SCOTTSDALE, Ariz. -- The goal of technology must be to enhance the shopping experience for consumers and the working environment for employees, and thereby drive profitability.
If innovative systems such as self-scanning, electronic marketing and computerized shop-at-home services do that, they will take hold and play a major role in supermarkets in coming years. If not, they will only have a limited influence on the industry.
Those were among the many viewpoints expressed by Tom Nowak, vice president of management information systems at Price Chopper Supermarkets, Schenectady, N.Y., in an interview with SN.
Nowak is this year's chairman of the Food Marketing Institute's Advanced Management Information Systems Committee and a key member of the Joint Industry
Efficient Consumer Response Technology Committee. He spoke with SN about a wide variety of MIS and technology issues shortly before the Food Marketing Institute's annual Information Systems Conference here this week.
The discussion ranged from the potential that open systems and improved scan data integrity hold in transforming the industry to the changing role of and growing demands on MIS departments in today's rapidly evolving industry.
NOWAK: We have done a good job in terms of identifying the core technologies and the bottom-line infrastructure needed to move forward with ECR. That effort is just about wrapped up. There will be a document coming out shortly identifying those guidelines.
But technology is one of the easier pieces in implementing ECR best practices. The success of ECR is not going to be made or broken by technology. It is going to be made or broken by how technology is applied to business practices. There has been a lot of struggle in that area, and there is still a lot of work to do.
NOWAK: "Open systems" is like "ECR." It's an umbrella term with a lot of pieces to it. It is a technology architecture that utilizes industry standard hardware and software. What that means from a business standpoint is that retailers will have greater flexibility, more options and an easier time implementing programs.
Does it also mean cost savings? Yes and no. Originally, open systems were supposed to save the industry a lot of money. That may not necessarily be the case. It all depends. There are some situations in which retailers may save money by moving to a new platform. But there are cases that involve major outlays of money. So cost savings may not be the primary motivating factor.
The biggest motivating factor is providing business solutions for the corporation. Open systems makes providing solutions easier and increases the number of options available. In the old days, if a vendor did not have a solution you wanted, you were dead in the water. With open systems, you can look around. That is the key benefit: increased flexibility.
NOWAK: It depends on the chain. There are two sides to scan data accuracy. One is the technical piece: Do you lose data because of a bad communications system or because the hardware goes down? Those technical issues are going away. With the new generation of POS systems and today's improved communications environment, data is not going to be lost.
But there is no technology that will accurately record scan data at the front end if retailers continue to allow cashiers to use the quantity key. There is no technology that forces employees to scan every item. A conscious decision to insist on that has to be made by the retailer.
SN: Is the industry making progress in using POS scan data for programs such as continuous replenishment and computer-assisted ordering?
NOWAK: It is moving more and more rapidly. There are always things that prevent you from doing certain applications. But as those obstacles go away, retailers will go after the applications. I think the success stories of retailers using category management especially have opened people's eyes to the fact that scan data is invaluable.
SN: What do you see taking place in the area of electronic data interchange in the next year or two?
NOWAK: For transactions that do not involve a major change in business practices, such as for invoices and purchase orders, EDI transactions will take hold. I think you are now seeing your biggest growth in the area of continuous replenishment.
The use of EDI for promotional and price-change transactions have lagged because even though there is a uniform communications standard, the data elements in those areas could be interpreted in different ways. Also, people do not want to rely on computer transmissions to present a deal to somebody. They want that personal interaction.
Security is another issue. Do we really want these transactions flowing through public networks? Who can look at them? Can a competitor look at them? That thought process also enters into the whole thing. It is not just a technical issue.
SN: Let us turn to the area of electronic marketing programs. How prevalent are these programs becoming?
NOWAK: Some pieces of electronic marketing are moving along very quickly, and some are moving very slowly. Electronic couponing, in which customers present a card instead of in-ad paper coupons to receive discounts, is moving along quickly. I see a lot of movement in that area. It is easy for customers to understand and more convenient for the chains.
Frequent shopper programs is another area. To me, frequent shopper programs are programs in which retailers capture purchase information from customers and then provide incentives to those customers. You try to build shopper loyalty by giving consumers an extra incentive for shopping in your stores over a defined period of time.
There are not a lot of success stories yet involving those types of programs, and I think they have some technological issues associated with them. You have to move and store vast amounts of data reliably, even more so than with scanning.
But the other question is, given the number of customers in a typical store and the margins retailers work with, what incentives can retailers provide to customers that will be meaningful? If you give large customers a 1% discount, that is a lot from a margin standpoint, but it is a small number for the customers. If they spend $100 a week and get a $1 a week discount, that is nothing. So what is the right program?
SN: With all the emphasis on technology and automation today, such as electronic shelf labeling and continuous replenishment, is the industry headed in the right direction?
NOWAK: I believe so. I see electronic shelf labels as an important area for the future. They solve a lot of problems in terms of keeping prices accurate and giving retailers the ability to go into other applications.
In an area like self-scanning, we have a system in place and we believe there is a niche being fulfilled with self-scanning systems. But it must be customer-driven. If the customer perceives it is quicker for them to use these systems, they are going to succeed.
NOWAK: It will play a larger role in the future. What has held it back thus far are access points, ease of use and user mentality. Most of the shopping services up to now have been personal computer-based. But not every house has a PC. But if cable TV could serve as an access point, every house has a television set, so the potential market becomes much greater.
Also, as the population ages, younger people will become a bigger portion of the market, and they are more comfortable using these types of services. But will it become a predominant form of shopping? I don't think so. But will it play a larger role? I think so. Absolutely.
SN: How is the increasing reliance on technology-driven programs changing the role of MIS in supermarkets?
NOWAK: We have always been charged with improving operations of the corporation. Technology has increased the number of options a company can look at and that has made things more complex for MIS.
There are more options out there today, more things to evaluate and more pressure to improve operations. So people are looking to compress development time frames. At the same time, MIS is trying to change to open systems. So it makes the job even more difficult.
SN: Is the commitment there -- on an industry basis, not necessarily at Price Chopper -- for MIS to accomplish the necessary goals?
NOWAK: There are a number of companies that have realized that technology will play a big role and they have spent significant amounts of money on it. There are other companies that are going along and dealing with technology issues on a case-by-case basis. There are all different types of approaches.
SN: With all the emphasis on technology, is the industry remaining focused properly on its core goals? Is there any danger we are getting too caught up in the potential of technology?
NOWAK: There is always that danger. But I do not think our focus should be on moving product. Our focus should be on servicing the customer. If the customer is happy and properly serviced, product movement will come. We try to look at technology in terms of what it will do.
Will it make the customer's shopping experience better? Will it make the employees' job in the store easier so they can spend more time with customers? If so, I have helped myself. Those are the kinds of applications I have to look at. You cannot get enamored with technology and just implement technology for technology's sake.