NEW YORK -- Now that Y2K has come and gone, supermarket executives plan to refocus their efforts on category management and electronic commerce as well as systems integration.
Many information-technology budgets have been bumped up over the past several years to deal with the millennium bug, and the good news is that more than half -- 57% -- of companies report their budgets are continuing to rise this year. This steady budget growth in the wake of Y2K will leave more money available for key projects such as Internet development and for up-and-coming initiatives, including wireless communications and collaboration with trading partners.
Category management made a significant jump on the list of priorities, going from the No. 2 position in 1999, with 39% of respondents citing it as mission-critical, to the No. 1 position this year, with 52% of the respondents saying it would be the top concern for the coming year.
Integration of systems remains a key challenge for IT professionals this year, as IT departments face increasing pressure to make all types of information available enterprise-wide. The data needs to be available across the organization in order to improve purchasing and inventory management and boost customer service with higher in-stock levels and product selection tailored to customer preferences.
Continued growth in mergers and acquisitions also helped to make systems integration among the top areas targeted for action in the new millennium.
Point-of-sale systems are still high on the priority list with 44% indicating that the front-end remains a key area for technological improvement. However, that is down from the previous year when 53% of respondents named the point-of-sale as a top priority.
These were among the key findings and highlights of the Sixth Annual State of the Industry Report on Supermarket Technology. Based on a nationwide survey of supermarket chains, independent operators and wholesalers, the report includes responses from 77 executives at companies with more than $288 billion in total sales. The survey was developed and conducted by editors of Executive Technology and Supermarket News, both published by Fairchild Publications here.
Overall, survey respondents indicated that budgets are on the upswing again this year. Among wholesalers, the vast majority -- 80% -- indicated their 2000 budgets would see some sort of increase. By contrast, only 48% of retailer respondents said their budgets would rise this year.
Although respondents did not rationalize why their budgets were trending up or down, it's likely that wholesalers are seeing more increases because they are beginning to work more closely with on-line grocers, such as WebVan. Such new alliances call for technology investments to support a growing business and may involve integration initiatives.
Among all respondents, the largest group, 35%, forecast budget increases in the 1% to 10% range. Only 16% anticipate increases of 11% to 25%, while 6% expect budget increases of more than 25%.
When it comes time to carve up the IT budget and designate spending for specific projects, IT priorities for the coming year reflect the overall priorities of supermarkets: improving the exchange of information with suppliers to make better buying and marketing decisions; focusing on e-commerce initiatives at the consumer and business-to-business levels; continuing to build the customer base through loyalty programs; and moving customers efficiently through the front end of the store.
Retailers are stepping up category management efforts to determine which products should be on the shelves, making it the No. 1 project for 2000. Over the past year, some retailers have begun working even more directly with manufacturers to improve category management and measure the effect of promotions not only on sales of a particular item but on the category as a whole.
While 49% of retailers said category management is the top priority, even more wholesalers -- 60% -- reported that it was at the top of their agenda for 2000. This is a significant leap from 1999, in which 37% of retailers and 45% of wholesalers listed category management as a top priority, for an average of 39%.
E-commerce -- whether business-to-business or consumer-driven -- also moved up significantly on the list of priorities.
Nearly half of respondents -- 48% -- named business-to-business e-commerce a top priority this year. Wholesalers in particular view the Web as a business-to-business tool, with three-quarters of wholesalers citing business-to-business e-commerce as a priority, a dramatic jump of 25% from the previous year.
As for consumer-focused Internet projects, 44% of all respondents named customer Web sites as a top initiative for 2000. Sixty-five percent of wholesalers placed customer Web sites high on the agenda for 2000, while 37% of retailers said customer Web sites would be a top priority in the coming year.
This finding is in stark contrast to 1999, when 26% of respondents listed business-to-business e-commerce as a top priority. Only 13% of all IT professionals surveyed in 1999 said the consumer side of the e-commerce equation was a key initiative.
