It’s a world away from Tesco’s headquarters in Cheshunt, Hertfordshire. The contrast underlines the growing importance of the supermarket giant’s operation in India’s technology capital. The retail colossus may be drawing the curtain on its overseas empire, but its 6,500-strong workforce in Bangalore will play a pivotal role in its future.

After retreating from America and scaling back in China, Tesco is returning to what it knows best – the British consumer. Instead of building more out-of-town super-stores, it will use sophisticated technology developed in India and London’s Silicon Roundabout to wring more cash from customers.

Tesco is already Britain’s biggest retailer by some distance. Its tills take 1 in every 8 spent on the high street. It sells one third of our groceries, and its tentacles extend far beyond the weekly shop, from fridges and cookers to TVs and gadgets. On top of its burgeoning banking business, it is Britain’s fifth-largest mobile phone provider.

But its dominance is under attack. Discount chains such as Lidl and Aldi have stolen its mantle in the bargain basement, and the technology giants of America’s west coast are encroaching on the glitzier corners of its empire. Apple has long since taken its place as Britain’s biggest music retailer, while Amazon is the dominant force in DVDs and books through its Kindle ereader. Ominously, Amazon has designs on America’s grocery market – a move it may export to Britain.

The question is, is this really what people want from a supermarket?Tesco has no choice but to fight back. After snapping up a number of tech start-ups in recent years, the company is heavily promoting Blinkbox, a service that lets users stream film, television programmes and music over the internet.

It is unlikely that Tesco will ever make substantial profits from its online entertainment onslaught. However, the move will funnel reams of precious digital information into its database on 16m British consumers. Clubcard, the voucher and discount programme, is the most powerful weapon in the hands of Philip Clarke, Tesco’s embattled chief executive. He has every intention of using it.

“It [Blinkbox] is a very important part of our strategy,” Clarke said. “Music, books and video make you happy. I’m very keen not to lose out when the millennials [people born between 1980 and 2000] come through – they’re already becoming homemakers. It builds loyalty but it’s a revenue stream as well, otherwise I wouldn’t be doing it.”

Through its data monitoring arm, Dunnhumby, Tesco can sift billions of pieces of information to create a detailed picture of Clubcard members. These portraits can then be used to anticipate the desires of customers. But Tesco’s ambitions are much grander than merely trying to sell more expensive brands of baked beans to loyal shoppers.

It is understood that Clarke is planning to launch an iPad-like device for Christmas. Loaded with films, music, books, plus apps for its online grocery store, Blinkbox and its financial services, the tablet will harness all the intelligence it has gathered on its customers. In essence, it will serve as a virtual Tesco superstore in the living room.

The stakes are huge for a company that lost its way during years of overseas expansion. The fate of the new digital drive will determine whether Tesco reclaims its lustre or loses further ground to the American and German hordes.
TESCO was badly in need of a lift in the early 1990s. It was the fag end of the last Conservative government and Ian (Lord) MacLaurin, then chief executive, had ditched Green Shield stamps, forerunner of today’s supermarket loyalty cards. A lifetime in the grocery trade had taught him a few tricks, but MacLaurin was desperate to keep customers piling through its doors.

In 1994, the company started working with a small technology outfit, founded by a husband and wife in the kitchen of their west London home. Edwina Dunn and Clive Humby quietly set up a trial of a new loyalty scheme in a handful of Tesco stores, analysing the deep pool of purchasing information Tesco had stockpiled but never used.

The results were instantaneous and spectacular; revenues at some of the trial stores leapt more than 10% – a mammoth rise by supermarket standards. “What scares me about this is that you know more about my customers than I know after 30 years,” MacLaurin told Dunn and Humby.

Since then, Tesco and its Clubcard have become national institutions. In return for allowing Tesco to mine their shopping habits, half of British homes receive discounts and vouchers on their weekly bills. Dunnhumby is thought to hold tens of billions of snippets of information on its Clubcard members, from addresses and telephone numbers to what brands of aftershave they use.

By mining this rich seam, Dunnhumby can tell to what social class a member belongs, their likely political preferences, whether their children have flown the coop, and much more besides. According to David Sayer of KPMG, Tesco can even predict when a couple will break up – six months before they do.

