IS THIS THE YEAR FOR ESLS?

MICHAEL GARRY

Supermarkets are famous for being cautious adopters of store-level technology. It took a good decade before checkout scanners were installed in half the supermarkets in the U.S. It's been more than two decades since electronic shelf labels emerged, and they still haven't found mainstream acceptance in the industry.

Still, ESLs have been making progress in recent years, and some observers believe the stage is set for 2003 to be the year in which the electronic labels make their biggest move yet.

The case for ESLs has always been fairly straightforward: By replacing paper shelf tags with permanent plastic LCD pricing modules, a supermarket can effectively automate the pricing and price-changing process, eliminating the paper and manual labor required to change shelf prices. Changes in pricing can be easily executed from a back-room PC and communicated, usually by radio frequency, to the tags, allowing retailers to hold special promotions on the fly. And in Connecticut, ESL users don't have to individually price items that are priced with the electronic labels.

While the hard savings from ESLs come from labor efficiencies, soft benefits related to consumer satisfaction are also cited. In particular, the consistency in pricing between the shelf tag and the scanner, made possible by use of a single database for both systems, means that consumers will almost never find a discrepancy. That also spares retailers the fines and bad press pricing errors can elicit.

Recognizing the hard and soft benefits offered by ESLs, most retailers have nonetheless been held back by cost. With labels running in the $7- to $8-per-unit range, a single store with 20,000 ESLs becomes an expensive proposition.

But the major ESL vendors argue that the cost of the labels has dropped down to about $6 each, installed. Moreover, they say, ESLs can now be used for other applications, such as re-ordering and planogram maintenance. Perhaps most significantly, they say, ESLs can work synergistically with the new wave of price optimization software that a growing number of retailers are testing; ESLs make it possible to easily execute the pricing changes recommended by the software.

Already, Safeway UK has announced it will be using ESLs from NCR together with price optimization software from KhiMetrics, Scottsdale, Ariz. (SN, Nov. 18, 2002, Page 33.) In the U.S., Big Y, Springfield, Mass., is using the KhiMetrics software and ESLs from Telepanel in some stores.

The labels themselves have also become smaller and less obtrusive, so they no longer get in the way of other signage the merchandising department may want to put up, noted Jerry Morton, president, Store Systems Consulting & Marketing, Lawrence, Kan.

NCR, Duluth, Ga., which gave ESLs a boost a few years ago when it became the first large-scale vendor to enter the market, has installed about 2 million tags worldwide, about 850,000 in the U.S. U.S. retailers include Shaw's, Stop & Shop, Knowlan's, Binghamton Giant Markets and BJ's.

Marc Lynn, director of RealPrice, NCR's ESL division, is upbeat about prospects for ESLs. "We've gone from retailers in Connecticut and smaller retailers outside Connecticut, to tier one players seriously looking at it," he said, adding that one of the top four U.S. supermarket chains plans to announce a pilot in the first quarter and two of the top five general merchandise chains "are currently piloting or will pilot ESLs" in the first half.

"We've never had so much interest," added Garry Wallace, chief executive officer, Toronto-based Telepanel, NCR's chief rival in North America. He expects "two or three" major retailers to roll out labels to dozens of stores in 2003, though he thinks the real action will happen in 2004. Consultant Morton thinks it will be 2005 before we see "significant movement."

Lynn believes that dropping price points, along with additional functionality at the tag, are driving interest in ESLs. NCR's latest version of ESLs, dubbed RealPrice, offers four display sequences -- such as card program, planogram, shelf-talker and next delivery -- encompassing 16 screens of information.

For example, under the card program application, an ESL can display a regular retail price, and then the reduced price and savings available via the loyalty card. The planogram application allows the ESL to display the exact location and number of facings a product is supposed to get.

In the first quarter, NCR plans to release a "Remote Button Activator" device that would allow employees to change the readings on the ESL without touching it, thereby preserving the life of the label, said Lynn.

Tying ESLs to Inventory

One of NCR's more innovative customers is Knowlan's Super Markets, Vadnais Heights, Minn., a Fleming-supplied independent that operates five Festival Foods and two Knowlan's stores. The company has deployed NCR's version two (DecisionNet) labels in four Festival stores and installed the RealPrice labels in its newest Festival store opened in November. The ESLs are not considered appropriate for the smaller Knowlan's outlets.

This month at its new Festival Foods store, Knowlan's is implementing a stock count ESL application linked to its perpetual inventory system, said Edward Doud, director of retail technology for Knowlan's. With this application, employees will be able to use the ESL to display the stock count for an item as determined by the inventory system and "make a quick check of what's on the shelf and see if they match," he said. "If there's damage or theft, you can do a stock adjustment. Or, if there's an out-of-stock you can push the button on the ESL and see if there should be an out-of-stock."

Knowlan's also plans to employ the planogram compliance application, said Doud. When this is in place, the ESLs will be programmed so that one push of a button on the ESL yields a product's UPC, a second push its stock count and a third push its shelf location. Doud said he is interested in using the Remote Button Activator device when it becomes available.

Doud said that the Festival stores use ESLs for about 15,000 items, up to 75% of all stockkeeping units. Perishable meats with scale labels are excluded, as are produce items without UPCs, and a small number of spice items. The stores average about 3,000 regular and promotional price changes per week, as much as twice the number changed before the ESLs were installed, said Doud.

