Food retailers have been treated to a seemingly endless variety of technology applications in recent years. Yet the application they value the most continues to be the point-of-sale system, without which business comes to a halt and many other applications can't function.
That was the top-line finding in SN's 12th annual State of the Industry Report on Supermarket Technology. More than half of the study's respondents (56%), who skewed toward mid-sized chains, said that POS systems represented a high-priority application in terms of usage, expansion or upgrades in 2005. This was a greater endorsement than received by any other technology function on a list that includes 37 applications. Looking ahead at 2006, POS was tied for the top spot among IT priorities as 42% of respondents plan to emphasize it.
Part of the reason for the focus on POS is the remarkable longevity of many systems used by supermarket retailers. The average age of POS terminals in supermarkets is about nine years, according
to a study, "2005 North American Retail Point-of-Sale Terminals," published last year by IHL Consulting Group, Franklin, Tenn. Food retailers have been able to extract many years of service from such workhorses as the IBM 4680 and 4690 POS systems, but for many merchants it may finally be time to upgrade.
Asked specifically whether they upgraded their POS software in 2005, two-thirds said they did so either substantially (24%) or on a limited basis (42%). The response was similar when asked about plans for 2006. A slightly higher percentage (69%) said they upgraded their POS hardware in 2005 while more than half (55%) have plans to do so in 2006.
Those retailers involved in POS system upgrades have plenty of options. No longer wedded to the proprietary platforms of the past, retailers can select from a wide array of operating systems, POS software and hardware. (See "Flexible POS," Jan. 2, 2006, Page 31.)
Even self-checkout systems are seeing a lot of action in this year's study, as 27% cited them as a high priority in 2005 and 31% said the same for 2006. Self-checkout has reached a significant level of penetration in U.S. supermarkets, leading more retailers to upgrade to the latest models, such as systems with a smaller footprint.
The emphasis on POS as a whole follows on the activity surrounding POS scanning systems and databases leading up to 2005. That activity was aimed at ensuring 13-digit EAN bar codes from outside North America could be scanned and processed, in accordance with the 2005 Sunrise deadline of Jan. 1, 2005, set by GS1 US (formerly the Uniform Code Council).
This year's study found that 89% of respondents' companies are now able to scan 13-digit EAN codes at the POS, with another 7% planning to this year. It also found that 78% can process 13-digit bar codes at the database level, with another 11% planning to do so in 2006.
Other Priorities
Of course, while POS may be their bread and butter, there are plenty of other systems to whet retailers' appetites. For example, among applications used in 2005, category management was the second-most-cited priority application, and it tied for first among applications to be used in 2006. This no doubt reflected retailers' needs to drive greater sales and profits from individual categories, stressing fast-movers and eliminating sluggards.
Following a trend observed in last year's study, respondents said they valued systems that help them compete with low-priced formats like Wal-Mart Stores, such as pricing management and advertising, marketing and promotion systems.
The importance placed on debit/credit payment systems, selected as a priority item in 2005 by 38% of respondents, may reflect the growing interest in the use of biometric technology at the POS, which experience watershed growth last year. The rise of contactless payment mechanisms that use radio frequency is also putting a spotlight on payment systems.
In-store handhelds, cited by 33% as a priority item for 2005 and 2006, are being used in a variety of new capacities. For example, some stores are allowing shoppers to use them to scan products as they move through the store, thereby reducing checkout time. Many stores are also using handhelds as "mobile managers," allowing store managers to perform computing tasks on the sales floor that formerly kept them holed up in the computer room.
Customer loyalty programs garnered less interest from respondents than that seen in other national polls, with less than half (42%) offering a card-based shopper loyalty system. However, of those, 68% said loyalty technology would be a high priority in 2006. Card retailers also said the program was either highly successful (47%) or moderately successful (53%), and 84% use the program's data for various purposes such as targeted promotions and category management.
Sometimes the Technology Report echoes larger trends or events occurring in the marketplace. Certainly 2005 will be remembered for the natural disasters that struck the Gulf Coast and Florida. And sure enough, 38% of respondents said that disaster recovery systems will be a priority item in 2006, compared with 27% who prioritized it in 2005.
Another hot trend in 2005 was data security, as some major retailers found themselves victimized by breaches of credit-card databases. This was also reflected in the study: 29% of respondents called database security a priority item for 2006, compared to 20% in 2005.
Respondents in this year's study were more inclined to concentrate on existing systems in 2005 than to experiment with new applications. Only data synchronization and voice-based warehouse technology were tested or launched in 2005 to any degree (16% and 13%, respectively).
This year augurs more positively. Twenty-two percent of respondents said they would take the plunge and test or launch price optimization while 20% indicated they will do the same with advertising, marketing and promotion systems. In addition 22% of respondents demonstrated an interest in testing or launching Web portals.
Up-and-Comers
A few up-and-coming technology applications in the food distribution industry have garnered a lot of interest, notably data synchronization and radio frequency identification. This year's study shed light on both arenas.
As a priority item, data synchronization fared slightly better for 2006 (31% of respondents) than for 2005 (24%), though it didn't shine in the test or launch category for 2005 or 2006. When asked specifically whether their company was testing or using data synchronization with trading partners, just 24% of respondents said yes.
