Tesco selling dunnhumby for rumored £2 billion - every little helps.

January 7, 2015

Dyslexia mode

Summary:: Retail giant Tesco's turnaround plan includes a bold move to sell off its dunnhumby marketing data services business, with WPP reportedly lurking in the wings with its check book.

tesco clubcard — How many points would I get for buying dunnhumby?

Yesterday saw two of the UK’s biggest retail brands turning in some off-par numbers, namely Sainsbury’s and M&S. Both firms need some radical turnaround thinking and could do worse than cast an eye in the direction of Tesco, where CEO Dave Lewis yesterday announced some sweeping changes.

These included selling off non-core businesses to telecoms firm TalkTalk, specifically Tesco Broadband and loss-making video streaming service Blinkbox.

But most interestingly Tesco is looking at options around dunnhumby, the consumer data gathering company behind the firm’s Clubcard loyalty program. dunnhumby pitches itself as a “customer services” company, as Andrew Hamilton, globel head of strategic planning at the company, told Derek du Preez last year:

We work with retailers around the world to help them understand their customers, help them make business decisions, set their strategies around their customers to improve their customer loyalty and improve their sales. As part of that, we help them understand how to use their data with suppliers, help them understand their customers, and in turn commercialising that data.

Those customers are a big deal. Derek observed:

[dunnhumby] spends its time analysing the customer data from some of the world’s largest companies, as part of their wide-ranging loyalty programmes. For example, if you’ve ever bought something and are part of a customer engagement scheme with the likes of Tesco, Coca-Cola or Macy’s, then the chances are dunnhumby knows a little bit about you.

Did Tesco fall for the data analytics GIGO trap?

dunnhumby aims for vanilla in preparation for full Oracle cloud rollout

dunnhumby was set up in 1989 by husband and wife team Clive Humby and Edwina Dunn and its biggest claim to fame was setting up the Tesco Clubcard scheme. Tesco liked it so much it bought the company which has been variously valued at between £1 billion and £2 billion.

That’s a pretty wide range of course, but being wholly-owned by Tesco makes an accurate valuation difficult, but three months ago, venture capital firm TPG is rumoured to have made a speculative bid in the £2 billion region. Tesco is said to have rejected that one, so what the asking price might be now is open to speculation.

Goldman Sachs has been hired to explore options, which also include a potential IPO of the business, although an outright sale is widely regarded as the most likely option.

So who’s likely to have the deep pockets necessary? Early favourite is Martin Sorrell’s WPP empire which is looking to expand its data marketing operations, which currently generate around £11 billion a year.

Last month WPP signed an £800m million deal with IBM to upgrade its global technology platform to support planned new digital services.

My take

It’s a bold move by the Tesco boss, but as the company's slogan runs: every little helps.

The market certainly likes what it’s seeing despite Tesco’s recent turbulent past, with the share price up 9% after Lewis’ plans were announced. John Ibbotson of consultancy Retail Vision summed it up nicely:

Finally, we are witnessing the beginning of the Tesco fightback. Previous management lacked the bottle to do what needed to be done.