TECHNOLOGY DIFFERENCE

LIZ PARKS

Independents are investing in technology to be competitive, provide added value to their customers, streamline operating costs, and create a significant marketing point of difference.

Yet as the retailers profiled below illustrate, they have different ways of approaching technology. Some independents have the confidence and connections to do it on their own, based on their specific business models. Others look for help from their wholesalers or other third parties.

Lees Markets, an upscale, 54,000-square-foot supermarket in Westport, Mass., is one of the first independents to develop a customer purchasing database. It develops its technology internally working with local hardware and software vendors.

"We say what we would like, and our vendors help put it together," said owner Al Lees III. "Technology is easy to purchase, but you have to fully utilize the capability of what you have. Many retailers don't."

Lees spoke about using technology to not just meet customer expectations, but to exceed them. "What we do differently is sort our database to identify our best customers. Then we try to exceed their expectations, for example, by sending them thank-you letters that they are not expecting."

Lees' strategy is to sort out its best customers based on three tiers of spending: Tier one gets a 5% discount on all purchases made in the store on any day between Thanksgiving and New Year's; tier 2, a 10% discount; and tier 3, 20%. These offers are sent to about 2,600 people. Lees said he has had purchases "as high as $3,000 coming out of that one targeted promotion."

Currently, Lees is using its customer database to identify what he calls "areas of opportunities." These are new categories, with "higher-than-average growth rates," ranging from perishables to wine and packaged goods, that Lees is testing throughout the store. The categories were identified through research that Lees did on the purchasing histories of its customers, especially their "affinities" for products. "We reasoned if someone has an affinity for a certain type of product, they may have an affinity for other items that have similar characteristics," he said. "We've had some very good success with it, and I think there are other opportunities throughout the store."

Efficient Purchasing

At Knowlan's Super Markets, a seven-store retailer in Vadnais Heights, Minn., Ed Doud, director of retail technology, is staying competitive and keeping costs down by using various vendor applications, such as Distributed Intelligence Systems' Ingen retail software modules for category management, computer-assisted ordering and rules-based price management. Ingen includes a multitude of integrated applications. (Knowlan's was the winner of SN's Technology Excellence Award in the independent category in 2003.)

"When we match up the rules-based costing system that our wholesaler, Supervalu, has with our computer-assisted ordering program, we can purchase more efficiently," said Doud.

Doud said Knowlan's has been doing computer-assisting ordering as part of a perpetual inventory system for the past four years. The recent integration with Supervalu's rules-based system "was a natural evolution into becoming more efficient."

Knowlan's is also in the process of rolling out JDA's Portfolio Workforce Management system, which utilizes biometric time clocks. Doud said the Web-based system, which will be completely installed by the end of the first quarter of this year, will use "sale/item/customer/production demand to help store personnel produce the most cost-effective schedule to meet business demands. Store-level managers, even in small departments like frozen and dairy, will be able to forecast their labor needs more accurately," said Doud, who added that "labor is not just our largest expense after inventory. It is our most critical.

Outsourcing Strategy

In Ontario, Calif., Jeff Provenzano, chief information officer for Pro & Sons Ranch Market, a soon-to-be 10-store supermarket company catering to the upscale Hispanic shopper, said technology is pivotal to its operations. Rather than handle it entirely in-house, however, Pro & Sons has been very successful in outsourcing part of its technology to Plano, Texas-based StoreNext, a supplier of retail technologies to independent grocers and small chains, and a joint venture of Fujitsu and Retalix. "Technology is critical to our success," said Provenzano. "We use it to streamline costs and level the playing field against larger competitors."

By using StoreNext's Web-based Connected Service application as the host system for all sales analysis and reporting tools, Provenzano said Pro & Sons has been able to become more competitive and efficient. "With an Internet connection, we can analyze item sales, gross profit percent [and] average item prices across our 13,000-item file at all 10 stores."

Connected Services is the host system for the Fujitsu ISS45 point-of-sale system that Pro & Sons uses throughout its chain. "We're able to bundle, in a nice user-friendly format, all the information we need to manage our business," said Provenzano.

In the very near future, Pro & Sons will be using Connected Services as a loss-prevention tool to monitor all its POS transactions in order to reduce shrink from the front end. It's also working on putting pricing and promotion management on Connected Services, so it can control pricing from its corporate office.

By not having to deploy any hardware or software, or not having to hire people to maintain those systems, Provenzano said Pro & Sons has saved itself approximately $200,000 to $250,000 in labor costs alone.

Pro & Sons also invests in technology to manage its labor. It's currently using Electronic Timeclocks from ADP's Etime Software to manage time and attendance. "This application," said Provenzano, "integrates seamlessly with ADP's Payroll and HR Management System."

Provenzano is also working on rolling out an intranet in the first quarter of 2005. The intranet will enable his employees to access important company documents on the Web from one centralized location, which will, he said, "streamline internal communications." Mike Brown, general manager of retail technology for Commerce, Calif.-based Unified Western Grocers, a retailer-owned, wholesale grocery cooperative that supplies independent grocers throughout the western United States, including Pro & Sons Ranch Market, uses StoreNext as its technology solution partner.

"We have over 2,500 independents in our customer base," said Brown, "and we try to provide solutions that will give them a competitive advantage over the chains. Independents today have the advantage because there are companies out there like StoreNext which focus their business model on the independent. That makes technology so much easier to deploy."

UWG has developed a gateway to the Connected Services application on its Web site, making it very easy for its member/owners to access applications currently ranging from category management to data warehousing tools.