US buyout firm TPG is reportedly considering buying Tesco’s data company Dunnhumby, but should Tesco take the money and run?
The £2bn to £3bn valuation of Dunnhumby being bandied around seems high, particularly when you remember that Tesco paid around £30m for the business in 2001.
At that kind of (over) valuation, you’re going to listen very carefully to what potential buyers have to say.
And, in that sense, it doesn’t smack of panic – the conversations were apparently taking place before the arrival of David Lewis as Tesco chief executive.
But would Tesco be inviting ‘selling off the family silver’ headlines were the sale to go ahead? It’s hard not to reach that conclusion, even at the reported valuation levels.
On the other hand, it can’t be right that the intimate knowledge of Tesco customers, their behaviours, buying habits and value resides outside of Tesco; strategically, it can’t be right that an external organisation would know more about Tesco’s customers than the retailers themselves.
Enormous data pool
Maybe there is a way of retaining this knowledge and the key talent responsible for unlocking the commercial value of such an enormous data pool. But that would presumably make the business less attractive to potential buyers.
Despite this process starting prior to David Lewis coming on board, it does feel as if there is a rationalisation of core business functions within Tesco.
A point of potential departure was when Dunnhumby diversified into retail media and other products. Creating a greater focus on insight that informs and returning to its data core would benefit all parties. Selling off the retail media business creates both income and operational focus.
Maybe the argument is that analytics and data science isn’t a part of Tesco’s core business, but I’m not convinced that’s true.
Tesco Clubcard (and all the intelligence that came with it) played a significant part in helping Tesco become the UK’s most popular supermarket. It enabled the retailer to better understand, and better anticipate the needs of its customers. Tesco was able to identify, recognise and reward its most valuable customers.
With more data available than ever, and more competition that ever, it’s hard not to conclude that the commercial value of the Clubcard database, and the insights that analytics can bring, are more important than ever before.
The question may be over the role of the business – is it value-added insight versus value-added income. The insight has undoubtedly informed innovations and the future of the business every bit as much as the role it plays in the day-to-day fine tuning of retail effectiveness.
So the question is, does it have to reside in-house? And I think the answer is yes. Commercially, data and analytics will continue to grow and Dunnhumby will remain at the arrowhead of that growth.
So for as long as the growth continues, and current margins are maintained, Tesco should resist the temptation to sell, and focus instead on what their customers are telling them every minute of every day.
It’s good to listen.
- Toby Richards, planning director at Publicis Chemistry