PROPELLING THE EAGLE

MICHAEL GARRY

Some years ago, Giant Eagle was very aggressive about technology spending. Then, like many companies, it focused on getting through the Y2K transition. Now it takes a more measured approach, concentrating on areas where technology can add real value.

Adding value means "supporting the organization's objectives: to take out cost and become the best food retailer in the world," said Robert P. Garrity, the chain's senior vice president, information services, who has led its 200-person IT department for the past two years and has been with the company for six. SN spoke to Garrity at his office in Giant Eagle's sprawling Pittsburgh headquarters.

Garrity's department is both supporting and driving the growth of the $4.4 billion, privately held company with 213 stores, including 124 corporate locations and 89 independently owned stores that are licensed to use the Giant Eagle name. "We want to be a catalyst for a new Giant Eagle," he said.

Giant Eagle, which started in 1931, with roots as far back as 1918, hopes to see its business soar in a way befitting its moniker. As it ventures beyond its core market areas of western Pennsylvania, eastern Ohio and northern West Virginia, the chain plans to double its sales to $9 billion over the next five years, said Chairman and Chief Executive Officer David Shapira.

And IT will play no small role in that growth, if Garrity has his way. Indeed, he is providing the kind of leadership that IT executives should find instructive as they convene this week at the Food Marketing Institute's IT Leadership Forum in Bal Harbour, Fla.

Garrity's basic strategy is for IT to be a business partner for the chain. The IT department, he said, "is not here for the technology. We have the perspective of a retailer, so we need to know the strategy of the business and seek alignment with it."

A good example of that is how IT supports the company's strategy to run departments like pharmacy and video as though they were individual businesses that compete against best-of-class operators in those categories. To support that philosophy, Garrity noted, the finance department is able to use the PeopleSoft application to generate profit/loss statements for each business line separately. "We want business leaders to take an entrepreneurial approach and understand how to drive their businesses," said Garrity.

Garrity is now putting a new emphasis on coordinating Giant Eagle's overall enterprise IT architecture to ensure seamless integration and harmony across its many applications, both new and old. "We are looking at applications to see where one may be operating on its own," he said. "We're requiring that applications all play together well.

"Knowing how all the applications work into the overall architecture is an important element before you push the button," he added. "And the more we rely on technology, the more important it is that we have no missteps."

Giant Eagle bases its enterprise architecture on a few industry standard platforms, including Microsoft for most front- and back-office operations, Oracle for the data warehouse, Unix (mostly AIX) and some Sun technology for its Web site. The chain runs an IBM 4690 platform for point of sale, and is almost done replacing IBM's Supermarket Application with its ACE POS system. Deviating from established platforms requires an ROI analysis to see if it makes sense, said Garrity.

To ensure that the data it receives from its independent stores are standardized with data from corporate stores, Giant Eagle has its independents using the IBM POS systems. Otherwise, other corporate technology is made available to the independents, but not required.

Giant Eagle's IT department has many of the traditional divisions, such as help center, retail systems support, technical services, and applications engineering. But the department also employs "technical advisors," point persons who work in the four main business units of the company -- retail operations, retail support centers (distribution centers), merchandising and marketing -- and report back to Garrity on technology ideas that could help their particular divisions.

"The advisors understand their division and the opportunities for cost reduction and a better shopping experience," said Garrity, who was a consultant before joining Giant Eagle.

The advisors' role -- helping to understand the value of technology -- has received greater emphasis, he said, in an economy where it is more important to "spend money wisely." Indeed, Giant Eagle has been maintaining a cap on IT spending, though technology still represents about 1% of sales. Garrity believes that Giant Eagle, as a privately held company, has an advantage in not having to answer on a quarterly basis for its technology investments.

Garrity has worked hard to strike a balance between the basic, and often underestimated, maintenance role of IT, and the more developmental role the department plays. In fact, the IT budget is split down the middle between maintenance and development. "After a technology is in place, the payback comes from keeping it running so people can use it," he said.

Wireless Infrastructure

Giant Eagle generally measures technology investments by ROI or IRR (internal rate of return), but Garrity acknowledges that there are expenditures, such as those in infrastructure, that "don't lend themselves to IRR."

Indeed, the chain is moving seriously toward developing a wireless infrastructure in its stores, warehouses and corporate office. In its stores, Giant Eagle is upgrading an existing proprietary wireless infrastructure to the new 802.11b standard, which "will give us the opportunity for more applications," including line-busting POS, shrink evaluation and greater mobility for managers, said Garrity. "We're moving to PDAs for store managers so they can access information wirelessly and make decisions such as overrides without needing to go to the front end."

Giant Eagle's current wireless applications include two production-planning systems for perimeter departments that tell stores how much product to make based on customer demand. For meat production, the chain began rolling out the PeriScope application from Invatron, Mississauga, Ontario, to 100 stores in July; for bakery and prepared foods, it is using a system from Eatec, Emeryville, Calif.

In both cases, wireless handheld devices from Symbol are used to check shelf stock and determine perpetual inventory levels. The upshot has been a reduction in shrink in perimeter departments between 1% and 2%, resulting from more efficient production and markdowns. "It looks at traffic and gives us the right amount of product when we want it," said Garrity.

