If you're a technology-minded supermarket retailer and Wal-Mart Stores decides to enter your territory, what do you do?
One thing might be to draw up a list of IT priorities that included solid applications for pricing, promotion and inventory management, as well as updated systems for advertising, marketing and promotion.
Sure enough, those were the technology applications given highest priority for 2005 by the largest percentage of respondents to SN's 11th annual State of the Industry Report on Supermarket Technology.
Topping the list was pricing management, which was deemed an important priority by more than half of respondents (53%). It was followed by promotion management (cited by 43%), advertising, marketing and promotion systems (38%), and inventory management (38%). Not far down the list was a related initiative, price optimization (31%), which has garnered growing interest in recent years.
These all well exceeded the percentage of votes cast for each application for 2004.
Each year's survey results reflect the issues currently facing retailers and distributors, as well as those just past. Last year, the big worry was preparation for 13- and 14-digit bar coding -- the so-called 2005 Sunrise deadline -- and that was the 2004 priority cited by the highest percentage of retailers (50%). An equal percentage said bar-code prep was an area they tested or launched last year, topping that list.
It's worth noting that bar-code conversion has not entirely dropped off the radar, as 15% of respondents still called it a major program for 2005, while more than one in five (21%) actually still plan to test or launch a conversion program this year.
Still, now that the calendar has turned and many retailers have put bar codes to rest, they can refocus on the continuing specter of competition from Wal-Mart, clubs, and other retailers in and out of the food retail channel. Asked about new applications they plan to test or launch in 2005, again the highest percentage of respondents (31%) selected a competitive tool -- promotion management -- while the third highest (26%) chose price optimization, also useful for competing.
Of course, competition isn't the only thing on retailers' minds these days. Like everyone else, they are worried about the constant menace posed by Web hackers, prompting 38% to make IT/Web security a major initiative for 2005.
Another long-simmering issue is the consistency of product and invoice data used by food distributors and their suppliers. To achieve greater data harmony between trading partners, the industry has been working on a standard solution, known as data synchronization, through UCCnet, a division of the Uniform Code Council, Lawrenceville, N.J. Last fall, those efforts became globalized through the creation of a Global Data Synchronization Network, under the auspices of UCC and EAN International.
Reflecting the growing focus on data synchronization, 28% of respondents said it was an important priority this year, compared to 19% who ranked it thus for 2004. Moreover, 28% also indicated they would test or launch a data sync program in 2005. Asked specifically whether they currently participate in data synchronization with trading partners, 29% said yes, and the same percentage said they planned to do so in 2005, while a third said it was under consideration.
Another hot-button issue in retailing today -- radio frequency identification (RFID) -- is also gaining traction among food distributors. In the United States, Wal-Mart Stores officially launched its Dallas-market RFID program in January, with 57 suppliers tagging pallets or cases by mid-month. Though only 4% of survey respondents said RFID was a high priority in 2004, 18% noted it would become a priority this year. Just 3% said they tested or launched an RFID program in 2004, but 21% said they will do so this year.
Specifically asked if they are testing RFID technology incorporating the electronic product code (EPC), just 4% said they are today, but 10% said they would be in the next year, 38% said they would in the next two years, and another 34% observed they would do so in the next three to five years.
Another up-and-coming application cited by respondents is fresh-item management. Just 9% of respondents considered it important in 2004, but that doubled to 18% for 2005. Similarly, only 6% said they tested or launched a fresh-item management program last year, but 18% said they would do so this year.
POS Possibilities
In addition to cutting-edge technologies and those designed to provide a competitive edge, retailers are always sizing up the bread-and-butter in-store systems, chief among which are those used at the point of sale. However, since leading the list of important programs cited last year for 2003, POS has slippedsomewhat in 2004 and 2005. Just 22% said it was a high priority item in 2004 while 26% said that it would be this year.
Drilling down further, however, respondents showed additional interest in POS software or hardware. Asked if they substantially upgraded their POS software last year, 24% said they did, but another 38% said they upgraded it on a limited basis. Similar results were reported for 2005 POS software plans, 25% and 40% respectively.
