AT YOUR SERVICE 2001-06-04

MARTIN SCHNEIDER

Supermarkets -- They're not just for grocery shopping anymore.

Along with the traditional fare, more and more stores are offering coffee and doughnuts from national chains, banking, pharmacies and fuel centers.

Even when they are just for groceries, there's frequently a high-tech touch in store for shoppers: Internet kiosks or self-checkout lanes.

Retailers want to make the supermarket a destination for more than the weekly grocery fill-up, according to Douglas Christopher, analyst with Crowell Weedon, Los Angeles.

Co-Branding Breakfast

Top's Markets, Williamsville, N.Y., an Ahold operating company, has entered a partnership with coffee retailer Gloria Jeans. Meanwhile, Albertson's, Boise, Idaho, has opened Starbuck's coffee bars inside several stores, including some it operates in the Mid-Atlantic under the Acme banner. In the Philadelphia area, Acme's Starbucks outlets make up 10% of the total number of Starbucks in the region.

Acme has also partnered with Krispy Kreme, which has exclusive doughnut sales and prominent placement in the stores as part of the deal.

Supermarket retailers and partners have said these alliances are a win-win situation. Supermarkets can include added services seamlessly, while their partners gain incremental sales, like Dunkin Donuts, Randolph, Mass., which entered into an agreement to open franchises in certain units of the Stop & Shop Supermarket Co., Quincy, Mass., another Ahold company.

"We're looking at alternative points of distribution as a growth vehicle and feel that Stop & Shop is a perfect fit for us from both a branding and geographic standpoint," said Dave Gleason, manager of nontraditional development for Dunkin Donuts.

"It is really too early to tell, but we are optimistic about the project. It is a real convenience for the customers; it eliminates one more stop in their day. And they are responding very well to the addition to the stores," Mike Drumm, new ventures manager at Stop & Shop, told SN. Drumm also noted that the stores are 270-square-foot mini-units and "carry all the items you would find in a traditional Dunkin Donuts."

Stop & Shop will wait approximately four or five cycles to see if it will expand the program to additional locations, Drumm said.

Jonathan Ziegler, San Francisco-based managing director of Deutsche Banc Alex. Brown, New York, said certain criteria must be considered when a supermarket elects to partner with a company. "Whatever the partnership, supermarkets must push the envelope in meeting customers' needs. The operation has to be scalable, while also reinforcing and building upon the quality of the supermarket's own brand," said Ziegler.

Ziegler also said that co-branding ideas could extend to in-store services that are still in development. One example Ziegler gave was to have a supermarket that operates a fuel center partner with a branded oil-change company. He also said supermarkets could partner with a company like EatZi's, Dallas, which could handle home meal replacement and in-store prepared foods for a chain.

Self-Checkout

One service that has been receiving a lot of buzz lately is self-checkout. Some analysts said self-checkout will be one of the hottest trends in supermarket operations in the next few years.

"The next big thing has to be self-checkout. And this seems to be the breakthrough year for it. Even chains you wouldn't expect to be embracing the technology and taking the risk at this point, like Pathmark, are doing it," said Gary Giblen, senior vice president and director of research, C L King Associates, New York.

"Research has shown that many customers love the new feature. Also, it is a major cost efficiency in terms of labor. Though there may not be a huge increase in sales because of self-checkout, customers may now go to a Kroger and breeze through the checkout when in a rush when they previously would have gone to a convenience store," Giblen added.

Giant Eagle, Pittsburgh, said last month it plans to roll out 60 new self-checkout systems in Pennsylvania and Ohio.

Genuardi's, Norristown, Pa., a division of Safeway, Pleasanton, Calif., said earlier this year it plans to expand its self-checkout system to six stores, including one where it will be used at an in-store food court.

"Self-checkouts are now following what MAC (or ATM/debit) cards and pay-at-the-pump gas have done," Mike Connolly, director of process improvement at Genuardi's, told SN. "For [self-checkout] the learning curve will be shorter because customers are already used to using technology like this."

Surveys have shown that consumers may be ready to adopt self-checkout as a regularly utilized part of the shopping experience.

