They know where you live, where you shop and what is inside your fridge

Who would have thought that feta cheese could teach Tesco a valuable lesson in shopkeeping? But that is exactly what happened to the British retailer a few years back when it was getting to grips with the rivers of data flowing from its tills and onto the millions of its loyalty cards in circulation.

Feta wasn't doing much for its business; sales were low, as were the margins, and it was destined to be deleted. But by looking at the data from its Clubcard the company saw that feta was bought by its most valuable customers and they wouldn't come to the store if it wasn't on the shelves. Now the company makes a point of stocking it in stores that are used by its highest-spending customers. Woolworths is hoping to learn similar lessons from its Everyday Rewards loyalty scheme.

But most of the talk around loyalty schemes has been about the traffic from the retailer to the customer - that is the offers it sends out. This week Woolworths signed up with Qantas to "reward" its card-carrying shoppers with frequent flyer points. Based on their spending behaviour Woolworths already sends about a million emails to its cardholders each week, offering them deals such as 12c off a litre of fuel for those who spend $55 or more on meat.

But the real action is on the shop floor. Woolies and data experts such as DunnHumby, the company that manages Tesco Clubcard, say the real value is the information that comes back to the retailer and, more importantly, what it does with it.

Woolworths is using modern technology to turn back the clock. It believes that equipped with information gleaned from its Rewards card, each store can be more reactive to local customers.

Up until it got into the loyalty game - and it has only been 15 months - Woolies didn't know how many times people shopped with it. It only knew how many transactions went through its tills. As its data pool deepens and it begins to segment customers by their purchasing habits a clearer picture of what its customers are not buying - rather than what they bought - will begin to emerge. With other data such as Roy Morgan it knows how much custom is out there and how much it is missing out on. It will know if a certain segment of shoppers is buying BBQ sauce but is not buying meat for the barbie, and then do something about it.

Information from the card is already being used to plot where people are shopping and where they are filling up on petrol to see if they need to open up another petrol station or even store nearby.

Armed with this knowledge it believes it can "get to know" its customers every bit as well as the days when local stores did actually know their customers, if not by name then by what they bought. Getting people to switch from Huggies to Snugglers is not the main game, as the man behind Woolies' card, its general manager for customer engagement, Richard Umbers, says: "It's an add-on extra but it is not the be and end all of the program. It is more about us getting an insight into the consumer, which then allows us to run a better business."

Analysts estimate Woolworths needs to see a sales increase of about 2 per cent to cover its costs. If it cannot achieve this then Everyday Rewards may join many other failed loyalty card schemes and go down in history as an expensive piece of plastic.