Tesco CIO Mike McNamara discusses the retail giant’s plan to aggressively pursue online sales over building new stores; its wait-and-see approach to contactless payments; and why London is one of the best places in the world for creative app developers.
“I don’t think we have an online strategy, we have a retailing strategy that is increasingly digital. Online is becoming part of the core business,” says Tesco CIO Mike McNamara.
“We are starting to make a more significant investment in internet platforms, which we will continue to develop. Digital platforms are now our new equivalent of building shops,” he told Computer Weekly.
Over the last two years consumer behaviour has radically changed with the advancement of technology.
“They expect to be able to go into a shop and compare prices with competitors; they expect to get coupons from Tesco’s Facebook page; so digital has just become part of the core rather than something on the side – if you go back two years online was just an extension for offline,” says McNamara.
“We will see big changes to the way Tesco Clubcard works and big changes to electronic coupons in-store. They are coming in the next 12 to 24 months.”
A good chunk of that investment is going into developing the website and making it easier for third-party sellers to trade with the company through Marketplace, a new offering which will enable consumers to buy third-party products through the Tesco website.
“When you look at our stores it’s not very much different from walking in and buying an O2 or Vodafone contract, so really it’s just an extension of that,” says McNamara.
Part of the Marketplace platform was built by Tesco itself, with the core engine powered by Oracle’s ATG Web Commerce software, the same as the rest of its website.
“It’s been a couple of years in development. We will keep on developing until we get to a point when the proposition is good enough for customers, and I think we’ve now got to that point,” he says.
The immediate plans for Marketplace are to grow its number of established trade retailers, building up the amount of products available through the site to around 200,000. But McNamara says the company wouldn’t entirely rule out an eBay model in the future where individuals can buy and sell through the Tesco platform.
Other areas of significant spend include the deployment of Tesco’s online grocery shopping into other countries.
“When we started it was UK, Ireland and Korea, as we felt they were the markets that customers would respond to the best," says McNamara.
Tesco will now roll that out in other markets including the Czech Republic, Poland, Thailand and Malaysia. The rest of its investment will go into the supermarket’s food website: “We’ve had the lead on food for a long time and we are determined to invest in that to keep it fresh.”
"Click and collect" is another key area of Tesco’s multi-channel offering, with plans to ramp up coverage of the UK to 85% in the next year, which will include 700 new collection points. Click and collect already accounts for 70% of purchases made for non-food merchandise out of store, with only 30% bought online and delivered at home.
“It’s really popular to buy something online and then drive to the store and collect it. We’ve also launched a grocery click and collect which is another very popular offer. To roll that out across more stores we will have to install the technology to support that, but we’ve got a very good foundation so it’s not that onerous," he says.
But one area of technology that has been put on hold is the deployment of near-field communication (NFC) contactless payment points.
“We have about 40 shops that take contactless payments; one of these days we will roll that out further when customers really care about it and the phones come off the production line. It’s happening slower than most of us would have anticipated, but it’s a good technology. In a year or two we will probably see a lot more NFC-embedded comms," says McNamara.
“A couple of credit card companies have embedded their chips but that’s not a revolutionary offering. Until we see a lot of mobile handsets hitting the market with NFC chips that people will begin to use then there will be the additional investment that we will have to put in to deploy contact readers. It will be driven by customers.”
Despite the radical shift in the way Tesco is using technology, the management of its infrastructure estate is getting easier.
“There has been a crop of new datacentres built around the UK, which are multi-tenant so we’d go into one sharing with other large companies. There’s a great market for that and we are going that way. We will put more of our infrastructure in third-party datacentres," says McNamara.
“When you look at the security around multi-tenanted datacentres it's better than we do ourselves in reality. They have 24x7 security, for example.”
As investment in online grows, the company will continue to recruit heavily in the UK and in Bangalore in India. In the last couple of years Tesco has grown its development team from around 100 to nearly 1,000. Around 70% of that is in India, with 30% in UK.
“We will continue to have a substantial onshore development,” said McNamara.
“There are great skills you can find in London that you just can’t find in many other places around the world and they tend to be around the creative-technical area, including creative folk that also have decent engineering and IT skills behind them. The other place you tend to find these skills is the west coast of the States, so we are fortunate.”