Electronic shelf labels are steadily taking hold in supermarkets, with the promise of greater pricing accuracy and substantial labor savings overcoming retailers' concerns about high initial installation costs.
But the true value of ESLs -- and the key to widespread rollouts of the systems -- lies in their ability to bolster merchandising and marketing programs, according to industry experts.
ESLs, for example, can provide the technological means for retailers to implement strategic pricing, which involves analyzing product movement and implementing day-by-day, or even hour-by-hour, price changes. If done effectively, such a program could dramatically increase retail profit margins.
ESLs' promise of near-perfect price accuracy, achieved because the tags receive their price information from the same computer file as the store's point of sale, currently is their strongest selling point -- and achieving heightened pricing accuracy is certainly needed.
"Studies show that 5% of items in retailers' stores are mispriced," Richard Kochersperger, director of the Center for Food Retailing at St. Joseph's College, Philadelphia, said during an industry conference last month.
"Some retailers take the approach that if a consumer finds a mismarked item, they will reward them with a dollar, or the item is free," he explained. "The first time that happens, it is OK; the next time I would question if I trust the retailer, but after the third time, I am not coming back [to that store]."
In areas where ESL use is widespread, such as in Connecticut, which has passed a law encouraging tag use in lieu of physically item price-tagging each product on the shelf, ESLs are actually encouraging more consumer trust in retailer prices.
"The units have proved their value to the retailers in Connecticut, since the pricing legislation is in place [there]," said Robert Aders, chairman and consultant for the international consulting firm Advisory Board Inc., Washington.
"Customers trust these stores' pricing now, and in some cases, the retailers have found new customers as a result," he added. "The technology should be spreading further, though. I do not know how long that process will take, but as we move closer to 2000, I believe we will see installations accelerate."
Many supermarket companies, though, are still taking a wait-and-see approach, and are especially curious to see how the systems will help improve profit margins.
"There are three components to adopting [ESL] technology," said a source familiar with the technology. The first step involves retailers analyzing what the units are capable of providing, and what needs to be done to install a system. Phase two involves installing the units to work on a stand-alone basis in order to provide price accuracy and labor efficiency, he said.
"Phase three, however, is the integration of the system for total communication delivery, including as a pricing system, a labor component, and executing other operations as well. We are currently at phase one in the industry, moving on to phase two, and the forward thinkers are looking to the third phase.
"It is those early leaders that will see the huge payback and benefits," he added.
The move to "phase three" holds opportunities for retailers who go beyond using the plastic labels as electronic price tags. This includes using the ESL infrastructure to tie in with strategic pricing, planograms and shelf management, as well as one-to-one marketing.
Strategic pricing is a sophisticated pricing method based on individual stockkeeping units, the time of day and how products are selling at specific prices.
"Retailers can price items on a store-by-store basis at certain times of the day, and analytically see which items sell at which price," said another source familiar with industry use of the technology. "An average retailer has 50,000 SKUs in a store, and $20 million in sales. If retailers use ESLs to take advantage of this application and can increase their margin revenues by 1%, they would be making approximately $200,000.
"If the units support this application and can make this kind of improvement on gross margins, I believe retailers will put the labels everywhere in the store," he added.
Another ESL advantage that could explode in the new millennium is using it to electronically store planogram data at the shelf edge. "The vision is, the label will store what the product is, how many facings should be on the shelf, and the shelf they should be displayed on," the source explained.
"The label is a communication vehicle describing what needs to happen on the shelf, and it is all available to the associate at the shelf edge," he added.
Multifunctional ESL units can support price integrity, monitor out-of-stocks and help in developing highly effective store planograms because all such applications are coordinated through files delivered electronically to the tags.
ESLs can even monitor item movement between the shelf and the store's POS, serving a variety of inventory maintenance and shelf management functions. As items are removed from the shelf and scanned at the POS, for example, that data can be transmitted to the labels, alerting associates to potential out-of-stock situations.
"The units can help manage inventory better," said Terry Morgan, senior practitioner for Deloitte & Touche, New York. "They allow associates to keep a good presentation level by having the data stored in the label, as well as monitoring out-of-stocks.
"The out-of-stock situation in the industry is way too high, and this will help stores to focus, and improve that," he added.
Another trend that experts see evolving is using the tags for more customer interaction and marketing. They predict that retailers will use ESLs to focus on consumer one-to-one marketing, and drive specific messages and promotions to specific customers at the shelf edge.
"This is a great opportunity to talk to customers," said Aders. "For example, retailers can have a 'Mother's Night.' At 6 p.m., all baby products could be 10% off, and then the shelf tags would return to the regular price at midnight. There are all sorts of merchandising opportunities that retailers can seize with the technology."
