FMI MARKETECHNICS 2000-03-06

DAN ALAIMO

SAN FRANCISCO -- Consumers are finally emerging as the dominant focus of information-technology solutions, and the change couldn't come soon enough for the future health and success of the supermarket industry.

That was one of the messages delivered by three top industry executives during a wrap-up closing panel discussion at the Food Marketing Institute's MarkeTechnics show here.

Consumer-centric technologies, such as portable wireless ordering, interactive point-of-sale terminals, self-checkout systems and even a refrigerator that tracks customers' product usage, represent some of the most important IT trends to sweep the supermarket industry in some time.

"The vendors are bringing improved, complete solutions and they are bringing them all the way down to the consumer level," said Pat Steele, executive vice president for systems and technology at Albertson's, Boise, Idaho. "We can't forget consumers in this whole equation because if we are not doing things to drive sales and run our business, we are not going to be in business," he said.

"Technology is not going to be worth anything unless it makes the shopping experience better," said Michael Sansolo, senior vice president at the Food Marketing Institute, Washington, who moderated the session. "That seems to be something that some vendors -- maybe not all -- are getting this year. Clearly, we are going to see more of it."

With the growth of on-line shopping and a technology-savvy generation that will not be satisfied with the old way of doing things, retailers must respond or risk extinction, the executives said.

"We are seeing a big change in the consumers," said Kevin Holt, senior vice president for information technology services at Meijer Inc., Grand Rapids, Mich. "Consumers have a lot more information available to them and a lot more choices. It is a real challenge to us to come up with more ways to be convenient to shoppers and provide the services that they want."

Many ideas and concepts are being presented to help companies deal with "demand retailing," he said. "There's a lot of creativity out there. Over the next five years it will be interesting to see which of those really stick and prove to be good business models," said Holt.

Retailers must accept there has been a shift in power in the marketplace, said Natan Tabak, senior vice president of financial and administrative services for Wakefern Food Corp., Elizabeth, N.J. "The manufacturers used to have the power, then the power shifted to retailers and now the power is shifting to the consumers. The consumer has so many options, if we are not able to take the word 'supermarket' and make it something bigger, offering them additional value through the Internet or any other way, we are going to lose that consumer."

Once the mantra in supermarket retailing was "location, location, location," but with on-line ordering, location is becoming less important, he said. Customers don't care from where their groceries are delivered.

"The whole equation is changing and if we cannot get up to speed and understand that the consumer now has more choices and the ability to make a decision much quicker than ever before, we are going to lose that consumer," said Tabak.

"The consumers are going to drive the process," said Steele. "They are in charge and the retailers and the people who provide solutions to the customers' needs are going to win. And you have to provide them in a way that differentiates you from the competition, and in a way that locks the consumer in and keeps them there," he said.

Referring to such innovations as a "Dick Tracy" wristwatch that incorporates Internet browsing and cellular telephony, he said the industry can't face tomorrow's consumers with today's technology. "You are going to see things change fast in the next couple of years," he said.

"People who bundle that stuff together and simplify the customers' lives for shopping or ideas or information or anything else are going to be the winners. Those that continue to do it the old way are going to have a big problem. You can't separate the technology from the business, but you have to make sure the business comes along and drives what technology needs to provide. You can't let technology get too far ahead of the business or it is not going to work," said Steele.

Relating to the session's theme, "Outside the Comfort Zone," the executives agreed that the supermarket industry, including technology departments, has become too satisfied with its own success.

"The industry is in a comfort zone and the comfort zone is within our walls, and within our technology," said Tabak. "We are afraid to change the technology. We want to do incremental changes. I don't know what is going to happen this year or in the next year, but those of us who will continue to do incremental changes will just not be here. They will be swallowed up by the bigger guys or they will just go out of business.

"Some of them are out of business now because of that, only they just don't know it yet," he said.

Mergers and acquisitions are creating more demand for technology, but also on the part of smaller operators, Tabak noted. "The smaller guy is going to have to look to technology to get him by. Even though the larger companies can spend more money on technology, the smaller guy is going to have be smarter and utilize technology better," he said.

"The technology has enabled a lot of what is happening today," said Holt. "Today's global mergers and acquisitions largely are based on a business model formulated because of technology. We are beginning to have an environment today in retailing where there is the really big and then there is everybody else, and everybody else, at least in today's world, is a little worried about the really big," he said.

The key is competitive differentiation to meet the diverse needs of consumers, said Holt. "Over the next year, we will continue to see a lot of creative things going on." A few years ago, people in the "comfort zone" looked at new business models and said "that will never work," and it was hard to understand the initial public offerings and market valuations of the Internet companies. "We will see a lot of change, a lot of new creativity, and I think it is because people are learning how to harness some of these new business models that are possible with technology. I think also that people are not comfortable anymore, they are trying to survive. I know that is how we think about it," he said.

The ability to spend money on technology does not preclude market incursions by innovators. For example, HomeGrocer, Peapod and Webvan are new competitive ventures. "Any one of us, big or small corporations, could have created an Internet subsidiary, generated the capital and done the same thing, but we didn't do it," he said.