Cashing in, the £17m couple whodreamed up Tesco's loyalty card
The UK's biggest supermarket owes much of its success to a husband-and-wife team who started a data-mining business in their spare bedroom. Jonathan Brown reports
It is the husband-and-wife business which has grown from the spare bedroom of a west London family home to put Big Brother in your shopping basket.
In the process, it has turned Tesco into the unrivalled retail behemoth of the modern age.
This week, Edwina Dunn, 52, and Clive Humby, 55, banked their share of a £17m dividend payout from the company they founded. It was a handsome reward for their work in helping the supermarket giant build its vast databank of consumer information through its Tesco Clubcard.
The couple went from business start-up wannabees to multi-millionaires by leading a quiet revolution in understanding the way we spend our money. Although critics fear the abuse of the vast power of the information that they collect, consumers seem largely unconcerned and have signed up in their millions.
They have instead been eager to swap personal data on which kind of cheese or nappies they buy in return for small discounts on their weekly shopping bill. Tesco has tripled in size since 1995 after the couple’s legendary presentation to the board in which Lord MacLaurin, Tesco's chairman, scrapped Green Shield stamps.
The couple's company, Dunnhumby, is now 90% owned by its most important client. Though its name might be little known outside the world of forensic retail analysis, its work and the information held on its 40-terabyte database affects shoppers across the world.
The meteoric rise began in the mid-1980s when the couple, said to be worth £30m, were working for market analysts, CACI.
Mr Humby, a mathematician by training already well known in the business of ‘data mining’, resigned his post as his wife's boss. Ms Dunn was fired the same day. The catastrophe of both salaries disappearing overnight and the prospect of a massive mortgage focused the couple's ambition, not least in the middle of a recession.
“You could say we were mad, but here is a time in your life when you are young and you just want to go for it,” Ms Dunn said. With business meetings held around the kitchen table, and busy schedules juggled around the needs of two children, the company grew steadily if modestly until the first contacts with Tesco, which was then being outstripped by its rival, Sainsbury's, and on the look-out for a new loyalty card to make up the shortfall.
The results of the trials of the couple's product impressed Tesco because, for the first time, bosses could see what was being bought by which customer. Assumptions about the way people shopped — that they bought everything from the same store — were shattered.
What became clear was a complex picture of modern-day retail habits and the Clubcard, with its offer of personalised incentives to persuade people to fill the gaps in their shopping baskets, proved an eye-opener and money-spinner.
At the end of the first presentation of the results of the trials, the board fell silent for 30 seconds — a heart-stopping experience for Mr Humby. But the spell was broken by Lord MacLaurin himself who declared: “What scares me is you know more about my customers after three months than I know after 30 years.”
Ms Dunn recalled: “I remember Clive ringing me when he had the meeting and he was so excited, and so was I. We all went to the pub to celebrate and forgot to tell him where we were going,” she said. Today, billions of pieces of data have been amassed with each purchase. They are able to elicit nuggets of information to tell vendors exactly what kind of shopper a consumer is.
Once you have signed up to the loyalty scheme, you have become what you buy, as far as Tesco is concerned. That's the case whether you are a budding MasterChef entrant or a budget cook scouring the out-of-date shelves.
Ms Dunn conceded she could understand people's concerns over the use of the information but said it was all anonymised before it was used and that all efforts were taken to protect people's identities from falling into the public realm.
“It becomes a very big market-research panel,” she said. “It |is very powerful but the connection with customers is carefully managed.”
It’s estimated that Dunnhumby has saved Tesco about £350m a year since joining forces.
Among those to profit from its success was then marketing director Terry Leahy who went on to receive a knighthood and become Tesco chief executive on the back of the growth the card brought.
Nina Hampson, co-founder of the luxury lingerie firm Myla, was a senior analyst at Dunnhumby and worked on the Tesco account in the late 1990s. She recalls a firm where the average age of employees was 25 or 26, where three of the directors were women with families, in which the ethos was work and play hard.
“It was the first time anyone had used the data they had,” she said. “The art was in the execution and while others had intelligence, Tesco did something about it.
“Edwina is great at getting the strategy and Clive is great at the innovation. They built a great team around them where everybody was driven and loved what they did,” she added.
From the relatively humble beginnings, Dunnhumby now employs 1,237 people in 16 offices across 30 countries. Information from the massive database is sold on to other clients — big producers that want to know who is buying their products — and the company is now working on loyalty projects with the Casino supermarket chain in France and Home Depot in the United States.
With a turnover of £199m and operating profits of £53m, it is a considerable contributor to its parent company, Tesco.
But Ms Dunn said there were no plans to retire yet and the company was still on course to turn over $1bn (£640m) a year. “We’ve no plans to do anything else in the foreseeable future,” she said.