Supermarkets have built a ‘data ecosystem’ from shoppers using loyalty cards as they earn millions by ‘relentlessly exploiting’ the information, insiders have revealed.
Data science analysts make daily purchases from Tesco and Sainsbury’s customers who use their Clubcard or Nectar cards to take advantage of lower prices.
Teams at a firm called Dunnhumby, owned by Tesco; and another called Nectar 360, owned by Sainsbury’s, take all this information to determine spending patterns.
Details such as store, time of day, how much was spent and shopping list are combined by experts to improve targeting of ad spend.
Now, a new documentary on Channel 5 this evening called ‘Loyalty cards: Are they a rip off?’ heard from a former employee of Dunnhumby and Nectar 360.
Ed, a former Dunnhumby and Nectar 360 employee, explained how the ‘data ecosystem’ works after shoppers have made purchases on their Clubcard or Nectar
The worker, referred to in the program only as ‘Ed’, said: ‘The way I’ve worked in the industry is purely through the pure profit making of its money as an asset. So using data to then sell to suppliers.’
Presenter Alexis Conran then told him: ‘So basically what you’re saying, if I’ve understood you correctly, is why Tesco and Sainsbury’s and every other retailer wants you, the customer, to be part of a loyalty scheme . because by doing that I’m opening up a huge and pretty lucrative source of income for the retailer, which is that I’m giving them my data and they’re going to make money from it.’
And Ed replied: ‘Yes, that’s true and there have been so many things especially in recent years that have meant that retailers have had to change the way in which they price products. So if it’s like the crisis in Ukraine, the pandemic. The price of the products should be reduced.
“They have to find ways to find other sources of revenue or sources of profit that will help really lower that price point threshold for customers. So while I suppose it’s very easy to be like ‘oh, it’s a source of income’.
Tesco has a ‘club card prices’ scheme which offers lower prices to loyalty card holders.
“But actually that gain feeds into the bigger picture of how they can actually hope to bring value back to customers.”
Ed went on to explain what happens after someone has bought with their loyalty card – with the supermarket knowing what was bought, when and where.
He continued: ‘That one transaction is an entry point into the data ecosystem. And I suppose the main benefit for a retailer is that the learning they get from you depends on how loyal you are.
So it’s a real way to learn how much your buyer (spends) and how loyal they are and how valuable they are as a customer to you, and so how you target them with ads or learn from them from a perspective. ‘
Dunnhumby made £362m a year in accounts for the year ended February 2022, although the firm works with retailers other than Tesco.
Presenter Alexis Conran said supermarkets want people to sign up as loyalty card holders because they open up “a huge and quite lucrative source of income for the retailer”.
Asked about that total, Ed said: ‘It sounds pretty close in my opinion, I was aware when I worked there, but I wouldn’t say that, yeah, it’s one of those where I wouldn’t say it’s necessarily good. – known and is in the public domain.’
Tesco and Sainsbury’s have insisted they do not sell data, but do ‘share’ anonymous details with companies participating in their schemes as specified in their terms and conditions.
But Tesco recently hailed its Clubcard strategy as a key driving force behind a 159 per cent rise in pre-tax profits to almost £2.3bn.
He added that there were 17,000 retail media campaigns last year using Clubcard’s retail insights.
And consumer expert Harry Wallop told the programme: “They can determine what you like, what you don’t like, whether it’s worth launching a new product or not. And they’re going to mine your data relentlessly.
“You’re giving companies access to digitally go through all your shopping, where you are, where you’ve shopped, who else you shop with. Then they take that data and sell it. Tesco Clubcard and Sainsbury’s Nectar sell it data.
Sainsbury’s has been offering lower prices on products to Nectar cardholders since April last year
“It may not be your individual name, email or your individual phone number. They sell information about you and make millions and millions and millions every year from your shopping habits.’
While Tesco and Sainsbury’s have denied claims of ‘selling’ data, they have said they share information with other brands to improve customer engagement and that their approaches are fully compliant with GDPR regulations.
Among the companies the supermarkets work with are the advertising arms of television channels, including Channel 4.
And Ed said, ‘If I’m a pumpkin brand and I want to show my pumpkin brand on 4OD, it’s going to go to every user on 4OD.
“But actually by using loyalty card data, you can make sure you only show it to customers who are likely to buy pumpkins and therefore it’s a much more efficient use of brand spend.”
In January, the UK’s competition watchdog announced it was looking into whether supermarket loyalty pricing misleads or harms shoppers.
A company called Dunnhumby, owned by Tesco, analyzes data from Clubcard spend
The Competition and Markets Authority (CMA) said the rise in some supermarkets making cheaper prices available only to loyalty card members had led it to examine the practice as part of its work to help tackle the pressures of cost of living in the food products sector.
It said it would examine whether any aspect of loyalty pricing could mislead shoppers — for example, whether the loyalty price is a genuine promotion or a deal as good as it appears — and whether any groups of shoppers are disadvantaged by the promotions.
It is also looking at whether loyalty pricing is influencing consumer behavior and whether this is having an impact on how supermarkets compete with each other.
The CMA is set to publish an update on its work this month and expects to complete the review by the end of the year.
And last September, consumer group Which? claimed that Tesco and Sainsbury’s were using ‘potentially questionable tactics’ in some of their shopper loyalty offers.
The Competition and Markets Authority announced in January that it is looking into whether supermarket loyalty pricing misleads or harms shoppers.
He said supermarkets were, in some cases, giving the impression that the savings for loyalty card members were better or more substantial than they actually were.
But Sainsbury’s dismissed the claims and said “Which?” The findings were based on a ‘flawed methodology’, while Tesco also hit back and said ‘all our Clubcard prize promotions follow strict rules’.
In April last year, Sainsbury’s introduced lower prices on hundreds of products in supermarkets and online for members of its Nectar loyalty card.
This made it similar to the Tesco Clubcard scheme, which offers lower prices to cardholders who can also collect points to redeem for vouchers or rewards.
MailOnline has contacted Sainsbury’s for comment on the Channel 5 documentary.
A Tesco spokesperson told MailOnline: ‘Clubcard unlocks the best value at Tesco and we have thousands of weekly Clubcard Prize offers, offering customers potential savings of up to £360 a year.
“All our Clubcard price promotions follow strict rules, including taking into account how they compare to market prices, to ensure they represent real value and savings for our Clubcard members. These rules have been approved by Our Primary Trading Standards Authority.
“We don’t sell any Clubcard data. Our customers have full control over what they choose to share with us and can decide to opt out of marketing entirely but still have access to all the benefits of a Tesco Clubcard, including Clubcard prices.
“When customers choose to share data with us, we use it to help us focus on delivering more of the things that really matter to them.”
Loyalty cards: Are they a rip-off? it’s on Channel 5 tonight at 7pm and on My5