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In challenging economic times, with competition from mass merchants growing, supermarket retailers have recognized the need to improve customer service in order to hold on to consumers. And their technology priorities, as measured in this year's SN technology survey, reflect that attention to the consumer.In SN's eighth annual State of the Industry Report on Supermarket Technology, supermarket executives
June 24, 2002
MICHAEL GARRY
In challenging economic times, with competition from mass merchants growing, supermarket retailers have recognized the need to improve customer service in order to hold on to consumers. And their technology priorities, as measured in this year's SN technology survey, reflect that attention to the consumer.
In SN's eighth annual State of the Industry Report on Supermarket Technology, supermarket executives said that store- and consumer-focused technology areas commanded the highest priorities in 2001 and this year. Those areas included category management, customer loyalty programs, point-of-sale systems and electronic payment systems.
This year, almost half (49%) of survey respondents said category management was among their companies' highest IT priorities, putting it first on the list. Category management addresses a critical weakness highlighted in a recent study by the Grocery Manufacturers of America -- out-of-stocks. That study found that, on average, only 92.6% of food and grocery products in the top 25 categories are available for sale to consumers at any given time.
Customer loyalty programs were tied for second on the 2002 high-priority list. "Supermarkets are losing to mass merchants, so they've got to do what they can to create loyalty to the store," said Barry Kotek, managing partner, Retail Systems Consulting, Naples, Fla. Everyday-low-price operators like Albertson's and Winn-Dixie, which for years avoided card-based loyalty programs, adopted them in the past year. Significantly, Wal-Mart, unwilling to "lose its EDLP image," has yet to implement a loyalty card program, giving supermarkets an opportunity in this area, noted Peter Abell, research director, AMR Research, who added perishables is another point of vulnerability for Wal-Mart.
Almost half of respondents currently have a card-based loyalty program, and almost all of those (96%) thought the programs were moderately (57%) or highly (39%) successful, while three-quarters said they were using the data from those programs for strategic marketing purposes.
Kotek predicted that retailer loyalty programs will eventually get to "customer-specific pricing" in certain areas. "Retailers are starting to realize historic pricing leaves a lot on the table. Why give 50 cents off to everybody?" he said.
Loyalty and category management programs draw data from data warehousing systems, which ranked third on the 2002 list, with 36% calling it a high priority. Moreover, 20% of respondents said they tested or launched a program in data mining, while 29% plan to do so this year. And 17% tested or launched data-intensive customer relationship management/targeted marketing programs last year, while 20% plan to do so this year. Retailers with loyalty programs need to pursue data mining and CRM to get past the "me-too" nature of many loyalty programs, said Kotek. Many of these retailers have now gone through the "learning curve" necessary to pursue more sophisticated data analysis and marketing programs, said Carlene Thissen, president of Retail Systems Consulting. All of the data analysis systems rely on accurate POS data, which is why many retailers are upgrading POS systems, observers said. "If the data isn't accurate, you're just dancing in the dark," said Jerry Morton, president, Store Systems Consulting and Marketing, Lawrence, Kan.
Indeed, 39% of respondents said that POS systems were among the highest IT priorities at their companies last year, putting it at the top of the list. For 2002, almost the same percentage (37%) said the same, making POS tied for second place.
Fourteen percent of respondents said they upgraded POS software applications on a wide scale last year, while 25% said they upgraded on a limited basis; for this year, those percentages jumped to 24% and 32%, respectively.
One company that recently indicated its intention to install a new POS platform is Penn Traffic, Syracuse, N.Y. Speaking at a first-quarter earnings conference this month, Chief Financial Officer Marty Fox said the company plans to replace its POS system over the next two to three years, with systemwide implementation beginning in the second half of this year.
"We expect this new POS system will enable us to get customers checked out of the supermarkets more quickly, increase labor productivity, improve shrink control, allow us to implement a greater variety of creative merchandising programs and facilitate the analysis of customer purchase data," Fox said.
Also tied for second on the 2002 priorities list is upgrading human resources, with 37% calling it a high priority, compared to 15% on the 2001 list. Hannaford Bros. is upgrading its HR systems this year with a Web-based application from Lawson Software, Minneapolis, which gives store managers and employees access to employee data.
In last year's technology survey, respondents expressed considerable interest in business-to-business e-commerce systems like trading exchanges, but respondents in this year's survey didn't end up following those sentiments. Just 12% of this year's respondents considered B2B systems a high priority in 2001. More regard it as a high-priority this year (25%), and 20% said they plan to be involved with one of major B2B exchanges, but time will tell whether they follow through. The potential of exchanges to "lower the cost of goods" through consolidated purchasing power has yet to be fully realized, said AMR's Abell.