Three years ago Tesco bought out Dunnhumby’s founders for a reputed 93m and the analytics firm has since become an even bigger money-spinner. Last year it delivered pre-tax profits of 60m on revenues of 147m. An estimated two-thirds of Dunnhumby’s turnover comes from selling information from its Clubcard database to consumer goods companies, such as Unilever and Procter & Gamble.

Insights from the Dunnhumby data mining are also thought to have informed some of Tesco’s most successful launches of recent years, including its convenience store chain and the Tesco Finest range.

Its importance could be greater still. The Clubcard database is potentially more valuable than the caches of information gathered by data gluttons such as Google and Facebook, according to analysts.

While Google builds its picture of users’ interests from the terms they type into its search engine, supermarkets have much more concrete information to work with.

“Tesco and Sainsbury know exactly what their customers purchase and when they change their behaviour,” said Faisal Galaria at Alvarez and Marsal, a consultancy.

“This will enable them to deliver highly targeted advertising and build more accurate profiles of customers, so they can put offers in front of them that customers are likely to act on,” he added.

Establishing a bridgehead in online film and TV will be critical both to feed more information into Dunnhumby and present offers direct to consumers.

In the future, users of Blinkbox or ClubcardTV, another streaming service, could be served ads or offers on their televisions, tablets or mobile phones – captive viewers, just a click away from adding products to virtual shopping trolleys.
A HANDFUL of shoppers braved the drizzle last Thursday afternoon to lunch al fresco at Giraffe, the family-friendly burger joint. Not in trendy Covent Garden or Spitalfields Market – this was outside Tesco Extra in Watford.

The restaurant opened three weeks ago as part of a revamp that also saw the installation of a Euphorium Bakery, a Harris + Hoole coffee shop and a separate area for F+F, Tesco’s clothing brand.

Reactions from customers were mixed. Caroline McMahon, a 45-year-old housewife who had bought a tropical tart from the bakery, said she usually shopped at Sainsbury’s but had popped in out of curiosity. “It’s completely different,” she nodded. “I’m very impressed – I’d definitely come back.”

Nigel Powell, a 45-year-old sound engineer eating at Giraffe with his wife and two daughters, was less convinced. “You can see what they’re trying to do,” he said, but gestured at the empty tables nearby. “The question is, is this really what people want from a supermarket?”

Tesco is counting on the answer being yes. In April, Britain’s biggest supermarket called time on the decade-long “space race”, announcing an 800m writedown to its land bank and mothballing more than 100 development sites nationwide. Under Sir Terry Leahy, chief executive from 1997 to 2011, it was known as the most aggressive stockpiler of sites for jumbo, out-of-town stores, so when Clarke slammed on the brakes, rivals sat up and took notice.

At the same time, the Liverpudlian pushed ahead with plans to sell Tesco’s loss-making Fresh & Easy business in America. He continued the international retreat this month by confirming talks to merge its operations in China with Vanguard, a chain owned by China Resources.

Watford, Los Angeles and Beijing are linked. In overseas markets such as America and China – as well as Japan – Tesco has failed to gather enough scale to cope with fierce local competition. In Britain, meanwhile, supersize stores that once generated billions of pounds selling DVDs, kitchenware and school uniforms, have come under attack from Amazon and John Lewis.

At home, however, Tesco has more than a fighting chance of reinvigorating its British juggernaut, thanks to the intimate knowledge it has gleaned of its customers. Wisdom gathered from Clubcard and its growing batch of digital services will inform the overhaul of its bricks-and-mortar stores.

Clarke hopes the Watford model will show the path to the future. As the store was transformed, hypermarkets in Coventry and Purley were also refitted.

“We’re very encouraged by the customer reaction,” he said. “We see casual dining, coffee and good bakeries as game-changers, so you’ll see us doing more of it. We’re also starting the downsizing programme of our hypermarkets, some of which are a bit large, given the way general merchandise has gone.”

Clive Black, an analyst at Shore Capital, warned: “The senior management have spent a lot of time on Watford, so it should look good, but it’s one out of 250 hypermarkets and there are another 500 supermarkets in the UK as well. These refits have got people talking, but what actually gets rolled out can be a very different thing.”