The chain is also piloting a wireless PDA-based temperature probe in a few stores to check that perishables are being stocked at the correct temperature. The probe, called Versid, is from Tangent Systems, Charlotte, N.C. Garrity said he is also looking at moving to a wireless version of its self-service deli kiosk, from InterMedia, Owings Mills, Md., installed in 53 stores.

Another major new store implementation is a conveyor-belt self-checkout system, from Productivity Solutions, Jacksonville, Fla., installed in 65 stores. Garrity said that the chain has not decided on whether this will be a chainwide implementation. "We see it as primarily a benefit to customers in stores where we can't hire enough people to man the checkouts," he said. "Though if customers have an interest in using self-checkout, that may be an influence."

Giant Eagle selected a conveyor-based self-checkout system, rather than a so-called "scan-and-bag" system because customers are using it for both large and small orders, Garrity said. He noted that self-checkout shoppers also like the opportunity to observe their scanned purchases on the display monitor at their own pace.

While Garrity said that Giant Eagle prefers to buy third-party applications rather than build them in-house, the chain has developed several of its own applications. In the last quarter, for example, it has been building a new retail-pricing and direct-store-delivery system that calculates and disseminates pricing to stores and shelves. "Pricing is key to us," he said, and what the chain needs could not be achieved through a packaged solution without a great deal of tweaking. Giant Eagle is looking at adding on a price optimization system from a third-party vendor to its home-grown system.

Giant Eagle is known to have a robust loyalty card program, called the Advantage Card, with some 80% of shoppers signed up. Using loyalty card data, the chain has developed a "Taste of Value" program, whereby it sends personalized offers by regular mail 10 times per year, as well as weekly e-mails to registered shoppers that are "increasingly personalized," said Robert Borella, Giant Eagle's director, corporate communications. Data-mining software from Valassis Relationship Marketing Systems (VRMS), Shelton, Conn., as well as demographic data and tools from Spectra Marketing, Chicago, are used to support the Taste of Value program.

Leveraging Knowledge

Direct marketing relies on Giant Eagle's 12-terabyte, Oracle-based data warehouse, which holds front-end transactional information as well as all manners of business intelligence. At six years of age, it is still evolving. "We are more sophisticated in the way we pull information to satisfy target-marketing objectives as well as business analysis so our executives can see what's happening and make adjustments," said Garrity.

Giant Eagle is also making extensive use of its data warehouse as a repository of intelligence about the company and its operations in a knowledge-management program called "Knowasis." "We codify the information and make it available throughout the organization," he said. "It's very important to everything we do."

For example, if a local store creates a chicken basket promotion that is a hit with customers, information about it is "captured as knowledge" and put into the database so that it can be accessed by other stores.

But getting the company to leverage the growing knowledge base, Garrity acknowledged, represents a culture change. "It's not how they operated in the past," he said. In performance appraisals, executives are required to make a written commitment to contribute to and take advantage of this strategic information.

Borella said that in his trips to stores he observed that managers were "keyed into" new technology. "They know about the data warehouse and Knowasis and every department manager was using it and comfortable with it."

The data warehouse employs data management and storage software from EMC, Hopkinton, Mass., as well as content management packages from Open Text, Waterloo, Ontario. To disseminate business intelligence throughout the chain, Giant Eagle has developed its own Web-based portal.

Joining UCCnet

On the supply side, Giant Eagle was planning to shortly announce that it is joining UCCnet, Lawrenceville, N.J., for data synchronization with suppliers. "There's an opportunity to reduce the cost of the overall system if we cleanly trade information with our suppliers," Garrity said. "A clean communication flow can help prevent errors and re-work."

The chain also conducts reverse auction activities through FreeMarkets, Pittsburgh, and the WorldWide Retail Exchange, Alexandria, Va. (of which it is a member), as well as a private exchange for store equipment with Hubert Co., Harrison, Ohio.

In April, Giant Eagle signed on to use Category Business Planner, a category management intelligence system from ACNielsen, Schaumburg, Ill. CBP reports product sales according to Giant Eagle's unique product category definitions, enabling the chain and manufacturers to work from the same information when developing category plans.

In addition, Giant Eagle is piloting an application from SmartOps, Pittsburgh, in order to make purchases at the "best net landed cost," while reducing inventory and maintaining service, said Garrity. The system looks at how much to buy, when to buy, how to transport and how much to store, and suggests a purchase price, amount and transport plan.

A "major success" in the distribution centers has been a voice-directed picking system from Vocollect, Pittsburgh, which has resulted in a "dramatic" reduction in mis-picks. The system is used in four of the chain's five DCs, and will be used in the fifth.

In regard to its online consumer activities, with the exception of offering shopping, which it is considering, Giant Eagle has a robust Web site at www.GiantEagle.com. At the site shoppers can access past purchases, create lists, do meal planning, order prescriptions, start a savings plan to pay for college tuition, and receive electronic coupons. It sends out an online newsletter and other e-mail to registered shoppers.

Garrity said Giant Eagle is close to a one-store pilot of online shopping, on which it is working with Independent Delivery Services (IDS), Windsor, Conn. While he remains uncertain of current prospects for online shopping, Garrity thinks there is an interest in it and expects a demand for it in the future.