A recent SN poll found that 85% of the customers surveyed believed that the machine's quick checkout speed was a reason for using the service. Of those polled that have used self-checkouts before, 52% said they prefer the machines for small orders, and nearly 30% of those who had not used the machines said they would prefer self-checkout when buying a small number of items.

However, others said they are not as excited about the concept.

"I'm not sure that self-checkout is worth the initial costs of implementation," said Christopher. "The convenience factor is not necessarily there, if you are bagging your own groceries, and retailers lose the opportunity to add value at checkout with personalized customer service.

"I don't think supermarkets should give up that advantage. Customer service with a personal touch holds more value than the few percentage points of savings could add to operations."

Bob Piccinini, president and chief executive officer of Save Mart, Modesto, Calif., said his company might adopt self-checkout, although it has no immediate plans to add the service.

"When is the right time to implement new technologies? That's always the most important question," he said.

Piccinini also said retailers will be taking self-checkout more seriously in the future as a way of cutting costs.

"It is like the case with meat wrappers 20 years ago," he said. "Back then you had four or five employees in the meat department wrapping meat, now it's done by a machine.

"That's a very expensive machine, but when compared to the costs of wages and benefits for five people, it becomes clear that it is a money-saving investment, and worth the loss of personal service. The same may go for self-checkout someday."

Fuel Centers

Hundreds of new gas pumps have been springing up in store parking lots across the nation.

Publix Super Markets, Lakeland, Fla., said it will open four gas station-convenience store combinations in store lots, in an effort to increase sales by luring shoppers to its pumps who might normally stop at a convenience store to fill-up and grab a few food items.

Companies like Albertson's, which has announced plans for over 100 new fuel centers this year, and Kroger, which has expressed plans to expand its fuel center base of 77 units this year, have said gasoline sales are the next logical step in food retailing.

"It is just one more thing to sell," said Michael Rueling, co-chairman of Albertson's.

But some analysts expressed doubts about supermarkets venturing into the fuel business.

Christopher told SN, "Gasoline is definitely an interesting service to watch. I think it makes more sense for the wholesale clubs, which are bigger and have huge lots for the most part. For supermarkets, it is something that may work, but strictly on a location-by-location basis."

Observed Giblen, "I am not sure that gasoline at supermarkets will work out all that well. A traditionally good gas station location is different from a good supermarket location. Many stations are at intersections, where supermarkets are usually stand-alone units or in strip malls, and less accessible from a convenience standpoint. The real estate is just incongruent."

Internet Kiosks

Internet-enabled kiosks, with capabilities that range from giving customers meal ideas to dispensing electronic coupons, have been gaining acceptance from retailers and customers.

Ukrop's Super Markets, Richmond, Va., has been experimenting with kiosks as part of a partnership with Meals.com, a subsidiary of Coinstar, Bellevue, Wash. The kiosk program has increased sales among users by 8% against a control group, the retailer said.

There are currently 27 Ukrop's stores equipped with kiosks. Through the kiosks, members of the company's valued customer program can swipe their loyalty cards and receive information and offers based on their shopping history.

Whole Foods Market, Austin, Texas, also features kiosks, which offer nutrition, health and beauty information through the retailer's Whole Body merchandising program.

The Internet has also given in-store banking a boost in popularity, according to Geoff Wilson, vice president of industry and investor relations with Loblaw, Toronto.

The company has entered a partnership with Canadian Imperial Bank of Commerce, Toronto, to provide electronic banking to customers.

"Response has been very strong," Wilson told SN. "The main reason is that most banks in Canada, and in the U.S. as well, charge high service fees.

"Since we are completely digital and have less overhead, we charge no fees and provide premium rates. Also, we have instituted a strong loyalty program with users earning points toward free groceries and other offers."

Bank On It

Even traditional banking services have continued to be a boon for supermarkets like Save Mart.

"From our standpoint, the best in-store service out there is banking, be it full-service or ATMs. It creates tremendous loyalties. Those are our best services outside of what we traditionally do as a supermarket," said Piccinini.

Analysts said banking will continue to aid in supermarket growth.

