21ST CENTURY VISIONARY 2001-05-07 (2)

CHRISTINA VEIDERS

WEST DES MOINES, Iowa -- Ron Pearson points to the village blacksmith and says food retailers should take note.

The blacksmith went out mainly because he didn't adapt his trade to the next big wave change -- the transition from horsepower to motor power and all the other dramatic changes resulting from the Industrial Revolution.

"The blacksmith didn't stay up with what was needed," said Pearson, who becomes chairman this week of the Washington-based Food Marketing Institute (FMI).

As Pearson begins his two-year term, he and the 1,500-member association face the next phase of the information technology revolution, which is swiftly propelling food retailers well into the 21st century.

Pearson, who is chief executive officer, chairman and president of Hy-Vee here, wants to make sure the FMI membership is ready for this revolution. Taking technology to the next level in further streamlining food retailing will be part of Pearson's overall educational thrust as FMI chairman, he told SN in an interview.

"It's almost limitless what can be done with technology," said Pearson. It is limited, he qualified, only by the amount of dollars one is willing to invest.

The front end, in particular, where 20% of the operational costs can accrue, will be a focal point. Pearson believes that within five years the industry will move from customer self-scanning at checkout to mobile scanning from the shopping cart down the grocery aisles.

He refers to such a system as "checkerless checkstands." It would require that tags or chips be embedded in packaging. These chips would emit a radio wave or electromagnetic signal that computers can pick up to identify products and register prices. The Massachusetts Institute of Technology is developing this system through its Auto-ID lab. It has developed an electronic Product Code or ePC that may replace the Universal Product Code (UPC) and lead to smart technology in the home. It is one of many evolving technologies that FMI is monitoring closely, Pearson said.

"There are all kinds of facets of technology that we want to try to explore, and it can be done without spending a lot of money. That can be accomplished through research. That's what FMI is good at doing," stated Pearson.

Pearson mentioned computer-based training, procurement, logistics and distribution as other areas where technology can be applied to improve efficiencies. "I want to focus on how we can apply technology in working closer with our suppliers," he said. This includes the original supplier -- the farmer. "If we farm proportionately with [demand for] products, how can that serve our industry better?" he asks.

Food safety, which is the focal point of FMI's foundation, can also be improved by applying technology, Pearson said.

In being named to FMI's top elected post, Pearson succeeds Danny Wegman, president of Wegmans Food Markets, Rochester, N.Y., who was also focused on technology and food safety.

Pearson's vision is broad. His gaze is forward as he projects the impact of society's changing lifestyles on retailing.

"A purpose of FMI is to keep the membership aware of the dramatic changes that are going on in our business, and to help the members look forward to what is coming and how they can adapt to changing lifestyles," Pearson said.

He believes FMI is well qualified to provide this education because of its grassroots affiliation with both the megachains and smaller independents. Hy-Vee is considered an independent with access to capital that rivals some chains.

The customer remains king in Pearson's mind. All of the advanced technology in the world becomes worthless if customers don't shop and spend money in the store, he pointed out. Caught up in all the challenges facing the industry, operators sometimes can lose focus on their customers, Pearson said.

"It's not bad once in a while to push back and make the customer a priority. They're the only reason we are involved [in this business]," he said.

Refocusing on customers will be a priority for Pearson during his tenure. He is jealous of service industries like the hotel/hospitality, or even the airlines, which have the ability to immediately identify their customers and call them by name.

With as many as 30,000 to 40,000 shoppers through a Hy-Vee store each week, Pearson ponders on how grocery retailers can get closer and more personal with their customers? What can retailers do to improve the food shopping experience and reward their customers for their business?

"That is vast, big and difficult. But we need to start down that road and look at how we can do a better job in reaching out to our customers," he said.

One of the most significant lifestyle changes that Pearson has witnessed in his long career is the emergence of two-income family households. "Everybody used to eat at home. Now half of the meals are consumed outside the home. Families are going in every direction. So two working people in a household has brought a significant lifestyle change and we have adapted to that change," said Pearson.

As a result, the industry has introduced a wide range of convenience initiatives and services -- meal solutions, expanded fresh sections, gasoline fueling stations and whole health-pharmacy services, to name a few. FMI has been instrumental in helping to develop many of these concepts that have enabled the industry to grow and prosper, Pearson said.

To ensure that FMI stays abreast of future trends and issues, it has commissioned a strategic planning study that is being conducted by Deloitte Consulting, New York. It's expected the results of the study will be released in the fall.

This study will position FMI to better serve its members in the 21st century, said Pearson. The study will examine industry issues from a strategic standpoint and make sure FMI has programs available to help its members meet their future needs, he explained. "That's the big value of a trade association like FMI," said Pearson. "FMI has the resources and people in place. It can accomplish multiple tasks and bring important issues into focus for the smallest retailer to the largest," he said.

Pearson knows first hand the value of the association having served on many committees over the years. The first that he chaired was the all-member communications committee, which resulted in better communications to the membership. He then co-chaired the diversity committee that focused on bringing more females and minorities into the industry. He served as vice chairman of the member services committee out of which the MarkeTechnics Show was born in 1993 in New Orleans. It has since become the second most successful FMI event, said Pearson.

In fact, Pearson counts his time and work with FMI as one of the most important accomplishments of his career.

This accomplishment is equal to having the opportunity to operate the 21st century food stores of the future -- Hy-Vee, said Pearson. "We wouldn't be doing some of the forward things we are without my FMI experience," he said.

Pearson remains bullish on food retailing going forward despite signs of a wavering economy.

For those seven markets in the Upper Midwest in which Hy-Vee operates -- Iowa, Illinois, Missouri, Kansas, Nebraska, South Dakota and Minnesota -- consumer spending continues to be strong, he said.

"From my standpoint, and those that I've talked to in the industry, I don't think we are looking at a dramatic change in the economy," said Pearson.

Even if consumer spending should become stressed, Pearson sees supermarkets with a built-in survival factor against a declining economy due to the various price/value levels built within the offerings in most categories sold in the store.

Energy consumption is a concern for Pearson, however. "Supermarkets are high consumers of energy, 24 hours a day," he noted. It's a situation FMI will continue to watch closely. "Our industry is focused on energy and we've looked at what would happen with deregulation of energy. Some of the supermarkets are even working with local utilities. We want a policy that would prevent anything from harming an industry that so much depends on the utilization of this product."

Despite such challenges, Pearson expects the industry to stay viable for years to come. He points to the industry's accomplishments of the past as evidence that the industry will move forward in a positive direction.

When Pearson became a Hy-Vee store manager, the cost of food as a portion of consumers' income was running 20% to 23%, he pointed out. Today, the disposable income spent on food has fallen dramatically, to 6.2%, according to FMI.

Pearson mentions the UPC, introduced in 1971, and the first product put through a scanner at a Marsh Supermarket in 1974. "I am proud we've been a leading industry on lowering costs dramatically." He expects those costs to come down further as the industry applies technology to reducing supplier costs, improving just-in-time delivery and applying technology to food safety.

Unlike the village blacksmith, the supermarket retailer has proved over the years that he is capable of adapting to change, and smart enough to benefit from change, he said. This ability and keeping an eye on the future will keep the industry on the leading edge for years to come, Pearson stressed.