Tesco is no longer a supermarket selling milk, bread and tins of beans. It is a media and data company. Yes, the home staples will never be replaced in the new digital economy, but the pivots being shown by the likes of Tesco is indicative of real evolution in retail.
In the last week, Tesco snapped up UK based We7 for a relatively modest £10million (although it is still to turn a profit). This adds music to their entertainment stack after previously acquiring Blinkbox.
Adapting to the new digital economy
These moves are reflective of a business that recognises the need to adapt to the digital economy and to future proof itself against a sea change in consumer digital behaviour. Tesco is however well positioned to navigate this. It has arguably one of the most extensive databanks in the UK (the clubcard / Dunhumby operation is immense) and it has ongoing access to massive scale by way of consumers entering the Tesco shop (physically and virtually) every week.
The acquisition of We7 enables Tesco to introduce a new revenue stream, although first it would need to streamline the costs in order to turn We7 into a profitable business unit. The platform and foundation however is there. We7 currently has a user base of circa 3 million. This provides a great cross-sell opportunity.
The recent Blinkbox acquisiton is also indication of Tesco’s changing digital strategy, as it looks beyond the current market landscape. Tesco (rightly) recognised that sales of CDs and DVDs in a bricks and mortar store were rapidly shrinking and it needed to maintain its share of the market (Tesco currently owns 9% share of CD sales according to Kantar). Users are building catalogues in the cloud. To remain relevant, it needed an answer to this.
Tesco also likely noticed the threat of Amazon. It is unlikely Amazon will start shifting pints of milk but their acquisition of Diapers.com and Soap.com was a statement of intent to the market that it did not just sell electronics anymore. Given that Amazon is moving into music and the entertainment sector, adding these components to Tesco’s portfolio was a smart move. It was also a fairly cheap entrance strategy. Yes, Spotify is trouncing We7 on market share. But how much has this acqusition set Tesco back? A mere couple of hours of cash flow.
What commercial opportunities does this present Tesco?
They now have a multi-platform solution to take to market but also a rather tasty publisher trading desk model waiting in the wings. How many buyers would not be interested in being able to target based on user’s precise purchase behaviour as well as their consumption of broader digital media. This opens up a very powerful door to FMCGs for Tesco. Tesco has rich brand-led assets to monetise (Video, Music) and it has a very powerful understanding of consumer buying behaviour. The likes of P&G and Unilever should be banging its door down. Data-driven brand ad experiences? Yes, please. This is of course presuming that Tesco is able to (securely) on-ramp that rich club card data.
What is next for Tesco?
Putting groceries aside, what else does Tesco sell? Fashion and books? So what could be next for Tesco? On the subject of books, Sainsbury’s have beaten them to the punch with its recent acquisition of Anobii, but you have to expect Tesco to firm up its interest in the burgeoning e-book/e-reader marketplace.
Fashion is also a critical area for Tesco. Companies, such as Fab.com, have been very disruptive and are building market share – but a company like Fab.com is likely to set Tesco back hundreds of millions. Given that it needs to preserve its revenue streams from these product lines, Tesco will likely have a digital play here soon.
Retail businesses are adapting to the new digital economy and are looking more and more like media companies underpined by a huge glut of intent data. The retail model is evolving, and they are likely to become key players in the European digital media space over the coming years.ExchangeWire