SCOTTSDALE, Ariz. -- While hailing from three very different food distributors, panelists at a recent vendor conference found themselves in agreement when it comes to price automation.
The three panelists -- from Bashas', Rey Holdings and Unified Western Grocers -- agreed that price optimization solutions might still be ahead of their time, but that price management tools, such as rules-based pricing, are here to stay.
Chain executives shared insights gained from early-stage implementation of a rules-based pricing application from TCI Solutions at a conference hosted by TCI.
They addressed more than 200 attendees -- mostly IT executives from major supermarket companies and TCI vendor partners -- during the conference, held here Sept. 22 to 24 at the Fairmont Scottsdale Princess Resort.
"The jury is still out on optimization," said Nick Gallegos, director of retail pricing for Unified Western Grocers, the cooperative wholesaler based in Commerce, Calif. "It may cause us to give up market share. Besides, we're not sure the consumer is ready for vanilla, chocolate and strawberry to be different prices."
Added Alvaro Gonzalez, vice president of information technology for Rey Holdings, Panama City, Panama. "There has been some debate over which is better. We decided on a rules-based application because we felt it gave us a better grasp on the business." He added, "Without good information, we're not optimizing anything but the problems we already have."
Christie Frazier-Coleman, vice president of sales promotions and customer loyalty at Bashas', Chandler, Ariz., echoed an oft-heard concern about price optimization: "We don't believe it is the way to go. There's a concern that it may erode our customer base."
However, the panelists were keen on the benefits of rules-based pricing automation in the day-to-day management of pricing. "We cannot continue to add people to price stores efficiently," said Frazier-Coleman.
Added Gallegos, "We identify about 2,500 price opportunities per week for our members, including regular changes and temporary price reductions. That works out to one decision every 19 seconds. We help them manage the volume and the complexity."
At Rey Holdings, operator of 16 Supermercados Rey conventional supermarkets, the opening of seven Mr. Precios stores (a smaller, limited-assortment format) presented an opportunity to put rules-based pricing to work . The chain began using the software systemwide in February 2003. "We have two different price strategies, one for each banner," said Gonzalez.
Yet it was a challenge for Rey's category managers to start pricing for two banners, Gonzalez said. "We hired a category management consultant and a more technical implementation consultant. We used them as facilitators to establish each strategy. Also, we defined the sensitive-items list using focus groups."
By comparison, Unified must contend with the multiple pricing strategies and markets of its co-op members, said Gallegos. "Some are high-low; others are upscale or ethnic. Pricing transcends all of them. It just is a little bit unique in each one, based on the selection and the quality of the service."
To support many price strategies, Gallegos added, "we apply the value equation." Unified also employs the well-known practice of indexing price, quality, selection and service against industry norms. "If you're better on the other three, then you have some opportunity to improve margins," he said.
Bashas' is currently in mid-implementation of its price management module, Frazier-Coleman said. "It will be a few months before we actually turn [it] on." The chain's present pricing system limits options by location, a situation she indicated will be improved with the new software.
Pricing is handled very differently in Bashas' mainline stores, vs. its upscale AJ's Fine Foods or Hispanic-oriented Food City units. "With our multiple formats, a need was recognized years ago to have separate, very distinct pricing strategies," she said. "We have different gross margin goals today by format, by department and by store that have developed over time. Department managers from each format set goals quarterly with senior managers."
NOT SO FAST
All three firms have fresh memories of implementation challenges.
"It's still not plug-and-play," said Gallegos, who indicated that Unified currently supports 400 of its 3,000 member stores with the pricing application. "There was a lot to work through to get alignment." He explained further: "Our members are entrepreneurs. They want to be involved in the detail of running their businesses. We have to convince them we can manage pricing for them." He added that price rules are generated based on extensive interviews with each retailer.
"It was hard," said Rey's Gonzalez. "We moved from pricing at the store to a centrally managed system. Not only did we have to deal with a technology change, but also a process change."
The transition at the new Mr. Precios stores reflected a change in business culture, said Gonzalez. "We are teaching our managers gradually how the system can help them do the job better. Everyone focuses on the difficult products and thinks they can do a good job on 15,000 items without the technology. We want to give them a tool to do the job better and find more time to focus on supplier relationships."
Gonzalez said that currently about 250 products are still being manually priced, down from 700 one month after implementing pricing automation.
Bashas' recently kicked off its transition with a work session about pricing rules. Frazier-Coleman said the company identified a core group of a few hundred sensitive and highly sensitive items. "Those category mangers almost have an emotional connection to letting go of those prices. It is very difficult. What about the other 15,000 or 20,000 items that are out there every day that you could allow the system to optimize? Our customers don't know that many prices. Why agonize over something that can give you such large returns almost immediately?"
For the three supermarket companies, establishing a set of pricing rules meant grappling with prioritization. Frazier-Coleman had heads nodding at the podium when she described Bashas' approach: "They are really driven first by cost adjustments, especially if a price is going up. Competitive pricing is the second activity that we work on, and then category adjustments are the third. Any rounding or other rules are then applied after that."
PANAMANIAN CHAIN HAS TASTE FOR TECH
PANAMA CITY, Panama -- Rey Holdings here, operator of 16 Supermercados Rey conventional supermarkets and seven Mr. Precio limited-assortment stores, may operate in a small Central American country, but it's an aggressive user of technology.
"This customer has accomplished one of the most ambitious agendas we've ever seen in a mere six months," said Lance Jacobs, president, TCI Solutions, Tucson, Ariz.
Rey has also been aggressive in store build-out. Beginning with seven Mr. Precio stores in February, the retailer planned to operate nine by year's end, along with another Supermercados Rey store.
The Mr. Precio stores have been the first beneficiary of Rey's investment in new technology. Those stores have been the first to be equipped with the TCI HQ (headquarters) and the TCI Store price management systems (see main story), both based on Oracle databases.
In the Supermercados Rey stores, those systems will soon replace discontinued systems from Bass (acquired by Retalix, Dallas), noted Alvaro Gonzalez, Rey's vice president of information technology. "Our scheduled go-live date is October 22," he said. "We are currently on the final testing stage." A communications package from TCI, FRENDS, is also used in both formats.
Gonzalez said the TCI systems improved the "availability of pricing information and our ability to use the information quicker," which has helped to improve margins.
After the TCI installation, Rey also plans to replace NCR 2127 point-of-sale systems at Supermercados Rey stores with the IBM 4694 POS platform, which was also installed at Mr. Precio. "We are waiting to pass this Christmas season to start the replacement," said Gonzalez. The new Supermercados Rey store, opening in December, will be the first with the IBM 4694 POS system.