"Many in-store banks have better hours, and some are even open on Sundays, and the ATMs located inside these units are safer than outdoor ones, which can also lure users to purchase food items who initially come in just to get cash," Christopher said.

Ziegler noted that Safeway, which has also entered into an agreement with CIBC, has been rolling out private-label banking, a service that has been a success with customers. In setting up its in-store banks, Safeway has worked with Supermarket Financials, Cornelia, Ga.

Alton Wingate, Supermarket Financials president and chief executive officer, said, "The supermarkets utilizing our service are perceived by the communities in which they operate as going the extra mile in providing every possible service for their customers.

"The technology we have today has enabled financial institutions like CIBC to be able to put together a bricks-and-clicks operation inside the four walls of a supermarket. In turn, the customers see the banks and think it is a service provide by Safeway alone, which drives loyalty and sales."

Photo Finish

Digital technology has also helped supermarket operators reinvent their photo-finishing services.

Companies like Eastman Kodak and Fujifilm have created self-service electronic photo-finishing kiosks to be placed in supermarkets. Customers can use the touch screen of Kodak's Picture Maker to select what kind of prints they desire. Other kiosks can create digital pictures instantly for users from any type of readable image.

Albertson's said it is experimenting with self-service photo kiosks, and analysts told SN that Publix has also begun to install them in its stores.

The Face of the Future?

An informal poll of several industry analysts revealed interesting thoughts about the future of in-store services.

Jonathan Ziegler, San Francisco-based managing director of Deutsche Banc Alex. Brown, New York, said supermarkets can improve margins by branching out into nontraditional product lines.

"There's no reason you can't sell health insurance through Internet kiosks that are branded by the store. It extends the brand identity, and fortunately is less reliant on labor," Ziegler said.

He also noted that supermarkets could outsource other services, like pet-care and kennel services, as well as co-branded financial investment services.

"Adding services through outsourcing can add productivity and drive sales and margins," he said. "You can find a way to meet any customer's need, but your brand can rise and fall on these types of services. Ensuring quality service is the key issue here."

Douglas Christopher, analyst with Crowell Weedon, Los Angeles, said, "I don't see extra services like apparel sales and other services really helping supermarkets in the future. It doesn't fit. Sticking with what you know and do best is going to be the best policy in this economy."

All analysts agreed that expanding private label into all areas, and creating premium private-label lines is another "service" that supermarkets must perform for customers.

Commented Gary Giblen, senior vice president and director of research, C L King Associates, New York, "Some companies, like Safeway, are coming up with innovative products. As the economy slows, the best way to grab the gourmet customer's dollar is to offer less expensive private-label premium items. Also creating new, innovative private-label products that do not have brand counterparts can also drive sales and increase margins."

THE STATE-OF-THE SERVICES

BELOW ARE A FEW OF THE MOST POPULAR IN STORE SERVICES, AND HOW THEY ARE CURRENTLY ENVOLVING.

Service

Co-Branding

Where It's At

Starbucks coffee houses have invaded supermarkets across the country. Other companies have teamed with similar coffee retailers. Also, doughnut chains have been partnering with retailers seeking to lure in quick-stop customers.

Service

Self-Checkout

Where It's At

As labor costs swell and technology becomes more affordable, several retailers have been experimenting with self-checkout lanes. But even with positive user response, some retailers are not convinced the savings, which come at the loss of customer service, are worth the risk.

Service

Fuel Centers

Where It's At

The gasoline saga keeps unrolling, with Publix entering the market. But mass merchandisers and retailers operating in less-populated areas are the key players.

Service

Internet Kiosks

Where It's At

Though many supermarkets still aren't sold on the concept, retailers having been teaming with companies like Meals.com to offer Internet-enhanced meal solutions and coupon offers in the stores, and some have met with moderate success.

Service

Banking

Where It's At

Supermarkets have been pioneering private-label banking, as well as using the Internet to lower costs and increase margins. Banking in the stores has been growing, and retailers are starting to consider it a regular component of supermarkets.

Service

Photo Finishing

Where It's At

In the race for added margins and customer retention, supermarkets have expanded their photo departments. Some have even installed digital processing centers where customers can create digital images instantly from traditional photos.