Although consumer Web sites will command more attention in 2000, many respondents still feel that home-shopping services will experience slow growth over the next three years. Sixty-six percent said that home shopping will account for 5% or less of total grocery sales in the next five years. Only 22% said home shopping would account for 6% to 10% of sales in the next three years, and even fewer -- 8% -- said they felt home shopping would account for 11% to 15% of sales.
Overall, retailers were far more optimistic than wholesalers about the long-term growth potential for on-line grocery sales.
Emphasizing the need to leverage the existing IT infrastructure of the traditional retail environment to grow on-line sales, respondents agree that customer-focused on-line endeavors have to be integrated with the brick and mortar side of the business. But the industry is not there yet. Only 17% of respondents indicated their Internet-shopping IT infrastructure was "highly integrated" with their brick-and-mortar systems, with wholesalers a little further along than retailers. A full 25% of all respondents said their Internet and physical-store systems were entirely separate. The majority of respondents -- 58% -- characterized their systems as "somewhat integrated."
Fulfillment continues to be an issue facing retailers looking to get involved in on-line sales. More than half of respondents -- 62% -- said they would fulfill on-line orders from the store. Twenty-eight percent said they would pick on-line orders from a dedicated warehouse, which many recognize as the more efficient model if sales volume can support this method of fulfillment.
When it comes to marketing to individual customers via the Internet, the numbers of respondents communicating with customers on-line is growing. In 1999, only 6% of respondents said they were marketing to customers via the Internet on a widescale basis. In 2000, 18% expect to do targeted marketing via the Web. Even more telling is the drop in the number of respondents who said they will not target customers on-line. While 55% said they did not market to individual customers on-line in 1999, that number dropped to 30% for 2000, indicating a shift toward favoring the medium.
On-line coupons continue to be the most popular method for marketing on-line, with 44% of respondents who are marketing on-line reporting they will employ that strategy in 2000, up from 32% who were doing so in 1999. Web-only specials also gained significant ground, up from 19% in 1999 to 30% in 2000.
While the Web-related projects leapfrogged on the priority list, point-of-sale systems continue to rank high at 44%, although this is down from the previous year. While 53% of respondents said point-of-sale systems were high on the list in 1999, this may have reflected work that needed to be completed for the front-end to be Y2K compliant.
Respondents report more POS upgrades -- both hardware and software -- took place in 1999 than are expected in 2000. This is due at least in part to preparation for Y2K.
While 34% of respondents said they performed substantial front-end software upgrades in 1999, only 21% expected to perform significant upgrades in 2000. Front-end hardware upgrades followed a similar pattern, with 37% performing upgrades on a widescale basis in 1999, and that number dropping to 15% in 2000.
Customer-loyalty programs are also a perennial favorite on the priority list, and 2000 is no exception. For 2000, 42% of the respondents ranked customer-loyalty programs high on the list, up from 36% the previous year.
More than half of the retail respondents -- 58% -- reported that they offer a card-based electronic shopper-loyalty program. This statistic falls shy of industry estimates of 66% of supermarkets offering a shopper-loyalty program.
The focus for loyalty programs seems to be on expansion and improving existing programs. While 13% plan to launch a program in 2000, 45% plan to revamp or expand their program in the coming year. While 6% launched a program in 1999, 18% revamped or expanded their programs that year.
Wholesalers outnumber retailers in plans to launch programs, an indication that more wholesalers are recognizing the benefits that can be gained through customer-loyalty initiatives. While 8% of retailers responding plan to launch customer-loyalty programs this year, 29% of wholesalers plan to start programs in 2000.
Shopper-loyalty programs did encounter some resistance in 1999. Several supermarkets, including Wild Oats Markets, Boulder, Colo., and Nob Hill Foods, Gilroy, Calif., discontinued card programs in 1999, citing customer privacy concerns among the reasons for canceling the program. Meanwhile, Pathmark Stores, Carteret, N.J., which had resisted card-based loyalty programs, began a program in 1999.
