A MIXED BAG 2005

Michael Garry / Darla Mercado

This has been a year of exciting technology for the store as well as disturbing threats to the enterprise and supply chain. Next year retailers will seek to take advantage of the former while learning to deal better with the latter.

In the store, retailers are continuing to test a wide range of applications, from biometrics at the point of sale and now in kiosks, to self-checkout variations at the front end and in the aisles, to shopping cart screens designed to help shoppers navigate the store. Kiosks are continuing to evolve with more targeted specials and recipes as well as product locators and deli ordering capabilities.

At the same time, retailers, like other businesses, are finding themselves more vulnerable to hackers and identity thieves, making it all the more important to pay attention to IT security measures. This is especially true for consumer and credit card data, the focus of some high-profile security breaches this year.

Hurricane Katrina and the litany of sister hurricanes underscored the need to invest in disaster preparedness and contingency planning. It may also be prudent to develop a company culture that is flexible and resourceful in the face of natural disasters as well as changing business demands.

The age-old problem of unsaleables has not gone away, though retailers, in collaboration with suppliers, are finding new ways of preventing it.

INITIATIVE 1: ADD PERSONALIZED KIOSKS

Kiosks have had a checkered career in the supermarket industry, yet many retailers continue to try different in-store applications on kiosk platforms, such as discounts, recipes, store locators and deli ordering.

Retailers looking for a new twist on kiosks may want to examine what Giant Super Food Store, Camp Hill, Pa., and Green Hills, Syracuse, N.Y., are trying. Both stores are testing kiosks that can individually target loyalty shoppers rather than treat all shoppers the same.

Opened on Oct. 12, the 92,000-square-foot Giant Super Food Store, now the largest unit of Carlisle, Pa.-based Giant Food Stores/Tops Markets (a division of Ahold USA), is offering an unusual range of consumer-oriented technologies, including 17 Shopping Solutions kiosks. The kiosks, developed by St. Clair Interactive Communications, Toronto, are linked to a database of BonusCard loyalty shopper information.

"When customers scan their BonusCard, they are able to see their [BonusCard savings] status, as well as [targeted] savings offers," said Denny Hopkins, vice president of advertising and public relations for Giant Food Stores and Tops Markets.

These offers, he noted, are for the products the shoppers most frequently purchase. Moreover, they are only available through the Shopping Solutions kiosk.

The kiosk also offers some features available to all shoppers, such as a product locator and price checker. Additionally, shoppers are able to access recipes from the kiosk via a touchscreen menu or by scanning the UPC of a product such as chicken breasts. Recipe categories include "Quick and Easy," "Around the World" and "Family Favorites."

The kiosk at Green Hills, a one-store independent, also targets loyalty shoppers, but -- in what may be an industry first -- uses biometrics rather than card-scanning to identify shoppers. The kiosk is part of the store's new SmartShop loyalty program, which will launch in January, replacing the loyalty card with finger-scan biometric identification. The biometric technology is provided by Pay By Touch, San Francisco.

After registering for the program with a fingerprint scan, the customer can access personalized SmartSavings offers simply by scanning a finger at the kiosk prior to shopping. The shopper can also pay at the checkout by tying the finger scan to a form of payment such as credit or debit.

The personalized offers are based on items that are relevant to the customer's tastes. Most supermarkets use promotions that are driven by retail and are not important to the individual shoppers, said Gary Hawkins, president and chief executive officer of Green Hills.

"By increasing relevancy, we will encourage shoppers to buy more," Hawkins said. "If you like Pepsi and I like Coke, we can both shop at the same store because discounts are available for both products."

Shoppers can build shopping lists online and later access them through the kiosk. "Let's say I had a holiday party list. I can type in what I need or I can click and add specials that I see online," Hawkins said.

Darla Mercado

INITIATIVE 2: FACILITATE SELF-CHECKOUT

Self-checkout has enjoyed so much success at the front end of stores that a few retailers are trying to extend the idea to the rest of the store with portable scanning devices.

These devices allow shoppers to scan and bag their purchases as they shop. Food Lion's five Bloom stores in the Charlotte, N.C., area are testing portable scanning devices provided by Symbol Technologies, Holtsville, N.Y.

Giant Super Food Store, Camp Hill, Pa., opened on Oct. 12 by Carlisle, Pa.-based Giant Food Stores/Tops Markets (a division of Ahold USA), is offering shoppers traditional front-end self-checkout (Easy-Scan) and portable self-checkout (EasyShop), both of which have already become popular with shoppers. The store's 72 EasyShop devices, available to loyalty shoppers, are provided by Agilysis, Mayfield Heights, Ohio, and Symbol Technologies, Holtsville, N.Y.