Knowlan's decided to install ESLs to eliminate the need for employees to apply paper price tags, re-deploying those employees into its evolving computer-assisted ordering, perpetual inventory and category management areas, and also to bagging at the checkout, said Doud. In addition, the ESLs have enabled Knowlan's to speed up the execution of price changes from Fleming; what used to take a week now takes less than a day, he said. Promotions can be implemented without the need to hire overtime help.

Knowlan's has also reaped the benefit of greater pricing accuracy at the checkout as a result of the ESLs. "Any exception events at the register slow down a smooth front end, but now accuracy is excellent," said Doud.

Consumers appreciate the greater accuracy and some find that prices are more clearly marked and easier to see, especially on the bottom shelf, where they are angled upward, said Doud. The labels need to be protected from shopping carts, h e noted; Knowlan's does that by installing a protective "kick plate" along the gondola that absorbs bumps from carts.

While Knowlan's doesn't use price optimization software, it does run price modeling software, part of its CAO package from DISI, Jacksonville, Fla. The modeling application analyzes how to increase a category's margin via price adjustments.

Doud doesn't plan to adopt price optimization in the near future because of Knowlan's modest size and the cost of the software, but he sees great potential in the marriage of price optimization and ESLs. "That is the future," he said.

But James Tenser, principal, VSN Strategies, Tucson, Ariz., pointed out that retailers need to be cautious that they don't overuse price optimization when it's linked to ESLs. "If you change prices too frequently, you can create the impression with consumers that you can't be trusted," he said.

In terms of hard labor savings alone, the ESLs generated a payback on Knowlan's investment in about two years, said Doud, adding that that was sufficiently fast for Knowlan's. He declined to reveal the initial investment.

Benefiting in the Nutmeg State

Another user of ESLs, Shaw's Supermarkets, West Bridgewater, Mass., has installed them only in its 18 stores in Connecticut, where the chain can benefit from the item-pricing exemption law. Three of the stores use NCR's RealPrice labels, and the rest employ labels from ERS, which is no longer in business; Shaw's plans to replace the ERS labels with NCR's over the next fiscal year, said Jeffrey McGovern, Shaw's director of retail process and systems improvement. Three other Connecticut stores without any labels will get them during remodels or resets.

Shaw's operates in five other New England states, two of which, Rhode Island and Massachusetts, also require item pricing. Massachusetts has been considering an item-pricing exemption for ESL users, but has yet to adopt one; in Rhode Island, retailers can get an exemption, though it has not yet been legislated, said NCR's Lynn.

That leaves Connecticut as the only state in which Shaw's has installed ESL, though it is running a test in Massachusetts. "There's a big savings in not item pricing," said McGovern. "But given the number of price changes we make, there's not enough economic feasibility to go ahead with ESLs in non-pricing states."

In no more than 10 minutes, Shaw's makes between 500 and 600 ESL price changes per week, out of a total of about 2,000 changes, McGovern noted. In ESL stores, electronic labels are posted for 20,000 out of Shaw's 30,000 SKUs. Shaw's also uses the labels to see reorder points in conjunction with its computer-assisted ordering system.

McGovern said that stores with ESLs have fewer discrepancies between scan and shelf prices than non-ESL stores, though he could not be specific. Shaw's guarantees scanning accuracy in all stores, and compensates shoppers for errors.

Another major North American ESL vendor is Telepanel, which pioneered the technology in the 1980s. Today more than 2 million Telepanel labels are installed worldwide at close to 200 stores, including such U.S. retailers as A&P, Big Y, Doll's Market, Giant Foods (Landover) and Adam's Super Food Stores. IBM markets the shelf labels to tier one retailers in North America, while Telepanel and other resellers address smaller retailers.

While both Telepanel and NCR incorporate RF technology, there are differences in their systems. Telepanel's communication network conforms to the 802.11b standard used by companies like Symbol, whereas NCR's uses a 2.4 gigahertz hopping spread spectrum network.

Telepanel's system communicates with tags via a transceiver and antenna built into each gondola while NCR communicates directly to tags. CEO Garry Wallace said the company plans soon to move to a more "componentized" model without an antenna that is easier to install and reconfigure.

Telepanel's labels both receive and transmit signals while NCR's receive signals but "reflect" them back.

A one-store independent that has found Telepanel ESLs beneficial is Doll's Market, Louisville, Ky., another Fleming-supplied retailer. Owner Bob Doll, who invested in the technology five years ago for his 24,000-square-foot store, said that the labor saved in making 600 to 700 price changes weekly equates to one full-time employee.

Based on that and other savings, Doll figures his $120,000 investment was recouped in between two and three years. "Overall, I'm more than satisfied," he said. He applies ESLs to 15,000 out of 25,000 SKUs, including many upscale gourmet items not available elsewhere in his market.

Doll noted that the ESLs eliminate the pricing discrepancies that result from failure to hang paper tags or from paper tags coming off the shelves.

Will this be the year for ESLs? The jury is still out. Even ESL proponents like Knowlan's Doud admits that ESLs may be harder to cost-justify in states with lower wages than his state of Minnesota.

And it also helps Knowlan's that it's a small chain that can install labels chainwide. A chain with both ESL and non-ESL stores would face a "layer of complexity" that he doesn't have, he said. One such chain, Shaw's, believes the best payback remains in Connecticut, with its pricing exemption.

But Bob Doll, who operates in Kentucky with no item pricing requirements, said ESLs have "made our life easier."