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OPENING UP THE FRONT END

Technologically speaking, the front end may be one of the fastest changing places in the supermarket industry today.With the advent of open POS systems, retailers have the ability to identify customers by fingerprints, offer customized newsletters at checkout, attach more sophisticated debit and credit card applications and much, much more.These new features are opening up retailers' minds to the

Dan Alaimo

May 28, 2001

7 Min Read
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DAN ALAIMO

Technologically speaking, the front end may be one of the fastest changing places in the supermarket industry today.

With the advent of open POS systems, retailers have the ability to identify customers by fingerprints, offer customized newsletters at checkout, attach more sophisticated debit and credit card applications and much, much more.

These new features are opening up retailers' minds to the potential of new front-end systems, and open systems are gradually being adopted into the retail landscape.

Unlike older proprietary systems, which limited retailers to software and peripherals either made or authorized by the manufacturer, the open systems allow greater ease in upgrading software and in adding new applications.

In many cases today, these systems are based on Microsoft Windows, but open systems also could run on other operating systems.

Industry experts estimate that between 20% and 35% of installed POS systems today are open, and vendors have all but stopped offering proprietary systems.

These numbers are skewed by the larger chains that have huge investments in the older proprietary systems.

However, upgrading the front end is becoming of greater importance to supermarket companies, according SN's State of the Industry Report on Supermarket Technology, published last spring.

In 2000, 33% of the responding retail executives said POS was a top priority, a number that rose to 41% in 2001.

One big retailer that will be doing a major POS upgrade in 2002 is Pathmark Stores, Carteret, N.J., said Bob Schoening, chief information officer.

As part of a chainwide technology investment, Pathmark plans to work with IBM, Armonk, N.Y., to install the IBM SurePOS 700 system.

The chain is still making decisions about hardware configurations, but expects to pilot the new system this fall and roll it out in the first half of next year, Schoening said.

"The whole concept of open systems will allow greater ease in attaching different types of devices into the POS environment," he said.

"Along with many of my peers in the supermarket industry, we have been pressing IBM and others to move the technology in that direction so that we can comfortably select the best-of-breed components that suit our specific business needs in the market that we serve."

Schoening would not reveal specific plans that Pathmark has for the open system, but said debit and credit card applications are one example.

Pathmark is also thinking about using fingerprints rather than cards to identify customers, and various wireless applications.

The company would also like to integrate Western Union, money orders, products like Coinstar and lottery ticket sales into the POS, he said.

"Before, you just couldn't easily take those other activities that have become very common in supermarkets and tie them cleanly into your point-of-sale environment," Schoening said.

Open systems have become the standard, said Gary Herman, chief information officer, Unified Western Grocers, Commerce, Calif.

"When you look at the systems today -- even the 'proprietary' systems -- they all run on open hardware. It's almost not new any more; this is the way people go to market," he said.

Herman said a big uncertainty is whether users will continue to use Windows-based systems or switch to Linux.

The open-source Linux operating system is a version of the more widely used UNIX.

"Linux has a real opportunity in the future, but it is still relatively new in the point-of-sale world. I'm actually excited about where I think that is going and I wouldn't be surprised to see it become more the norm," he said.

Cost is a big factor with Windows systems, he said. "When you have to pay for the operating system for each lane, that adds up, especially across a large chain," he said. But with so much riding on the reliability of POS, supermarket companies will move slowly on implementing a little-known product like Linux.

Ken Fobes, chairman, Strategy Partners Group, Ponte Verde, Fla., said if supermarket operators embrace Linux, it will be slowly.

"When that front end goes down for whatever reason, you can't sell product and it is extremely costly," Fobes said.

"So if these companies have got technology that they've lived with for a number of years, if it's reliable and it doesn't break down, you will not budge them from that technology until such time as that technology no longer supports some needs that they have," Fobes said.

The bigger chains have built infrastructures around the proprietary systems they've been using for many years, noted Thomas D. Murphy, president, Peak Tech Consulting, Colorado Springs, Colo.

"When you go into a grocery store, and take out the point-of-sale system and put another one in, it's like doing a heart transplant. You've got a lot of arteries to other systems you have to connect to," he said.

So, Murphy said, the challenge in moving the supermarket industry to open systems will be the adoption rate.

"In some cases, it's easier to proliferate the old proprietary standard than it is to make a clean sweep and jump to a major change," he said. "Certainly for the smaller independents, it will be a very good move. But as you start running into larger chains, it's going to be harder and harder because of the cost of switching, the lack of the appropriate infrastructure, and the book value of the equipment that they have."

While retailers find many benefits in open systems, such as cost, flexibility and adaptability, there also are negatives.

"The good news about open systems is they tend to cost you less initially," Fobes said. "The bad news is, in the long run, they could end up costing you more."

One independent that tried an open system and found it wanting is single-store operator Green Hill Farms, Syracuse, N.Y.

"It was supposed to be a really open system, but my experience has been that it really isn't," said Lisa Piron, director of management information systems. "We've gotten some things out of it, but it just never went as far as we wanted it to."

For example, the system accommodates the multiple price levels it offers to customers participating in its frequent shopper program, but customization has been difficult and the retailer has been unable to integrate other devices, such as the sophisticated Hobart Quantum scales it installed last year.

"In an open system, we should be able to plug in all of our pieces and everybody should be able to talk to everybody else, but that doesn't necessarily happen," she said.

Piron hasn't given up on open systems and is now looking for another one.

"We'd like more flexibility in being able to communicate with the customer, both on the receipt and on the displays. We'd also like to add a laser printer to customize newsletters based on a customer's purchase."

Because of the ever-changing software, retailers shouldn't expect to get 15 years out of an open POS system, Herman said, unless they are willing to forego software upgrades.

"The systems aren't quite as stable because they are running in a PC environment, especially the Windows 95-based systems. Now that they are starting to move to Windows 2000, those systems are getting better," Herman said.

On the positive side, the open systems are much easier for cashiers to use, which is especially important in tight labor markets, Murphy said.

They also enhance customer interactions because of the bigger display terminals and more sophisticated information they can convey, Murphy added.

According to an IBM spokesman, in the future a variety of different technologies will be attached to these open systems. Those technologies include customer databases and systems information for merchandising, back office and supply chain. A company's intranet and Internet can also be attached.

The entire system is designed to work together smoothly .

"That is impossible without open standards. Open systems, throughout the hardware, software and middleware, enables everything to seamlessly connect with everything else," he said.

Open systems also will make it easier for retailers to transition to the wireless world that so many predict for the not-too-distant future.

The open systems are based on an Ethernet backbone for the local area network and "all the access points for wireless hook directly into Ethernet," Fobes said.

"Hooking all of these systems together is certainly simpler today than it was 10 years ago or even five years ago, and it has given the retailers the opportunity to do a lot," said Fobes.

Other devices that can be added to the open system include interactive kiosks, wireless portable shoppers and electronic shelf labels, Fobes said.

"I see the day when there is absolute universal connectivity, where you just plug in a new device, or you just load on a new piece of software, and it automatically connects.

"We are less than five years away from technology that will allow customers to simply roll their basket into a garage that reads the whole order, automatically debits their account, and away they go," Fobes said.

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