In regard to POS hardware, 22% made substantial investments in 2004, and 35% reported limited investments. Roughly the same response (19% and 37%) was indicated for 2005 POS hardware expectations.
More respondents revealed interest in another POS application, debitcredit payment, with 31% calling it a major initiative for 2005 and 29% characterizing it as such in 2004. Biometric systems, used to identify shoppers at the POS or for payroll check cashing, will be tested or launched by 25% of respondents in 2005, compared to 15% in 2004.
Other in-store technologies considered important in 2004 and 2005 include wireless applications and in-store handhelds. Kiosks will be tested or launched by more than one in five (21%) of respondents.
With respect to card-based loyalty programs, respondents were about evenly split between those that offered them and those that did not. That is roughly in accord with statistics collected by Retail Systems Consulting, Naples, Fla., which reported that as of last Oct., 13, 755 supermarkets in the U.S. had card-based frequent shopper programs, accounting for 40.3% of stores, up 2.3% over 2003.
Among loyalty card stores, a little more than one-third (36%) declared the programs to be highly successful, while 61% said they were moderately successful. Asked if they used loyalty card data for purposes such as targeted promotions and category management, most (82%) said they did, but a still significant percentage (15%) said they did not. Leveraging loyalty data would seem to be a given at this stage for any supermarket running a card program.
In some cases, respondents' low response indicated that an application had already reached a level of maturity. For example, self-checkout, which has become commonplace in supermarkets, was deemed a major initiative by just 12% of respondents for both 2004 and 2005. Of course, some applications, such as collaborative planning, forecasting and replenishment, and electronic shelf labels, have never attracted significant investment.
Internet Interest
While some online shopping ventures, such as Ahold-owned Peapod and New York-based FreshDirect, are finally beginning to show signs of success, online sales remained a low priority item. Just 7% said they currently offer full online shopping, with 21% offering it in a limited way, such as for gift items. Most (91%) said that home shopping services would account for 5% or less of total grocery sales industrywide over the next year.
Still, some respondents perceive a future for online sales, with 22% saying it would account for 6% to 10% of sales industrywide in three years, and 40% putting it in that category in five years.
Among features that food retailers do tend to offer on their Web sites, the highest percentage (72%) selected company history, followed by store locator (66%) and job openings/recruitment (63%). Online coupons, which were somewhat controversial in 2003 but regained their footing last year, are offered by 44% of respondents.
On the business-to-business side, the Internet was used by 28% of respondents via either public or private trading exchanges.
Among those companies, auction buying was the most frequently cited application (68%), followed by direct trading (58%) and combining buying power (68%). Applications related to data synchronization, such as exchanging new or updated product information (cited by 32%) and exchanging information about costs and promotional discounts (47%) will probably grow this year with the expansion of global data synchronization.
The most popular warehouse application cited by respondents was voice-based picking, with 25% saying they tested or launched an application in 2004 and 22% saying they would do so this year. Also of interest were transportation management systems, picked by 22% as important for this year, and warehouse management systems, selected as such by 21%.
Survey respondents also provided information of a general nature about their IT operations. On IT budgeting, for example, the good news is that spending appears to be rising. Asked about their 2005 budget, 31% said it would increase between 1% and 10%, and, notably, almost one in five (18%) indicated their budget would rise between 11% and 25%, far more than the 8% who said this in last year's survey. This puts food retail in sync with business generally, which is expected to increase IT budgets an average of 2.5% this year, the largest growth since 2001, according to Gartner.
Moreover, 41% of SN survey respondents said they took an aggressive approach to IT, with 35% saying they took a moderate approach. Still, the lion's share of respondent IT budgets (71%) remains at 1% or less of sales.
Offshore outsourcing was a contentious issue in last year's presidential election, and some retailers, such as Delhaize divisions Hannaford Bros. and Food Lion, have been outsourcing code-writing to India. Most retailers (82%), however, said they still outsource 25% or less of their IT functions.
