a slight increase in revenue, and in its reports noted that increasing the customer club was a critical success factor for its results. Terminal X, the e-commerce site set up and controlled by Fox, generated revenues of NIS 226 million that year – a jump of nearly three times compared to 2019 – and contributed to the fact that the club’s customers could continue to accumulate and take advantage of online bookings.
Another retailer that owns a customer club is Hamashbir , Which is controlled by Rami Shavit, but according to its annual reports, it is having a hard time maintaining its strength. At the end of 2017, there were about 730,000 members in Club 365, and by the end of 2019, the number had dropped to 620,000. During the corona year, Hamashbir managed to rehabilitate the club a little, and at the end of 2020 it had about 638,000 customers (note that the company defines households as a customer, and actually reports 2.1 million valid membership card holders).
Despite the decrease in the number of customers, the reports show that the financial contribution from the customer club’s operations (which involves an annual fee of NIS 100) has grown consistently in recent years, and last year it amounted to NIS 13.8 million. At the same time, the contribution rate from this activity from the group’s total revenue decreased from 28% in 2018 to 18% last year.
Shufersal owes the club members NIS 26 million
And back toShufersal : The retail giant, led by CEO Itzik Aberkhan, owns a club with more than 2 million members and companies, of which 660,000 hold credit cards (issued by ICC, like the El Al club).
Shufersal’s customer club (which has recently been rebranded and is now called SUPREME) is also valid at the Pharm Be chain, and unlike previous clubs we mentioned it is free of charge. The fact that this is a free card along with Shufersal’s efforts to characterize customer needs to provide unique and customized promotions, means that about 85% of online shoppers are club members and the company emphasizes that 82% of its total revenue in 2020 came from customer club members. Shufersal’s annual reports also show that the club’s members have points worth NIS 26 million – which the chain actually owes them.
Shufersal Deal / Photo: Einat LeBron
While Shufersal is considering buying part of El Al’s frequent flyer club, Rami Levi Acquired an entire airline, Israir, and it has already been reported that the company is working to formulate an outline for the establishment of an aviation club in combination with the customer club of the Sycamore Marketing chain. The Good Pharm chain is also expected to be included in the company’s club card. Levy has a credit card that she issues Isracard , Who is also a 20% partner in the chain’s club company.
The chain’s annual reports show that in 2020 Rami Levy had about 750,000 club members, but only 236,000 of them were active (who made at least one purchase a year) – a decrease of about 18% compared to 287,000 active club members in 2019. Club members Were responsible for a quarter of online retail sales last year, a 14% drop from their rate in 2019 and a drop of almost 30% compared to their rate in 2018. The number of holders of the chain’s credit card did increase slightly last year and amounted to 263,000.
How to calculate the value of customer clubs
Capital market analysts seem to find it difficult to provide value to the customer clubs of the retail chains in various areas of activity (food, fashion, etc.).
One of the market analysts highlighted some of the risks associated with customer club activities. “These clubs include financial commitments that companies take on, and every point a customer earns is worth the money. In addition, over time, the number of customer clubs grows, so the relative strength of each club diminishes.”
Looking at the current market situation and against the background of the deal being formed in connection with El Al’s customer club, he added that “the fate of El Al’s frequent flyer club involves El Al’s situation, which is known to have almost collapsed due to the corona crisis. “El Al was volatile. Under the assumption that the omicron will continue to have an effect, and that inflation will continue, meanwhile market consumption in general continues to decline and this should also be remembered in the context of the deal.”