Price optimization has gotten a lot attention in the past year as retailers like D'Agostino Supermarkets, Big V Supermarkets, H.E. Butt Grocery Co. and Winn-Dixie Stores have implemented or tested systems from software suppliers DemandTec, San Francisco, or KhiMetrics, Scottsdale, Ariz. Twenty percent of respondents described price optimization as a high priority this year, compared to 10% for 2001.
Another area considered a high priority for 2002 by 20% of respondents is data synchronization, compared to 8% for 2001. UCCnet, Lawrenceville, N.J., along with its retailer and manufacturer participants, is making a big push for additional contributors to UCCnet's global data registry, which ensures that trading partners are in sync with respect to item information.
More respondents, though a relatively small percentage (15%) are planning to invest in online shopping in 2002, an increase over the 8% who emphasized it last year.
Surprisingly, very few respondents (3%) said that CPFR was a high priority for 2002 or 2001, despite the interest expressed in collaboration by major manufacturers.
These were among the key findings of the technology survey, developed by SN's editors and conducted by Opinion Centers America, a marketing and research firm in Cleveland.
Mailed to corporate and IT executives in April and May, the survey elicited responses from 59 executives at supermarket companies representing more than 15,000 stores and more than $10 billion in sales last year.
The lion's share of respondents in this year's survey (93%) were retailers, with the rest being wholesalers or both. Respondents included directors (22%), chief executive officers (20%), senior vice presidents or chief information officers (19%) and presidents (17%), among others.
Other trends revealed by the survey include the following:
With overall capital budgets more constrained this year, less than half (44%) of respondents plan to increase their MIS budgets in 2002, one-quarter raising them between 1% and 10%. By contrast, 64% of respondents in last year's survey indicated they would boost their MIS budgets in 2001.
Reflecting the continuing consolidation sweeping the industry, 34% of respondents regard "integration of systems" as the greatest challenge facing IT this year. That topped the list of IT challenges, which also included "priority from top management" and "selecting the right technology."
Two growing in-store technologies, kiosks and self-checkout systems, were tested or launched by 14% and 7% of respondents last year, respectively; this year, 19% and 12% plan to do so. Almost half of respondents (46%) said they thought stationary self-checkout systems have strong potential.
Scan-based trading, a hot-button issue among trading partners this year, will be tested or launched by 17% of respondents.
Only 5% of respondents will test or launch electronic shelf labels (ESLs), suggesting that their time has not yet arrived.
Home shopping still registers low numbers among grocers, with more than half (53%) having no plans for online ordering this year. Just 10% of respondents offer full home shopping online.
Best-of-breed represented the most popular strategy for application upgrades, with 46% of respondents selecting it, while 39% said they would select new applications from existing vendors.
More than a third (34%) of respondents outsource none of their IT functions while almost half (49%) outsource less than half of those functions.
A significant percentage (44%) of respondents develop more than half of their IT applications in-house.
Surprisingly, 36% of respondents said the chief executive officer drives the company's IT vision, while the same percentage named the highest-ranking IT officer.
Regarding the prospects for home shopping, respondents said they see it as a long-term possibility at best. Almost all (95%) regard it as generating a negligible (5% or less) percentage of total grocery sales this year, but 37% said it would generate between 6% and 10% within five years. Among those who offer home shopping, 39% fulfill orders from the store, by far the most common fulfillment strategy.
While only 10% of respondents offer full home shopping online, higher percentages make use of their Web sites in other ways.
The leading site feature is company history (63% offering that), followed by store locator (56%), meal planning/recipes (56%), e-mail feedback from customers (51%) and job openings (46%).
E-mail feedback received a higher percentage of votes this year than it did in last year's survey (40%).
On the B2B side of the Internet, just 19% of respondents said they were involved in B2B Web trading last year.
Among those involved in a trading exchange, many benefits were regarded as being a major plus by less than half of respondents, including direct trading with specific suppliers (45%), auction buying (37%), combining buying power (45%), finding new sources of supply (45%) and exchanging new product information (46%).
A higher percentage of respondents thought of the following as a major benefit of exchanges: exchanging information about costs and promotional discounts (68%) and increasing the efficiencies of one's business (67%).
Loss-prevention technology remains a popular investment, with 80% of respondents using some form of it.
Closed-circuit monitoring (90%) and electronic cashier monitoring (78%) were the most popular technologies, while almost one in four (24%) said they were linking the two systems, and 29% plan to do so next year.
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