A handheld device, EasyShop also allows customers to track their purchases and to keep a running total during the trip. Once the trip is over, the customer only has to pay and go, either at a standard checkout with a cashier or at one of nine EasyScan lanes.

"We are still in the learning process," said Denny Hopkins, vice president of advertising and public relations at Giant Food Stores and Tops Markets. "Customer reaction has been and continues to be very positive. The appeal is in the added convenience and greater control over the checkout process."

Portable self-scanning units have also teamed up with shopping cart screens that provide shoppers with product offers and other information. The best-known example of this is the Shopping Buddy, pioneered by Stop & Shop, Quincy, Mass., at three Massachusetts stores. Other models have been introduced this year by Wincor Nixdorf, Fujitsu Transaction Solutions and Springboard Retail Networks.

Stop & Shop plans to install Shopping Buddy in seven more Massachusetts stores and 10 Connecticut stores between January and late April, said Peg Merzbacher, director of marketing for Stop & Shop's Peapod online grocery service, who has taken on the Shopping Buddy program. Software for the device is provided by Cuesol, Quincy, Mass., while hardware is supplied by IBM.

"A small group of loyal customers have become extremely loyal users," Merzbacher said. "Their total spend has increased as a result of using Shopping Buddy."

Like other portable scanners, Shopping Buddy keeps a running total of the items as the customers scan them, allowing shoppers to maintain control of how much they spend while they're in the aisles. "Shoppers love the running total," Merzbacher said. "They're masters of their own destiny and there are no surprises at the checkout." Shoppers can also bag their goods during the trip the way they prefer, she added.

At the end of the trip, shoppers merely have to download their total at either a regular checkout or a self-checkout and pay.

Darla Mercado

INITIATIVE 3: PROTECT DATA

Consumer data security has gained a higher profile this year in the wake of a few highly publicized security breaches involving well-known retail chains.

For example, a security lapse at DSW Shoes, Columbus, Ohio, compromised the credit card files for some 1.4 million consumers. BJ's Wholesale Club, Natick, Mass., agreed in June to settle Federal Trade Commission charges regarding its credit security.

Despite these and other cases, retailers may still not be taking data security seriously enough. According to a new report, "The 2005 Retail Data Security Study," by Retail Systems Alert Group, Newton Upper Falls, Mass., "There is a need for greater vigilance with regard to information security in the retail industry."

One food retail company that takes the security of all data very seriously is HoneyBaked Ham Co. of Georgia, Norcross, one of four sister companies that operate more than 400 HoneyBaked Ham stores nationwide.

"We're not perfect, but we try to do the right things," said Erik Goldoff, IT Systems Manager, HoneyBaked Ham Co. of Georgia, following his presentation, "Harden IT Assets from Internal and External Threats," at the Retail Data Security Forum held in Chicago last month.

Goldoff said a good starting point for retailers is to follow the guidelines set by the credit card companies, such as the Payment Card Industry Data Security Standard and Visa's Cardholder Information Security Program. The PCI standard includes such basics as maintaining a firewall and updating anti-virus software. Retailers who fail to adhere to the PCI standards run the risk of fines as high as $500,000 per security breach.

Part of Goldoff's daily routine is to review key logs tracking IT assets, such as document files and databases. "We look at who accessed a file, whether it was read-only, modified or deleted," he said.

Goldoff also inspects his firewall for attempts by computer worms to infiltrate the company. He likens these firewall "pings" to someone walking down an office corridor and "jiggling" each door knob to see if it's open. "It's better to see failed jiggles, knowing that they tried to get in and failed, than wondering about it," he said.

In monitoring IT assets such as bandwidth or processing power, it's important to be able to tell whether a trend is out of the norm. "If a three-meg pipe to the Internet uses half of its capacity normally, and you see it's saturated, you're either doing a lot of business, there's file-sharing, or someone's sucking data out of your company."

While Goldoff recommends that retailers equip themselves with top-grade anti-spam and anti-virus software, as well as an intrusion prevention system and CPU and bandwidth monitors, "there's not a single product that will make you secure," he said. "Doing all the little things is what gets you there."

Michael Garry

INITIATIVE 4: COLLABORATE ON UNSALEABLES

Unsaleables -- damaged, out-of-date or otherwise flawed products that are withdrawn from the supply chain -- represent a $2.52 billion problem for the consumer packaged goods industry. However, when retailers and manufacturers collaborate, they have shown it is possible to prevent products from suffering this ignoble fate.

Food Lion, Salisbury, N.C., and Campbell Soup, Camden, N.J., did such a good job collaborating to fix one situation that the companies received one of four 2005 Innovation Awards for effectively preventing unsaleables, presented in July by the Grocery Manufacturers Association and the Food Marketing Institute.

