GIANT EAGLE IN 'REVERSE' AUCTION SITE ON THE WEB

DAN ALAIMO

PITTSBURGH -- Giant Eagle here is said to be the first supermarket chain to embrace a Web-based "reverse" auction site for procuring products, operational supplies and services.

Giant Eagle started soliciting bids this month through FreeMarkets, an on-line service, also based here. "It's a wonderful-sounding concept," said Joe Faccenda, Giant Eagle's senior vice president of marketing and merchandising, in a published report. Faccenda did not return SN's call for comment and additional details.

"We want to see whether, in fact, the size of our business [can be leveraged] in this environment," he said. Giant Eagle won't use it to buy perishables or brand-name products. "We're talking about more commodity-type things," Faccenda said.

Giant Eagle operates 108 corporate stores and supplies 93 independents throughout Pennsylvania, Ohio and West Virginia.

"As a retailer in the highly competitive food industry, we're continually innovating our products, services and business practices," said David Shapira, Giant Eagle's chairman and chief executive officer, in a press statement. "We turned to FreeMarkets to explore ways of using their business-to-business auction marketplace to increase our profitability."

Bottled water is one example of a product a supermarket retailer like Giant Eagle might seek bids on, said Glen Meakem, chairman and CEO of FreeMarkets. A retailer might also seek bids for construction-related goods and services, as well as operating supplies and equipment, like checkstands, he said.

"You can create an auction marketplace in a situation where you as the buyer can specify what you want and there are multiple potential providers. That's a pretty rich target environment for a grocery store chain both for sell-through goods as well as items for the support of the business operation or construction," Meakem said.

Procurement auctions are open only to bidders approved by the bid sponsor -- in this case, Giant Eagle. The bidders take part in a real-time auction and are aware that Giant Eagle is the customer. This is a "reverse" or "downward" auction process, where the prices go down as the bidding progresses, he noted. This can potentially save the client 2% to 25% on purchases. "That depends on how efficient the market is for any given good or service," Meakem said.

Giant Eagle could also choose to participate in a more traditional "upward" asset auction, where a seller will put something up for bid and the participants will seek to obtain the item by outbidding the competition. This might involve excess inventory or used equipment obtained through asset recovery, he said.

Meakem speculated that a retailer like Giant Eagle could even put shelf space up for bid. "That is the kind of idea we could apply to the grocery industry and it could be transformational," he said. Giant Eagle is the first supermarket to participate in this kind of auction and Meakem said he is not aware of any other retailers doing this "and we are the leader in the space," he said.

"This is an example of Giant Eagle showing leadership in the use of Internet technology and Internet deployed services. This could be a way for Giant Eagle to save money and add to the bottom line and I think it is also an example of how the Internet is reshaping all industries. It is not just on the retail side with customers, but it is on the business-to-business side in terms of the relationships between companies and their suppliers," Meakem said.