Why Flybuys could cost Coles shares amid greater cyber concerns

Some companies are ramping up their cybersecurity spending to make sure they don’t run into the same sorts of problems that Optus and Medibank Private Ltd (ASX: MPL) are currently facing. One of these is Flybuys, which could have an impact on Coles Group Ltd (ASX: COL) shares.

For readers that haven’t heard of it, Flybuys is reportedly Australia’s largest loyalty scheme, with eight million members. Considering how many people’s details it holds, Flybuys is putting a lot of work into cybersecurity.

Flybuys is jointly owned by Coles and Wesfarmers Ltd (ASX: WES).

Boost to the cyber defence budget

According to reporting by The Australian, the Flybuys 2022 financial accounts show that directors noted the company had “significantly increased investment in cyber security to help protect the company’s and members’ data”.

In 2022 the business spent $32.62 million on technology, up from $23.15 million in 2021. Those expenses include cybersecurity.

The newspaper reported that approximately 20% of all retail expenditure in Australia is represented within the Flybuys system, and it represents “a huge pool of personal and financial data that could prove a tasty target for cybercriminals”.

Flybuys CEO Anna Lee confirmed that spending on protecting customer data against hackers was growing. She said:

As one of Australia’s most trusted loyalty programs, protecting our member data remains a top priority at Flybuys. We continually review and improve our data collection and security infrastructure, and this additional investment is reflective of that commitment to our members.

As cyber security threats continue to evolve, so too does out investment in this space. It’s incumbent on us to not only provide the best experience possible for our members, but ensure that experience is backed by the core systems that will help protect our members.

How is Flybuys going?

Flybuys reportedly saw revenue increase by 28.4% to $391.9 million. This included $341.9 million of revenue from points paid to Flybuys from its retail partners.

It was noted by The Australian that the end of lockdowns and travel restrictions saw a rebound in consumer spending and other activities that generated more points than were redeemed.

What this means in the context of Coles shares

Flybuys isn’t designed to make a profit, but the loyalty business seemingly adds value for Coles and Wesfarmers, otherwise they wouldn’t keep running it.

Bunnings and Officeworks recently joined the program.

In Coles’ latest quarterly update, the business announced that its total sales had increased by another 1.3%, with supermarket sales increasing by 1.6%.

The company said it’s on track to deliver cumulative ‘smarter selling’ benefits of $1 billion by the end of FY23 under its four-year program.

Sales growth has continued into the second quarter of FY23, though it’s seeing higher costs relating to inflation.

The post Why Flybuys could cost Coles shares amid greater cyber concerns appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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