However, when pressed about the future, 15% of the naysayers said they would test or use data synchronization in the next year, and 32% said they would do so in the next two years. Clearly, data sync is on the way up, as more retailers follow industry leaders in adopting a process that yields such benefits as faster item introduction and cleaner invoices and purchase orders. This year, obstacles to the process such as lagging standards and cost issues are expected to be cleared up.
RFID, which progress made by data sync, said to be a foundation for RFID, may help spur interest in RFID in the coming years.
Another potential up-and-comer that has seen slow but steady growth is online shopping. Just 11% of respondents consider online shopping to be a high priority for 2006, and just 9% offer full online shopping. Most (87%) see online shopping contributing 5% or less to total industry sales within the short term (one year).
However, within three years 16% of respondents believe online shopping will account for 6% to 10% of sales. Over the next five years, 40% said it will generate between 6% and 10% of sales.
Certainly food retailers are using their Web sites for many other purposes besides online shopping. The No. 1 usage is to provide company history, employed by 73% of respondents. Store locator (71%) and job openings/recruitment (62%) are also popular online features.
Though they have been the occasional subject of fraud, online coupons continue to be offered by 38% of respondents. Also notable is that nearly one in four respondents provide online prescription refills.
Approach to IT
Overall, food retailers are thought to take a conservative or at best moderate approach to technology, and indeed 29% of respondents described their approach as the former while 36% termed it the latter. Still, almost a third (31%) said they maintain an aggressive approach to IT, and 4% even said they were on the cutting edge.
As for their IT budget, almost a third (31%) said it would increase between 1% and 10%, while 36% said it would remain unchanged and 13% indicated it would decrease. Less than one in five (19%) respondents have IT budgets that exceed 1% of sales.
The industry saw more high-profile examples of IT outsourcing last year, such as Ahold's decision to outsource to EDS and Fujitsu Transaction Solutions. But among survey respondents, the largest percentage (58%) outsource only between 1% and 10% of their IT responsibilities.
While third-party packages are the most popular way to implement technology, some respondents indicated a taste for in-house development. Twenty-nine percent said they develop 26% to 50% of their IT in-house, while another 29% develop between 51% and 100% in-house.
Among current applications, which will receive the highest priority in terms of usage, expansion or upgrades in 2006?
Point-of-Sale Systems: 42%
Advert., Marketing & Promotion Systems: 42%
Category Management: 42%
Pricing Management: 40%
Disaster Recovery: 38%
HQ-Store Communications: 33%
In-Store Handhelds: 33%
Data Synchronization: 31%
Self-Checkout: 31%
Customer Loyalty Programs: 29%
Database Security: 29%
Data Warehousing: 29%
Debit/Credit Payment: 29%
Warehouse Management Systems: 29%
Computer-Based Ordering: 27%
Promotion Management: 27%
Loss Prevention: 24%
Electronic Data Interchange: 22%
Financial Systems: 22%
Price Optimization: 22%
Scan-Based Trading: 22%
Web Portals: 20%
Scale Management: 18%
Workforce Management: 18%
Check Processing: 16%
Fresh Item Management: 16%
Inventory Management: 16%
Site Selection: 13%
Online Sales to Consumers: 11%
Voice-Based DC Applications: 11%
Label Systems: 7%
Transportation Management: 7%
Electronic Check Conversion: 4%
Electronic Signs: 4%
Kiosks: 4%
Yard Management: 4%
CPFR: 2%
Among current applications, which received the highest priority in terms of usage, expansion or upgrades in 2005?
Point-of-Sale Systems: 56%
Category Management: 42%
Advert., Marketing & Promotion Systems: 38%
Debit/Credit Payment: 38%
Pricing Management: 38%
In-Store Handhelds: 33%
Financial Systems: 29%
Customer Loyalty Programs: 27%
Data Warehousing: 27%
Disaster Recovery: 27%
HQ-Store Communications: 27%
Self-Checkout: 27%
Data Synchronization: 24%
Scale Management: 24%
Check Processing: 22%
Electronic Data Interchange: 22%
Warehouse Management Systems: 22%
Database Security: 20%
Price Optimization: 20%
Promotion Management: 18%
Workforce Management: 18%
Computer-Based Ordering: 16%
Fresh Item Management: 16%
Inventory Management: 16%
Loss Prevention: 16%
Scan-Based Trading: 13%
Voice-Based DC Applications: 13%
Kiosks: 11%
Label Systems: 11%
Transportation Management: 11%
Web Portals: 11%
Site Selection: 9%
Online Sales to Consumers: 7%
Yard Management: 7%
Electronic Signs: 4%
CPFR: 2%
Electronic Check Conversion: 2%
Which applications will be tested or launched in 2006?