Food Lion initiated the effort by reporting in January to Campbell that cases holding plastic V8 Juice containers were breaking apart during the picking process in the retailer's distribution centers. As warehouse workers picked up cases by grasping onto the "display windows" at the side, the pressure caused the bottom flaps to come undone.

"The cases weren't made to handle like that," said Chris Mead, manager of reverse logistics for Food Lion. "Cases would come apart and you'd have tons of damage."

Campbell immediately prepared to replace those cases with an enclosed case that uses "finger holds" on the side designed for lifting. In addition, Campbell decided to shrink wrap remaining shipments of old cases as well as new cases for extra strength. Tests were run on the new cases, which were made with additional glue to increase the holding power of the flaps. "You can stand on it now," Mead said.

The entire process of replacing the defective cases with a better model took only 15 days. "That was a significant amount of work to get it done in 15 days; it was phenomenal," said Mead, noting that it can take months or even years for a manufacturer to reconfigure its production lines. "I've never heard of anyone doing it in two weeks."

Food Lion made this possible by opening up lines of communication with Campbell Soup and other vendors, Mead noted. Over the past year and a half, the retailer has been cultivating those relationships by holding meetings every three to four months at its DCs with groups of vendors to discuss how to prevent unsaleables -- a rare scenario in food retailing.

Last month, Food Lion convened a meeting at its Salisbury DC for 85 supply chain managers and packaging engineers from more than 30 vendors. Earlier in the year, the retailer invited just sales people from vendors for the discussion; another session was held at its health and beauty care piece-pick warehouse.

At the meeting last month, Food Lion asked its DC workers to pick the three best pallets or shipping modules, and the three worst, and photographed them all so they could be shown to the visiting vendors. "We showed them what worked, what didn't and why," Mead said. "It probably was embarrassing to some of them, but also motivating."

At the piece-pick DC, vendors learned that Food Lion was breaking open cases and shipping individual products in totes, necessitating that those products have more durable packaging to survive the trip to the store. Companies have since shifted to plastic packaging for some products.

The upshot of the meetings is that Food Lion gets to know the people at vendors who need to be informed about unsaleable issues when they arise. "If there's a packaging problem, we can go through a packaging engineer rather than a sales rep," Mead said.

Michael Garry

INITIATIVE 5: BUILD RESILIENCE

One thing 2005 has demonstrated to U.S. businesses is the need for a resilient enterprise that can withstand the unexpected shock of a Hurricane Katrina or some other unpredictable disaster. For retailers, dependent as they are on their supplier partners, resiliency must be established from the store level all the way up the supply chain.

A newly published book, "The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage," is a timely reminder of the importance of investing in a flexible business infrastructure. Its author, Dr. Yossi Sheffi, a professor at the Massachusetts Institute of Technology and director of the MIT Center for Transportation and Logistics, recently told SN how his book's themes apply to the food retailing industry.

Like many businesses, retailers should avoid being overly dependent on a few suppliers. But in the event that a small group of suppliers is responsible for key items, such as private label, "they have to be watched and managed," Sheffi said. If that is too difficult, then retailers need the ability to move quickly to alternative suppliers.

Sheffi is also a strong believer in decentralized management that "empowers low-level employees and allows people, especially when there is something out of the ordinary, to take the initiative."

This empowerment can apply to day-to-day decision-making as well as reacting to a crisis. Sheffi cited Spanish apparel retailer Zara and Japanese apparel merchant World as examples of companies that give store managers and designers wide latitude to react to changes in fashion trends.

"Every night they analyze data on what's selling," he explained. "When the computer detects a trend, the designer has the right to make a redesign and send it to the manufacturer so that the new goods can go right back to the stores -- all without asking any vice presidents at corporate."

A culture that prizes fast reactions to changing business conditions also works well in a disaster, Sheffi noted. For example, after Hurricane Katrina devastated New Orleans in late August, Procter & Gamble's Folger plant there was faced with trying to resume operations with no infrastructure of workers, electricity and running water.

Rising to the occasion, a local manager decided to buy 150 trailers and a number of generators and bring in workers from other P&G facilities. He began to operate the business "like an oil rig, with workers sleeping and eating there," Sheffi said. "Within two weeks, the plant was back up"

P&G, Sheffi observed, "had no procedure" for dealing with an event of this magnitude. Yet its decentralized management strategy allowed a local manager to take the initiative and effectively "save the brand" from losing shelf space to competitors.

The flexibility of a company that allows low-level employees to take action, or shifts quickly to new sources of supply, has the ability both to respond to a short-term crisis and to compete effectively in the long term, Sheffi said. "If you're flexible, you can respond better than your competition, and it's a competitive advantage. Responding fast is the name of the game."

Michael Garry