Supermarkets have built an 'ecosystem of data' from shoppers using loyalty cards as they make millions by 'relentlessly mining' information, insiders have revealed.

Data science analysts go through purchases every day from Tesco and Sainsbury's customers who use their Clubcard or Nectar cards to benefit from lower prices.

Teams at a firm called Dunnhumby, owned by Tesco; and another called Nectar 360, owned by Sainsbury's, take all this information to work out spending patterns.

Details such as the store, time of day, how much was spent and the list of purchases are combined by experts to improve the targeting of advertising expenditure.

Now, a new documentary on Channel 5 this evening called 'Loyalty Cards: Are They A Rip Off?' has heard from a former employee of both Dunnhumby and Nectar 360.

The worker, only referred to in the programme as 'Ed', said: 'The way in which I've worked in the industry is just through the pure benefit from the monetisation of it as an asset. So using data to then sell to suppliers.'

Presenter Alexis Conran then said to him: 'So essentially, what you're telling me, if I've understood you correctly, the reason that Tesco and Sainsbury's and every other retailer wants you, the customer, to become part of a loyalty scheme is because by doing so I'm opening up a big and rather profitable source of income for the retailer, which is I'm giving them my data and they're going to make money off that.'

And Ed replied: 'Yeah, that's true and there's been so many things especially in the last few years that have meant that retailers have had to change the way in which they price products. So if it's like the crisis in Ukraine, the pandemic. The price of products need to be cut.

'They need to find ways to find other revenue streams or profit sources that are going to help really reduce that threshold of price points for customers. So while I suppose it's very easy to be like 'oh, it is a source of profit'.

'But actually that profit feeds into the bigger picture of how actually they can hopefully bring value back to customers.'

Ed went onto explain what happens once someone has shopped with their loyalty card - with the supermarket knowing what has been bought, when and where.

He continued: 'That one transaction is one entry point to the ecosystem of data. And I suppose the main benefit to a retailer is that learning they get from you, depending on how loyal you are.

'So it's a real way to learn how much your shopper (spends) and how loyal they are and how valuable they are as a customer to you, and therefore how you target them with advertising or learn from them from an insight point of view.'

Dunnhumby made £362million in a year according to accounts for the year ended February 2022, although the firm does work with retailers other than Tesco.

Asked about this total, Ed said: 'To my mind it sounds near enough, I was aware of it when I worked there, but I wouldn't say that, yeah, it's one of those where I wouldn't say is necessarily well-known and is in the public domain.'

Tesco and Sainsbury's have both insisted that they do not sell data but 'share' anonymised details with participating companies in their schemes as specified in their terms and conditions.

But Tesco recently hailed its Clubcard strategy as a major driving force behind a 159 per cent increase in pre-tax profits to almost £2.3billion.

It added that there were 17,000 media retail campaigns in the last year using Clubcard retail insight.

And consumer expert Harry Wallop told the programme: 'They can work out what you like, what you don't like, whether it's worth launching a new product or not. And they will relentlessly mine your data.

'You're giving access for companies to trawl through, digitally, your entire shopping, where you are, where you've been shopping, who else you shop with. They then take that data and they sell it. Tesco Clubcard and Sainsbury's Nectar sell that data.

'It may not be your individual name or your individual email or telephone number. They sell information about you and they make millions, millions upon millions every single year from your shopping habits.'

While Tesco and Sainsbury's have denied claims of 'selling' data, they have said they share the information with other brands to improve customer engagement, and that their approaches are fully complaint with GDPR regulations.

Among the companies which the supermarkets work with are the advertising arms of TV channels, including Channel 4.

And Ed said: 'If I'm a squash brand and I want to show my squash brand on 4OD, it would go to every user on 4OD.

'But actually by using loyalty card data, you can make sure that you only show them to customers who are likely to buy squash and therefore it's a much more efficient use of brand spend.'

In January, the UK's competition watchdog announced that it was reviewing whether supermarket loyalty pricing misleads or disadvantages shoppers.

The Competition and Markets Authority (CMA) said the increase in some supermarkets making cheaper prices only available for loyalty card members had led to it examining the practice as part of its work to help tackle cost-of-living pressures in the groceries sector.

It said it would consider whether any aspects of loyalty pricing could mislead shoppers – for example, whether the loyalty price is a genuine promotion or as good a deal as presented – and whether any groups of shoppers are disadvantaged by the promotions.

It is also looking at whether loyalty pricing is affecting consumer behaviour, and whether this has an impact on how supermarkets compete with each other.

The CMA is set to publish an update on its work this month, and expects to complete the review by the end of the year.

And last September, consumer group Which? claimed Tesco and Sainsbury's were using 'potentially dodgy tactics' on some of their loyalty offers to shoppers.

It said the supermarkets were, in some instances, giving the impression that savings for loyalty card members were better or more substantial than they really are.

But Sainsbury's refuted the claims and said the Which? findings were based on a 'flawed methodology', while Tesco also dismissed and said 'all our Clubcard Price promotions follow strict rules'.

In April last year, Sainsbury’s introduced lower prices on hundreds of products in supermarkets and online for members of its loyalty card Nectar.

This made it similar to the Tesco Clubcard scheme, which offers lower prices to cardholders who can also collect points to convert into vouchers or rewards.

MailOnline has contacted Tesco and Sainsbury's for comment on Channel 5's documentary.

Loyalty Cards: Are They A Rip Off? is on Channel 5 tonight at 7pm and on My5