Dunnhumby Weaves Complex Web in U.S. Moves

MICHAEL GARRY

NEW YORK — Most software and service vendors have a fairly straightforward relationship with the retailer community: They provide a product and/or service that the retailer purchases and uses. The vendors can pursue a variety of retail customers, including retailers that compete with one another.

But this simple model does not apply to London-based Dunnhumby, a 20-year-old loyalty marketing firm that has launched widely recognized loyalty card programs with such blue-chip retail customers as Tesco and Kroger. That's because Dunnhumby, with annual revenues of $500 million, prefers to form equity partnerships with the retailers it works with. Tesco has a greater than 50% stake in Dunnhumby, while in the U.S., Kroger and Dunnhumby USA have been 50-50 partners since 2002.

Last November, Dunnhumby announced a 50-50 partnership with Canadian grocer Metro, based in Montreal. In France, Dunnhumby has struck a similar arrangement with the Casino grocery chain. “In every market, we seek to achieve a joint venture with a pillar retailer,” said Edwina Dunn, chief executive officer of Dunnhumby, who founded the firm with her husband Clive Humby. Dunn spoke with SN earlier this month at the National Retail Federation Convention and Expo here.

The first complication for Dunnhumby is that in each market it seeks to remain exclusive to the food retailer it partners with, though it does have customers in other retail channels, such as Macy's and Panera Bread in the U.S., as well as a slew of U.S. CPG companies.

This approach might have been tested when Tesco launched its small-format Fresh & Easy Neighborhood Market stores in Western U.S. states in late 2007. But Fresh & Easy chose not to launch a loyalty card program, which effectively kept Dunnhumby out of its operations.

This month, however, Dunn acknowledged that Dunnhumby is having “discussions” with Fresh & Easy about working with the chain, possibly on a loyalty program, or possibly with POS data not linked to shoppers. In December, Fresh & Easy denied a Financial Times report that it has a new loyalty program in the works, but this month Fresh & Easy spokesman Brendan Wonnacott acknowledged that Tesco was having discussions with Dunnhumby about the marketing firm engaging with Fresh & Easy, and that “all options are open.”

But Dunn emphasized that if Dunnhumby were to work with Fresh & Easy, “we would make sure that Kroger was entirely comfortable with what we did and how we did it.”

Tesco CEO Sir Terry Leahy shed some light on the matter after his presentation at the NRF Convention when asked whether Tesco — and by extension Dunnhumby — would launch the retailer's Club Card loyalty program in Asia. “We'd like to use our loyalty program in Asia, but we need a business of a certain size as a customer base for it to make sense,” he said. He did not indicate what the minimum customer base would be to support a loyalty card program; Fresh & Easy now operates about 135 stores in the U.S.

Dunnhumby's global reputation for loyalty marketing stems from the depth of its analysis. “Dunnhumby analyzes 45 pieces of data for each SKU,” said Natalie Berg, grocery research manager for Planet Retail, London. “It provides a level of granularity and shopper understanding that's achieved by very few in the industry.”

KSS ACQUISITION

Meanwhile, Dunnhumby raised new questions earlier month, particularly in the U.S., when it announced its acquisition of price optimization provider KSS Retail, Florham Park, N.J., which will operate as an independent business unit and maintain its existing management.

KSS Retail and Dunn- humby began working together last June on a price optimization program for Kroger. During that time, “it became more attractive to combine our skills” via an acquisition, said Dunn.

But KSS Retail has a number of other retail customers, including Raley's, Associated Food Stores, Brookshire Brothers and Balls Food Stores. One analyst, Paula Rosenblum of Retail Systems Research, Miami, wrote in an online analysis that she wondered how KSS Retail's current retailers are feeling about having a software provider owned (in part) by a competitor, Kroger (though the connection is indirect because KSS is owned by Dunnhumby, not Kroger partner Dunnhumby USA).

However, another analyst, Kevin Sterneckert, research director, retail consumer-centric merchandising, AMR Research, Boston, wrote in an analysis of the acquisition that “nothing changes for KSS Retail or Dunnhumby retailers now or in the near term,” adding that he predicted “exciting opportunities” for them in the future.

Lance Jacobs, CEO, KSS Retail, dismissed claims that the Dunnhumby acquisition would negatively affect KSS customers. “Kroger has no equity stake in KSS,” he told SN at the NRF Convention. “We're never going to commingle data.” Moreover, he noted, KSS retail customers have told him they regard the Dunnhumby relationship with KSS as a “gigantic advantage,” given Dunnhumby's expertise and supplier relationships.

KSS plans to incorporate Dunnhumby's loyalty marketing capability into its software to make those insights “affordable to a larger group of retailers — to the mid-market” — rather than just mega-retailers like Kroger and Tesco, said Jacobs. In addition, consumer level data from Dunnhumby will give the KSS software “the ability to develop more comprehensive pricing based on granular consumer behavior,” he said.

For Dunnhumby, which processes an enormous quantity of customer data, the KSS technology will help to implement loyalty marketing decisions at the store level, said Dunn.

Dunn emphasized that while Dunnhumby is bringing some elements of its marketing prowess to KSS Retail, “we would not do this to the detriment of our existing partners.”