Price Optimization: 22%
Web Portals: 22%
Advert., Marketing & Promotion Systems: 20%
Self-Checkout Lanes: 20%
Data Synchronization: 18%
Promotion Management: 18%
Biometric Systems: 16%
Electronic Check Conversion:13%
Computer-Based Ordering: 11%
Fuel Integration/Marketing: 11%
Scan-Based Trading: 11%
Voice-Based DC Applications: 9%
Web-Based EDI: 9%
Kiosks: 7%
Electronic Shelf Labels: 4%
Online Sales to Consumers: 4%
Contactless Payment: 2%
Electronic Signs: 2%
Self-Checkout (Handheld): 2%
Smart-Card Readers: 2%
Which applications were tested or launched in 2005?
Data Synchronization: 16%
Voice-Based DC Applications: 13%
Fuel Integration/Marketing: 11%
Price Optimization: 11%
Advert., Marketing & Promotion Systems: 9%
Kiosks: 9%
Promotion Management: 9%
Self-Checkout Lanes: 9%
Web-Based EDI: 9%
Web Portals: 9%
Biometric Systems: 7%
Computer-Based Ordering: 7%
Online Sales to Consumers: 7%
Scan-Based Trading: 7%
Self-Checkout (Handheld): 7%
Electronic Check Conversion: 2%
Smart-Card Readers: 2%
What percentage of sales will your IT budget be in 2006?
More than 4%; 2% No answer 9%; 0-1% 71% respondents; 1.1%-2% 13%; 2.1%-3% 4%.
How will your IT budget change in 2006?
No answer 7%; Increase 1-10%; 31% of respondence; Increase 11-25% 9%; Increase more than 25% 9%; Remain the same 36%; Decrease 13%
Is your company testing our using data synchronization with trading partners?
No 76%; Yes 24%
If no, do you expect your company to test or use in data synchronization?
No answer 3%; In the next year 15%; Don't expect to test or use 50%; In the next yer 2 years 32%.
Is your company testing RFID technology incorporating the EPC (electronic product code)
No 91%; Yes 9%
If no, do you expect your company to test RFID technology incorporating the EPC?
Next year? 2%; In the next 2 years 22%; In the next 3-5 years 37%; Don't expect to test 39%
What percentage of total grocery sales do you think home shopping services will account for..
WITHIN 1 YEAR
26%-50% 25; No answer 9%; 5% or less; 87% of respondents; 6%-10% 2%.
WITHIN 3 YEARS
26%-50% 2%; No answer 9%; 5% or less; 71% of respondentes; 6%-10% 16%; 11%-15% 2%
WITHIN 5 YEARS
25-50% 2%; No answer 7%; 5% or les 44% of respond; 6%-10% 40%; 11%-15% 7%;
Can your company scan 13-digit
EAN bar codes at the point-of-sale?
No current interest 2%; No answer 2%; No, but plan to in 2006 7%; Yes 89%
Can your company process 13-digit EAN bar codes at the database level?
No current interest 9%; No answer 2%; Yes 78%; No, but plan to in 2006% 11%
Will you upgrade your point-of-sale SOFTWARE in 2006?
No answer 9%; Yes, substantially 20%; Yes, on a limited basis 44%; No 27%
Did you upgrade your point-of--sale SOFTWARE in 2005
No answer 4%; Yes, substantially 24%; Yes, on a limited basis 42%
Will you upgrade your-point-of sale HARDWARE in 2006?
No answer 11%; Yes, substantially 22%; Yes, on a limited basis 33%; No 33%
Did you upgrade your point-of-sale HARDWARE in2005?
No answer 4%; Yes, substantially 27%; Yes, on a limited basis 42%; No 27%
How much of your IT responsibility do you outsource?
26%-50% 2%; 51%-75% 2%; None 22%; 1%-10% 58% of respondents
How would you describe your company's overall approach to IT?
Cutting Edge 4%; Aggressive 31%; Moderate 36%; Conservative 29%
Which features are available on your company Web site or via e-mail?
Company history: 73%
Store locator: 71%
Job openings/recruitment: 62%
E-mail feedback from customers: 53%
Meal planning/recipes: 53%
Store events calendar: 47%
Corporate information: 44%
Send promotional e-mail: 42%
Send informational e-mail: 40%
Online coupons: 38%
Loyalty card information: 36%
Health-related information: 33%
Limited home shopping (gift items): 27%
Prescription refills: 24%
Shopping lists: 24%
Food safety information: 24%
Children's pages: 22%
Local news/events: 20%
Department-level information: 20%
Company policies: 18%
Catering information: 18%
Local cross-promotions: 16%
Film processing: 16%
Full home shopping: 9%
Will you upgrade your point-of-sale
SOFTWARE in 2006?
Will you upgrade your point-of-sale
HARDWARE in 2006?
How much of your IT
responsibility do you outsource?
Did you upgrade your point-of-sale
SOFTWARE in 2005?
Did you upgrade your point-of-sale
HARDWARE in 2005?
How would you describe your
company's overall approach to IT?
About the Survey
SN's 12th 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 2005, the survey elicited responses from 45 companies operating or supplying upwards of 9,050 stores. The mean number of stores operated or supplied was about 206, while the median was about 49.
Of the 45 responses, 40 (89%) came from retail companies while five (11%) were from wholesalers. Respondents included senior vice presidents or chief information officers (36%), IT directors (24%), vice presidents (16%) and chief executive officers (11%), among others.