IT applications are no good if they're not maintained, and so a significant percentage of respondents (43%) said they spend 26% to 50% on system maintenance. Exactly half said they spend in that range on system development/implementation. A surprisingly large percentage (38%) of respondents indicated that 26% to 50% of their IT systems are developed in-house.
Which areas will command the highest priority in 2005?
Pricing Management 53%
Promotion Management 43%
Advert., Marketing & Promotion Sys. 38%
Inventory Management 38%
IT/Web Security 38%
Data Warehousing 37%
Category Management 34%
Debit/Credit Payment 31%
Price Optimization 31%
Data Synchronization 28%
Wireless Applications 28%
Point-of-Sale Systems 26%
Financial Systems 25%
Disaster Recovery 24%
In-Store Handhelds 24%
HQ-Store Communications 22%
Replenishment Systems 22%
Transportation Management 22%
Electronic Data Interchange 21%
Pharmacy Systems 21%
Warehouse Management Systems 21%
Customer Loyalty Programs 19%
Fresh Item Management 18%
RFID 18%
Workforce Management 18%
Conversion to 13/14-digit bar codes 15%
Direct Store Delivery 15%
Shelf Space Management 13%
Yard Management 13%
Loss Prevention 12%
Self-Checkout 12%
Label Systems 10%
Scale Management 10%
Scan-Based Trading 10%
Check Processing 9%
Site Selection 7%
CPFR 3%
Online Sales to Consumers 1%
Which areas commanded the highest priority in 2004?
Conversion to 13/14-digit bar codes 50%
Pricing Management 34%
Debit/Credit Payment 29%
Disaster Recovery 29%
IT/Web Security 29%
Category Management 28%
Inventory Management 28%
Advert., Marketing & Promotion Sys. 26%
Wireless Applications 26%
Promotion Management 25%
Data Warehousing 22%
HQ-Store Communications 22%
Point-of-Sale Systems 22%
In-Store Handhelds 21%
Data Synchronization 19%
Pharmacy Systems 19%
Electronic Data Interchange 18%
Scale Management 18%
Warehouse Management Systems 16%
Customer Loyalty Programs 15%
Financial Systems 15%
Direct Store Delivery 13%
Loss Prevention 13%
Price Optimization 13%
Shelf Space Management 13%
Self-Checkout 12%
Workforce Management 12%
Transportation Management 10%
Check Processing 9%
Fresh Item Management 9%
Replenishment Systems 9%
Label Systems 7%
Electronic Signs 4%
RFID 4%
Scan-Based Trading 4%
Yard Management 4%
Site Selection 3%
CPFR 1%
Online Sales to Consumers 1%
What percentage of sales is your IT budget in 2005?
More than 4% of budget 1%
No answer 9%
0-1% of budget 71% of respondents
1.1%-2% of budget 10%
2.1%-3% of budget 6%
3.1%-4% of budget 3%
How will your IT budget change in 2005?
Increase 1%-10% 31% of respondents
Increase 11%-25% 18%
Increase more than 25% 6%
Remain the same 35%
Decrease 45%
No answer 6%
Will you upgrade your point-of-sale softwear in 2005?
No answer 10%
Yes, substantially 25%
Yes, on a limited basis 40%
No 25%.
Did you upgrade your point-of-sale softwear in 2004?
No answer 7%
Yes, substantially 24%
Yes, on a limited basis 38%.
Will you upgrade your point-of-sale hardware in 2005?
No answer 9%
Yes, substantially 19%
Yes, on a limited basis 37%
No 35%.
Did you upgrade your point-of-sale hardware in 2004?
No answer 3%
Yes, substantially 22%
Yes, on a limited basis 35%
No 40%.
In which areas will your company test or launch a program in 2005?
Promotion Management 31%
Data Synchronization 28%
Price Optimization 26%
Biometric Systems 25%
Voice-Based Picking in DC 22%
Conversion to 13/14-Digit Bar Codes 21%
Kiosks 21%
RFID 21%
Fresh Item Management 18%
Fuel Integration/Marketing 13%
Web-Based EDI 13%
Electronic Check Conv. 10%
Scan-Based Trading 10%
Online Sales to Consumers 6%
CPFR 1%
Electronic Shelf Labels 1%
In which areas did your company test or launch a program in 2004?
