The cashed-up club
Not-for-profit AA has made a major turnaround, luring big-dollar partners with its rapidly growing membership.
As a member of the New Zealand Automobile Association, I’m hardly in an exclusive club. It’s closing in on 1.6 million members and adding them at a rate of 2500 a month. Not until I read an excerpt from its 2016 financial statements in the latest edition of member magazine AA Directions did I discover what a rock-solid club I belong to.
Its cash holdings were about $43 million in 2016, with a further $79 million in managed funds and no debt. It has 10 subsidiaries and nine joint ventures, including its AA Insurance with Vero Insurance and AA Life Services with Vero’s parent, Suncorp Group.
Its AA Finance subsidiary, whose loans are underwritten by Heartland New Zealand, recorded a 65% jump in car loans last year. Its AA Smartfuel platform became part of New Zealand’s largest loyalty scheme last October, when it was joined by Countdown’s Onecard supermarket savings scheme for a combined potential membership of 3.5 million cards – although the actual figure is likely to be considerably lower, because to take advantage of the AA scheme, users need to update to the new card and then opt to earn discounts on fuel rather than groceries.
The AA made a profit of $17.3 million last year on revenue of $143 million. It has AA Health, a partnership with health insurer nib, and a tie-up with Specsavers offering members free eye checks. Its battery replacement business, AA Battery Service, is a joint venture with Club Assist Corp. Not bad for an organisation created from the 1991 merger of 17 regional AA entities owing its bankers some $25 million and, as chief executive Brian Gibbons recalls, “not a bloody cent to our name”.
“The bank got me into the room and said, ‘Look, if your overdraft is going to go any higher, we’re going to start bouncing cheques.’ I thought, ‘My godfather.’ And we embarked on a recovery programme,” says the whitehaired Gibbons, who has run the national motorists’ body from day one. “I think many an organisation would give their right eye to be in the position where you have no debt and you have funds available and a clarity around the balance sheet.”
BRAND IS EVERYTHING
As a non-profit club, the AA can’t make a capital return to its members. Instead, it has kept membership fees unchanged since it was created in 1991 and focused on adding services and broadening its commercial operations.
“Our whole focus as an organisation is about what can we provide to validate and increase membership, and the first call on those funds is always not to put the subscription up, and we will continue to adopt that. The second is how we can use those to pass on member benefits in some way.”
Among those is the offer of three free driving lessons for the children of members, called its Ignition programme, which it doesn’t make too much noise about because of the sheer number of members.
In 2016, the AA’s biggest revenue source was delivering services to members and the public, which generated $66.4 million. Another $53 million came from membership fees and subscriptions The AA’s share of profits from its joint ventures was about $16 million, the largest being AA Insurance.
AA owns 32% of the insurance venture to Vero’s 68%, but retains 50% voting power at board level, partly reflecting the strength of the AA brand.
“Brand is everything to us,” Gibbons says. “We don’t place a value on it, simply because it isn’t for sale. We benchmark it every two years. Is it growing, is it getting old? Is it modern? It stacks up right there, right behind the All Blacks. It’s respected, it’s admired. That drives many of our partners to link up with us. We can easily damage that.”
AA Insurance is New Zealand’s fastestgrowing insurance company and is fast approaching its target of having policies covering 25% of the nation’s motorists. It also wants “a sizeable hold” on the home and contents market.
“SLIPPERS & CARDIGAN PEOPLE”
The other obvious area of growth is financial services. AA Finance wrote $5 million worth of car loans in March, funded through Heartland. But it is considering using its own strong balance sheet to take an ownership stake and underwrite some of those loans itself.
Some opportunities it has turned down include putting its name to a KiwiSaver scheme. It has also declined to offer products such as reverse annuity mortgages, which its partner, Heartland, offers, where elderly homeowners can tap into the equity in their houses.
That type of product could appeal to AA’s traditional older demographic – the “slippers and cardigan people”, as Gibbons calls them. It’s a term used affectionately, but AA membership is changing and the club is consciously chasing younger members while retaining its older constituency.
That tension plays out in AA Directions, New Zealand’s biggest magazine by circulation. But it doesn’t turn a profit despite its rich ratio of advertising. It’s clear advertisers still see it as a way to reach older consumers. Retirement villages tout their wares, Heartland is there with its reverse mortgages and there’s a host of house ads for AA’s commercial services, as well as driver safety tips. Among the classifieds, there are adverts for mobility scooters and support hose for leg pain. “It’s a juggling act,” Gibbons says. “The magazine needs to appeal to all age groups.”
Membership enrolments in December were the highest on record, and 91% of members rejoin. “If we can continue growing that and expand, we will continue to see record numbers. I don’t see a time when we reach a saturation point.”