business news in context, analysis with attitude

In the UK, the Daily Mail reports on some of the complications that Tesco is encountering as it prepares to open convenience stores in the US in 2007.

According to the paper, the latest speculation is about Tesco's relationship with Dunnhumby, the data consultancy, in which it spent the equivalent of about $26 million (US) last week to increase its ownership stake from 53 percent to 84 percent. The problem is that Dunnhumby has a major client in the US – Kroger – that reportedly is unhappy with the connection a new competitor has to a company that has been immeausrably helpful in analyzing consumer data.

This, of course, isn’t the only US involvement that Tesco has. The company also has invested more than $40 million (US) in, owning 35 percent of Safeway’s online grocery business.

If you go to the Dunnhumby website, here's what the company says about the Kroger relationship:

“Dunnhumby has worked with The Kroger Co., one of America’s largest grocery retailers, since 2002, helping it gain greater insight into its customers’ shopping behaviors. Approximately 40% of U.S. households have one of Kroger’s loyalty cards, thus comprising one of the largest retail customer databases in America.

“Since working with Dunnhumby, Kroger has seen its sales grow consistently – the most recent quarter saw an increase in same store sales of 3.4%, its eighth consecutive quarterly increase.

“Kroger and many retail analysts are attributing a major role in this success to Dunnhumby. In a conference call with analysts in September 2005, Kroger Chairman and CEO David Dillon said, ‘Dunnhumby has helped me reset my understanding of what the customer is after, and it helps replace intuition with actual data and actual facts. And it's those facts that are driving our decision-making.’

“He added that ‘our commitment is to make sure that every decision we make positively influences the way our customers feel about Kroger. This emphasis on placing the ’customer first’ generated increased customer traffic and higher average transaction size.“

“Dunnhumby also works with more than 20 of Kroger’s top consumer packaged goods suppliers. We have created a more collaborative partnership between retailer and supplier by placing the customer at the center of the decision-making process. Dunnhumby and Kroger are helping these companies grow their sales within Kroger and better understand the US consumer and how they engage with their brands.”

The Daily Mail notes that "Tesco marketing director Richard Brasher and finance director Andrew Higginson are already directors of Dunnhumby."
KC's View:
It isn’t hard to imagine, once you read the way that the Kroger- Dunnhumby relationship is characterized, that Kroger management might be a little perturbed by Tesco's increased ownership of Dunnhumby and its California plans.

Look for Tesco to find a way through these complexities. It has too much riding on its US plans to not take advantage of every one of its strengths.