Conversion to 13/14-Digit Bar Codes 50%
Voice-Based Picking in DC 25%
Web-Based EDI 19%
Data Synchronization 18%
Fuel Integration/Marketing 18%
Promotion Management 18%
Biometric Systems 15%
Price Optimization 10%
Kiosks 9%
Scan-Based Trading 7%
Fresh Item Management 6%
Online Sales to Consumers 6%
Electronic Check Conv. 4%
Electronic Signs 3%
RFID 3%
CPFR 1%
Electronic Shelf Labels 1%
What percentage of total grocery sales do you think home shopping services will account for ...
WITHIN 1 YEAR
11%-15% 1
No answer 7%
5% or less 91%
6%-10% 1%
WITHIN 3 YEARS
No answer 6%
5% or less 72%
6%-10% 22%
WITHIN 5 YEARS
16%-25% 1%
No answer 6%
5% or less 43%
6%-10% 40%
11%-15% 10%
Does your company participate in data synchronization with trading partners?
No 71%
Yes 29%.
If no, do you expect your company to participate in data synchronization in 2005?
Under consideration 33%
Yes 29%
No 38%
Which features are available on your company Web site?
Company history 72%
Store locator 66%
Job openings/recruitment 63%
Send informational e-mailings 54%
Corporate information 54%
E-mail feedback from customers 53%
Meal planning/recipes 53%
Store events calendar 51%
Send promotional e-mailings 47%
Online coupons 44%
Health-related information 41%
Loyalty card information 38%
Shopping lists 37%
Local news/events 26%
Company policies 25%
Children's pages 24%
Prescription refills 22%
Department-level information 22%
Limited home shopping (such as gift items) 21%
Food safety information 18%
Catering information 13%
Local cross-promotions 10%
Full home shopping 7%
Micro-sites 1%
How much of your IT do you develop in-house?
76%-100% 15%
0-25% 28%
26%-50% 38%
51%-75% 18%
How much of your IT budget is spent on system maintenance?
51%-75% 7%
76%-100% 3%
0-25% 47%
26%-50% 43%
Do you currently offer a card-based, electronic shopper-loyalty program?
No answer 1%
Yes 49%
No 50%
If yes, how would you rate the program in terms of meeting your expectations?
Not successful 3%
Highly successful 36%
Moderately successful 61%
Are you testing RFID technology incorporating the EPC (electonic product code)?
No 90%
No Answer 6%
Yes 4%
If no, do you expect to test RFID technology incorporating the EPC...
Not expected to test 18%
Next year? 10%
In the next 2 years? 38%
In the next 3 to 5 years? 34%
Are you involved in B2B internet trading (public or private)?
No 69%
No Answer 3%
Yes 28%
Which applications do you employ as part of a B2B Internet trading exchange ?
Direct trading with specific suppliers 58%
Auction buying 68%
Combining buying power with other exchange members 58%
Finding new sources of supply 47%
Increasing efficiencies of your business 58%
Exchanging new or updated product info 32%
Exchanging info about costs & promo discounts 47%
About the Survey
SN's 11th annual State of the Industry Report on Supermarket Technology is based on a survey developed by SN editors and conducted by Opinion Centers America, a marketing and research firm located in North Olmsted, Ohio.
Mailed to corporate and IT executives at food retailers and wholesalers between October and December 2004, the survey elicited responses from 68 companies accounting for more than $250 billion in annual sales and operating or supplying nearly 36,000 stores. (Some wholesalers may supply convenience stores or small grocery stores not considered conventional supermarkets.)
Of the 68 responses, 51 (75%) came from retailers while 17 (25%) were from wholesalers. Respondents included senior vice presidents or chief information officers (35%), directors (22%), and chief executive officers or presidents (17%), among others.