As with Blinkbox, Clarke is hoping the in-store changes will help Tesco win over the next generation of consumers and stanch the bleeding caused by online competition. His reputation – and the company’s fate – will depend on it.

How your Facebook page could cost you more to insure a car

Is this how Aviva imagined its customer?Want the best deal on car insurance? Well usually, you’d look for car insurance not on comparison sites to find the cheapest quote that is currently on the market, but in this day and age, you also have to be careful about what you post on your Facebook page, write Ben Laurance and Jenny Little. The time is fast approaching when insurers will harvest information from Facebook, Twitter and other social media to help assess how much of a risk you are.

No insurance company has yet acknowledged using the practice, but a key figure in a European reinsurer admitted some were experimenting to see how accurately it might forecast the chances of an individual making a claim.

Matthew Josefowicz, a managing director at Novarica, the financial services technology consultant, added: “There have been some pilot programmes . . . It is part of a trend towards using generally available data.”

That “generally available data” can be gleaned from many sources. For years, insurers and other financial services companies have used databases such as electoral registers and credit-scoring agencies when deciding whether to grant loans or issue policies. Also, information from social media has been useful in detecting fraud. One American example involved a woman who made an insurance claim after a car crash. She said she had not previously known the driver of the other vehicle, but evidence from Facebook showed they had been in touch before the accident.

Only now, though, are insurers exploring the idea of using the vast amounts of data freely given away by individuals in assessing insurance risk – and working out an appropriate premium.

“It is already happening with credit scoring,” said Craig Beattie, an analyst at Celent, which conducts research into the application of IT in financial services. “At some time in the future insurers may take an interest in your group of friends – are they good drivers or bad ones?”

A Celent report co-written by Beattie said: “As users interact with social networking sites, purchase items online and communicate with others in public forums, they leave behind data about their preferences, lifestyle, operations and habits. This data can be used to develop a risk profile for an individual.”

However, technology is not yet sufficiently cheap and advanced to make sound predictions of risk based on “unstructured data” – everything from pictures and video to written words and speech.

In assessing someone’s application for life insurance, the implication of a Facebook post about “enjoying a hang-gliding display” is very different from one saying “I enjoyed taking part in a hang-gliding display”. A computer may pick up the phrase “hang-gliding” but it also needs to understand the context to determine its significance.

Furthermore, consumers may bridle at the idea that insurers are quietly collecting data about their habits and preferences. “If insurers start snooping around on social media, that may raise people’s hackles,” said Beattie. The problem could be sidestepped, he suggested, by “actively engaging with potential customers, seeking permission to use social data and then automatically gathering it . . . Discounts may be offered for information on lifestyle.”

But once users become aware that insurers are mining social media, they may polish their public personas to appear more attractive prospects.

Nick Pickles, director of Big Brother Watch, the campaign group, said: “Even on the highest privacy settings, your Facebook ‘likes’ are public. If you list ‘Fast & Furious’ and ‘motor racing’, you may find it harder to get insurance than if you say ‘church’, ‘country walks’ and ‘puppies’. When people realise that, puppies could become very popular.”

And if the trawling of social media becomes commonplace, there may be a further, apparently perverse, result: people who do not use Twitter, Instagram and the like may be penalised as being insufficiently visible for insurers to make judgments about their lifestyles and therefore the chances of them making a claim. Josefowicz at Novarica said: “The analogy would be a guy in his late twenties, who always paid cash for everything, applying for a mortgage. In assessing his credit risk, it could be detrimental that he had no history of borrowing.”

The key question is whether data from marketing databases and social media can be genuinely useful in predicting risk. As yet, the answer is unclear, but research by Deloitte in 2010 was instructive.

The study, for the insurer Aviva, covered 60,000 people. All had previously gone through conventional screening for life insurance – giving blood samples, for instance. Deloitte looked at what other information was available about these individuals, from details of food-buying habits on marketing databases to magazine subscriptions and membership of social networks. The conclusion? Aviva said predictions from the Deloitte work “closely aligned with those of purely traditional underwriting decisions”.

Other research has suggested individuals’ activity on social networking sites can indicate the likelihood of their suffering depression. Soon, it could be used to predict their likely lifespan.