ELECTRONIC TAGS MAKE A CHARGE

MARC MILLSTEIN

Electronic shelf labels are beginning to look like the real thing.

The electronic systems, which hold the promise of providing a wide range of enhanced productivity and merchandising benefits, have been involved in extensive testing for years. But until now questions about the considerable costs and long-term reliability of the labels have stalled any widescale installations of the innovative systems.

Not anymore. Suddenly, a flurry of activity is propelling electronic shelf labeling from the realm of just another futuristic vision to the reality of a hard-core merchandising tool.

Major chains, ranging from Vons Cos. and H-E-B Grocery Co. to Loblaw Cos. and Edwards

Super Food Stores, among others, have announced plans to install electronic labels in a large number of stores starting this year.

"Electronic shelf labels have been available in the marketplace for some time now, as we can all attest to. But there is a lot more interest in the tags today," said Ray Noland, director of store systems at Roundy's, Pewaukee, Wis. Roundy's now has electronic labels in place in three stores and is in the process of rolling out the program to an additional six stores in the year ahead.

H-E-B, San Antonio, has been testing electronic shelf labels for years. But the chain is now in the midst of installing the labels in seven stores and could have the system in place in up to 50 stores within two years, said Dick Silvers, vice president of management information systems at the chain.

"We are placing the labels in [quite a few] stores this year and plan to take a long hard look at them. If everything works out well, we could roll out the program at a rate of about 25 stores a year. I'm not ruling that out. I'm not saying that we are going to do that, but I believe electronic shelf labels offer a lot of benefits," Silvers said.

"I don't know how long it will be before these labels are in all our stores. But I think it's coming. It's past the bleeding edge now. It's closer to the leading edge," he added.

With electronic labels, retailers would be able to affix a small "permanent" device to the shelf to indicate product price, unit price and other key variables, including promotional information. The labels could be automatically programmed and updated by computer from either the store or chain headquarters.

The potential is for electronic labels to become commonplace in the industry within a few years and have a major impact on the strategic role pricing changes and point-of-purchase merchandising play in the stores, according to industry executives.

Among the potential benefits of electronic shelf labelling programs most often cited:

Pricing Accuracy: Pricing accuracy is an increasingly volatile issue in the supermarket industry. Electronic labels is one clear one solution to ensuring highly accurate pricing in the supermarket environment.

Lower Labor Costs: By enabling retailers to change prices instantly and accurately without employee handling of the labels, labor costs could be cut substantially.

POP Merchandising: The labels offer the potential for creating enhanced point-of-purchase merchandising opportunities as part of the system design.

Pricing Flexibility: The ability to change prices electronically could allow for more sophisticated pricing promotions, such as "blue-light" specials or other time-limited in-store programs.

The labels reportedly could also be used to provide expanded computerized shelf management capabilities by indicating more precisely where a product is, or should be, on the shelf, observers said.

Scott Pollina, MIS and logistics buyer at Topco Associates, the large cooperative buying group in Niles, Ill., said he expects to see retailers making substantial investments in electronic labels in the near future. "The technology is finally there, and labor rates are going up. I think that combination is boosting interest in this area. Plus, the mandatory [unless an electronic labeling system is in place] item-pricing legislation that was passed in Connecticut, and is being considered in California and New York, is a big concern," Pollina said.

"Price integrity is the big thing. It is very labor-intensive to mark every item. It is almost absurd. CEOs and upper management know that. So this may be the only way to go. I think within the next six months there is going to be some significant action in this area by our members," he added.

Topco's retail members include 33 chains with more than 3,000 stores, including Ahold USA, Dillon Cos., Dominick's Finer Foods, Eagle Food Centers, Giant Eagle, Penn Traffic Co., Randall's Food Markets and Smith's Food & Drug Centers, among others.

H-E-B's Silvers cited several potential benefits that should be realized as part of moving to electronic shelf labels. Chief among them is 100% pricing accuracy, he stressed. But it doesn't end there.

Many other factors, including flexible pricing, POP merchandising potential and return on investment, will have to be analyzed carefully before a final decision is made on how fast and how far to expand the program at H-E-B in the next couple of years.

"The first [benefit] we are looking for of course is 100% pricing accuracy. That is key to electronic price labeling. The fact that management and consumers can have absolute confidence that the price on the shelf can match the price on the scanner is critical. At our pilot store in San Antonio, we have found electronic shelf labels to be 99.8% accurate," Silvers said.

"We also did an informal study with several focus groups and we found that the customers shopping in the store with electronic shelf labels [more often] believed the price to be correct," he added. Silvers spoke about the benefits of electronic shelf labels at a Food Marketing Institute workshop earlier this year.

Silvers and other industry observers also stressed the need for electronic labels to provide greater capacity to switch product prices at will, quickly and accurately, and thus give retailers enhanced strategic merchandising capabilities.

"Another [potential] benefit is flexible, store-specific, real-time pricing. We think this is critical at H-E-B. It is not enough for an electronic shelf labeling system to provide accuracy. It must be flexible enough to provide quick response time with flexible price changes," Silvers said.

"At H-E-B, we were able to make over 9,000 price changes when we went [to everyday low pricing] in less than three hours, and that was with both electronic and paper labels. Nine thousand of them," he said.

Richard Green, a consultant at KPMG Peat Marwick, Costa Mesa, Calif., agreed. "The first and foremost benefit of electronic shelf labels is that it provides 100% pricing integrity. [But] they also allow for flexible pricing. They allow for making more frequent changes, and for addressing the whole subject of pricing in a more flexible fashion."

Topco's Pollina also cited several potential retailer benefits. For example, the enhanced accuracy of the labels can help prevent alienating customers inadvertently due to pricing errors.

"Let's say a customer comes into the store, and the price isn't right, whether it's not marked down to a sale price or just too high. That's an irritant to a customer and that's something a manager might never know about. But that customer might never come back to that store. [Electronic shelf labels] can help eliminate that problem," Pollina said.

The labels also have a merchandising message. "Everyone in this industry sells corn. But whoever merchandises that corn best is probably going to get the sale.

"I think this is one way of saying to our customer that we care about you, we want to make sure that the price we put on the shelf is the same price you are going to pay for it. I think this leaves something in the consumer's mind, that the store is technologically oriented and progressive," he said.

While the benefits of electronic shelf labels may be considerable, and retailers appear on the verge of committing to some widescale rollouts of the system, the key to full industry acceptance of the systems will remain the bottom line. At an estimated price tag of around $100,000 or more to outfit a single store, the electronic shelf labeling systems will have to prove their payback value -- big time.

The main reason "we started getting involved with electronic labels in the first place was the potential for reduced operating expenses. That is a key to the whole endeavor. Without significant reduction in the operating expenses there can be no justification of an electronic shelf labeling system," Silvers said.

"I am convinced that electronic shelf labels, when properly installed, provide reduced operating expenses. The question is how much and how quickly," he added.

"The typical amount for outfitting an average store is somewhere in the range of about $100,000 to $125,000," said Topco's Pollina. "From what I understand, it should be a one- to two-year payback on return on investment. But it is very hard to measure all the soft costs or savings. Labor is one thing you can measure. But some of the other benefits are harder to get a handle on."