By Paula Rosenblum, Managing Partner
January 5, 2010
What an interesting start to 2010. No sooner did I strap myself back in my desk chair to finalize preparations for NRF’s annual Big Show, when the news of Dunhumby’s purchase of KSS Retail crossed the wires. Two really good companies are coming together, no question there… but are there synergies? We’re not sure. And for existing KSS Retail customers, there are definitely a lot of questions.
Let’s start with the basics. We’ll assume everyone knows about dunnhumby. The company has become legend for outstanding loyalty program management. The analysis the company produces can do everything from help re-arrange a store to create loyalty promotional offerings. Until now, dunnhumby has essentially pledged to partner with only one company per retail segment per country. So, in the US, it is servicing Kroger in supermarket, Macy’s in department stores, Home Depot in DIY, and Panera in quick-serve restaurants.
KSS Retail, on the other hand, is probably best known within the supermarket industry. The company was spun off from its parent company KSS, which focuses on the gas and oil industry two years ago. We used to say KSS was a well-kept secret with some really great algorithms, but that’s changed over the past few years. Customers include Raley’s, Price Choppers, RiteAid, Cumberland Farms, and others in the US and Europe.
But who owns dunnhumby? Well, dunnhumbyUSA is a joint venture between Kroger and London-based dunnhumby. And according to Supermarket News, the London-based company is partly owned by Tesco. What effect does this have on the deal? Whenever a merger or acquisition is announced, I always try to put myself back into the shoes of a retail CIO.
While it might be okay for my price optimization provider to have a strategic alliance with a company partly owned by my competitor (as was announced in June 2009), having the provider actually owned by that company would make me feel very uncomfortable. How are companies like Raley’s or Price Choppers feeling right now? In RSR’s upcoming pricing benchmark we’ll be showing how managing to keep up with competitor pricing is one of the biggest operational challenges retailers face. Retailers will want to insure that no one retailer gets a competitive advantage over another as a result of their engagement with KSS.
The next question: Where are the synergies? There’s no question that dunnhumby had a need for more automation. The easy knock on the company was that its work is very manually intensive. Adding price and promotion optimization to the mix can only enhance its offering. But if it’s going to stick to the “one company per country per segment” rule, synergies are really limited. Either this is the first of a series of deals, or the company plans to invest in expanding KSS Retail’s footprint.
So this brings us to the final and magic question: what does this deal mean for retailers? So far, the picture is pretty muddy at best. At the moment, we don’t see too much opportunity for anyone in the US beyond Kroger. We’re going to learn more. And as we do, we’ll let you know what we think. RSR never endorses one technology company over another. Our goal is to understand the implications of these types of transactions, and how they affect YOU. Look for more details after the Big Show.
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