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We are investing more in tech as digital property is the way forward: Tesco CIO, the Economic Times

May 15, 2014

Tesco, the world’s third largest retailer, announced its India plans early this year with an intention to open 12 stores. The company is banking on its technology initiatives from the Tesco Hindustan Service Centre (HSC) based in Bangalore. Bhavya Misra of ET spoke to Vinod Bidarkoppa, group director & chief information officer of the centre, on the importance of technology and the company’s focus on India.

Philip Clarke, the CEO of Tesco, while mentioning about Tesco’s increased focus on technology and investment towards online retailing had mentioned that online grocery stores will be rolled out across Asia market. Where does India figure in the online grocery route map of Tesco?

After successfully running as the UK’s top e-commerce site and the most profitable grocery home shopping site in the world for more than 10 years, Tesco decided to take the next step to offer grocery home shopping in other countries its operates in. Tesco launched its online grocery shopping service for customers in Czech Republic, Poland, Hungary, Slovakia in Eastern Europe, Thailand and Malaysia. The new service offers over 20,000 lines of fresh and frozen food and groceries, as well as non-food items such as toys, stationery and accessories. The launch follows a successful trial with customers and staff in November and is part of Tesco group strategy to be an outstanding international retailer in-store and online. The Dotcom team from Tesco HSC was instrumental in evolving the architecture and implementing a new platform to enable launch of IGHS in multiple countries.

Please elaborate on Tesco’s retail IT infrastructure.

Broadly, technology is a key enabler of Tesco’s global business. We have a strong technology presence across all of our businesses in the UK and in India. About 70%-75% of our technology business for Tesco is based out of Bangalore, and the rest is distributed between the UK and in the markets that we operate in.

What kind of backend work is on at the technology front for the supermarket business of Tesco in India?

We have an operating model in Tesco where we have standardized business processes in the countries that Tesco operates in and on back of that we have a technology operating model across the pie. As regards India we still have to look at it end-to-end and once the business starts and the plans are made then we will look at what specific technologies will be adopted.

What are the latest trends in technology that can be adopted by the retail industry?

Today, we look at some of the leading technology trends which will help our customers to increase the loyalty of the shoppers, to increase sales as well as making our businesses efficient internally, and these span anywhere from using some of the mobile engineering technologies, analytics, using social media for customer feedback and improving algorithms to make our supply chain more efficient. Internet of Things is used to understand how we connect all the devices in a large store — bring the information back and process it to drive down the costs of running some of the stores. RFID (Radio Frequency Identification) is another great technology. That said, we continue to explore upcoming technologies such as adoption of robotics at the stores, and wearable technologies like the Google Glass.

Technology is capital intensive for a low-margin supermarket business. How does Tesco bridge this divide?

If you see what our CEO Philip Clarke has said, historically, Tesco invested a lot in starting news stores, but as the consumer behavior and trends shift towards digital and seeing various multi-channel behaviors, Tesco is accordingly making a shift towards capital allocation. We are investing more in technology, as it is the digital property for us going forward.

What is the capital allocation that Tesco has made towards technology initiatives worldwide?

We look at what makes good business sense for us in terms of how much we should invest and this is an ongoing assessment, we continue to make the right investments that would bring value to our customers. The last quoted investment by our CEO Philip Clarke was US$ 750 million for Tesco worldwide.

Some retailers are refraining from going multichannel for various reasons such as loss of brand identity, discounting etc. What’s your take on this?

The consumer trends have changed for good – just look at our last Christmas. We had in excess of 200% like-for-like sales in Blink Box which us our media business. We had in excess of 10% in our grocery online business, 20% in excess for the general merchandise online business. It’s a clear shift in the way people are choosing to buy. And how we adopt internally to allow the customers to engage and shop with us is critically important. So, anywhere, anyhow, anytime is the mantra going forward. But I think to adopt that strategy it requires retailers to really re-imagine their business, re-imagine their technology landscape and make the necessary changes both from a business model perspective and from the standpoint of the enterprise as also to have an appetite for investment perspective. That’s what Tesco is doing and will do.

Which is more sustainable according to you, having own web stores or selling via multi-brand online retailers?

I think this is an ongoing play and each business has to make its own decision – the fact that there are thousands of customers on a marketplace whether it’s Amazon marketplace or anybody else’s marketplace; other retailers see value in it otherwise they wouldn’t be there. I don’t think the industry has reached a conclusion on this yet. I think we have to let this play out a bit and that’s where India and rest of the world are.

That being said, if they can come up with their own multichannel strategy at some point in time, I think they’d make appropriate business decisions.

Do you see the cost of IT coming down over the next five years?

Purely from a technology perspective, I think its Moore’s law that is applicable here. You can do more of technology with less capital as the years go by. I think the problem is not technology; the problem is the business model. What you see is just 10% of what appears at the tip of an iceberg. The complexities are below it. How do you start shaping the model, in marrying the digital with the offline model, is where the challenge lies for the retailers.

Supply chain management is very poor in India. How would you at Tesco tackle that?

I think we’ll have the same challenge as anybody else. But what we have is some of the best supply chain practices from our experience of operating in other emerging countries like Malaysia, China and Eastern Europe. We’ll dig deep to find out what these best practices are – work with our partners here which is the Tata’s and come up with a plan.

How strong a role is the Tata’s playing in helping Tesco set up stores in India?

I think it’s a very strong partnership and it’s a JV so we will work together with our local partner which is Tata Group.

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