Respondents to SN's survey seem pleased with the overall success of their shopper-loyalty programs. A full 43% of respondents rated their program highly successful, and 48% rated their program moderately successful.
There is a shift in goals in shopper-loyalty programs for the coming year. While only 19% of respondents said the primary goal was to win new customers in 1999, that figure increases to 37% in 2000. This is perhaps an indication that shopper-loyalty programs have saturated the market and respondents are looking to lure new customers with incentives such as frequent-flyer miles and donations to charities in addition to price reductions.
In 2000, 17% of respondents said the primary goal was to boost margins, a finding that remains unchanged from the previous year.
However, retaining top customers continues to be a primary goal of most respondents. In 2000, 39% said retaining top customers was the primary goal of their program, which is down slightly from the 58% of respondents who said retaining top customers was the primary goal of their shopper-loyalty programs in 1999.
Respondents value varying types of shopper-specific information that's collected via the point-of-sale. Twenty-seven percent of respondents said market-basket size was the most important.
Tracking responses to targeting promotions was considered most important by 24% of respondents gathering information via the POS. Greater emphasis was placed this year on sharing frequent-shopper data with manufacturers to determine the effect of promotions, so that number is likely to rise in the future.
While systems integration did not break into the Top 5 on the priority list, it did make a significant jump -- from 18% in 1999 to 29% in 2000. This reflects several trends in the supermarket industry.
Mergers and acquisitions continue at a rapid pace, spurring the need to bring together a mix of applications from various companies. Among the more notable consolidations of last year were Kroger's acquisition of Fred Meyer Inc.; the Albertson's acquisition of American Stores Co.; and Safeway's acquisition of Dominick's and Randall's Food Markets.
In addition, the industry is beginning to focus attention on making better use of the customer data that is collected at the POS. System integration is necessary to make use of customer data in applications such as inventory management, ordering, marketing and merchandising.
Wireless communications also made a stronger showing on this year's priority list. In 1999, only 13% of respondents said wireless technology commanded a high priority among the host of IT projects. In 2000, the number jumped to 21% of respondents denoting wireless as a top priority. As wireless technology evolves -- enabling retailers to run a host of devices such as produce scales to kiosks on a centralized wireless network -- that number is expected to increase.
Collaborative planning, forecasting and replenishment, an area that has been slow to grow, is gaining ground. While just 1% of respondents placed it on their priority list in 1999, that number jumped to 16% in 2000.
When asked what technologies they will launch in 2000, respondents' answers clearly parallel the priorities of the organization. Data mining, customer relationship and targeted marketing along with decision-support tools garnered the top spots in terms of new programs. These types of new initiatives are essential to supporting efforts in category management, e-commerce and customer-loyalty programs.
Twenty-seven percent of all respondents indicated they will launch a data-mining project, with more wholesalers (30%) than retailers (26%) investing in the technology.
Customer-relationship and targeted-marketing programs will be rolled out by 25% of all respondents in 2000, and this time it's retailers (26% ) who are more aggressive than wholesalers (20%) on this front.
Loss prevention continues to be an important technology initiative, with the numbers of respondents who are using some loss-prevention technology steadily increasing. Ninety percent will use loss-prevention technology in 2000, up from 76% in 1999.
As to what technologies respondents will employ, closed-circuit monitoring continues to top the list, but the numbers are declining. While 74% said closed-circuit monitoring was part of their loss prevention in 1999, that number drops to 64% in 2000.
There is a slight jump in electronic cashier monitoring. Sixty percent of respondents plan to add the technology to their loss-prevention arsenal in 2000, while 53% reported employing the technology in 1999.
Electronic article surveillance stayed about the same, with 40% using the technology in 1999 and 38% reporting they will use EAS in 2000.
