Paying The Price Discount
The Age
Saturday August 11, 2001
IN NOVEMBER 1989, the then-great industrial group Pacific Dunlop became the first Australian-listed company to reward shareholders with a discount scheme.
At the time, PacDun's share price was $4.92 and heading north, so the company decided to share the good times with its shareholders by offering discounts at its outlets such as Goodyear Tyres, Repco Auto Parts and Beaurepaires.
Since then, more than 40 public companies have followed suit, luring would-be shareholders with savings on wine, accommodation, financial services and, for Bristile shareholders, bricks and pavers.
While the prospect of paying less than retail is no doubt attractive, the question remains: do a couple of free movie tickets and 10 per cent off winter lift tickets in Thredbo (as is the case with Amalgamated Holdings) make a sensible investment?
Take Pacific Dunlop for example. Shareholders with more than 100 shares would have enjoyed a 5 per cent discount on many PacDun brands.
But these benefits are tempered by the shares' performance, which since the the start of 1994, have tanked.
It takes a lot of tyres to make up for an investment that in the past 11 years has shrunk by 59.3per cent (calculated on a monthly basis reinvesting gross dividends).
Every stockbroker The Age spoke with said a company's fundamentals - past and future profits, management, balance sheet - were the only serious consideration when it came to trading shares.
``Any discount schemes should be looked upon as a bonus to shareholders," said J.B. Were's head of private client research, Mike Kendall.
``It would be a mistake, and also dangerous, to invest in a company simply to be eligible for a discount program - as, if the outlook for the company in question is poor, there is the distinct possibility that you may erode your initial capital investment."
Nevertheless, discount programs are generally an effective way for companies to attract investors. Brokers such as Salomon Smith Barney and D.J. Carmichael publish popular lists of companies that offer shareholder benefits.
``We are not saying the reason you should buy a stock is because it has a discount," said Carmichael's Max Nind. ``You have to do your homework, but if you are happy with the outlook for the company, a discount makes a pleasant bonus."
Since the Coles discount card was introduced in 1993, the retailer's register has surged to more than half a million from 62,500.
The Coles card was - until a recent review made the conditions more stringent - a screaming success because it embodied the best aspects of discount programs.
The Coles discount card was relatively cheap; on the last day of the old program investors needed 500 shares worth $3440 to qualify. Compare this with the $17,000 that, on yesterday's closing share price, investors need to fork out to receive a National Australia Bank shareholder card.
The Coles card made financial sense. The shares have performed reasonably well over the years and, according Wilson HTM numbers, should save a family with a $150-a-week grocery bill, about $400 a year.
It applied to a wide range of products (food and clothing) and stores (Target and Myers) and was relatively free of conditions.
Despite creating customer loyalty, the costs of 400,000-odd discount-card-inspired shareholders proved too much for Coles to maintain.
Salomon's retail analyst Giselle Roux points out that the retailer's decision to retain the discount card, despite the program's costs, demonstrated how ``anxious the group is to preserve what little customer loyalty there is left".
Discount programs can be expensive to administer, and many apply conditions to reduce the cost.
To receive an equivalent David Jones card and its 5-10per cent discount, there is a 2000 share minimum (equivalent to $2280 on yesterday's prices) and the requirement to open a DJ's credit account.
Some of the bigger companies to offer shareholder benefits include:
• Foster's Group: No minimum share requirement. Certain wines produced by Beringer Blass are offered exclusively to shareholders.
• Pipers Brook Vineyard: Minimum 2000 shares. Approximately 40 per cent off the retail price of wines (A maximum number of cases of wine applies depending on the number of shares held). Other wine companies with benefits include Evans and Tate, Normans Wines, Peter Lehmann Wines and Petaluma.
• ANZ: Minimum 300 shares. A privilege card offer holders discounts on a range of account and insurance fees, additional interest on some accounts and bonus points on certain credit cards.
• Westpac: Minimum 500 shares. A wide range of discounts, including $500 off establishment fee for certain home loan accounts. Other banks offering benefits include Colonial, Bank of Queensland, Bank of Western Australia and Bendigo Bank.
• Rebel Sport: Minimum 1000 shares. A discount of 7.5 per cent on all items.
• Village Roadshow: Minimum 500 shares. Twelve ``buy one get one free" cinema vouchers (conditions apply) and one ``buy one get one free" voucher to Warner Brothers Movie World, Sea World and Wet 'n' Wild.
• OPSM Protector: No minimum. A 12 per cent discount on any one item.
© 2001 The Age
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