THE VANGUARD OF TECHNOLOGY

MARC MILLSTEIN / -- DENISE ZIMMERMAN / CHRIS O'LEARY

Linking the power of computer networking with an astute grasp of human nature emerged as the key to success for many leading-edge retailer and wholesaler initiatives this year.

In areas from loss-prevention and frequent shopper programs to World Wide Web pages on the Internet and portable handheld scanners, the most successful explorers of new technology, more often than not, were distributors with a clear vision of

systems capabilities and limitations as well as staff and consumer motivation.

The need to take both computerized systems and shopper behavior into account was evident at A&P, Montvale, N.J., which launched a frequent shopper program this year based on the premise that cash, not coupons or gift items, is what will motivate customers to shop and spend more in their stores.

"People want cash. They don't want a coupon or gift box or something like that," said Lawrence Zimmerman, A&P's vice president of systems development. The chain, though, is using technology to identify precisely who is shopping their stores and which customer segments to target.

On another front, Independent Grocers Alliance, Chicago, may just be the leading distributor thus far in making the greatest use of both the Internet and the World Wide Web.

IGA, hardly considered a powerhouse in implementing leading-edge technology, has harnessed the power of the Internet to upgrade its entire communications links involving retailers and suppliers worldwide.

The alliance is also forging ahead on the World Wide Web, and is aggressively targeting users with a second generation site while most other distributors are taking a wait-and-see attitude.

"Like most web sites, ours will be constantly under construction because we are committed to making the page a useful and entertaining tool for consumers," said Jim Anderson, vice president of finance and management information systems at IGA.

At Price Chopper Supermarkets, Schenectady, N.Y., surveillance cameras and a militia of "shrink auditors" are both playing important roles in reducing losses at the chain.

A&P, IGA and Price Chopper are just three of seven chains with leading-edge programs that are profiled here. Other distributors forging ahead in innovative ways include Wegmans Food Markets, Rochester, N.Y., in the area of continuous replenishment; Wakefern Food Corp., Elizabeth, N.J., with its advanced computer-generated ordering program; Finast Supermarkets, Maple Heights, Ohio, with customer handheld scanners, and Hannaford Bros., Scarborough, Maine, which has launched a consolidated ordering test program.

At Wegmans, A Devotion to CRP

ROCHESTER, N.Y. -- Wegmans Food Markets here has found true faith in the form of continuous replenishment programs, which now involve about 70% of the retailer's total grocery inventory volume.

Wegmans is considered to have one of the most progressive and extensive CRP initiatives in the industry. The chain now partners with about 50 vendors through more than 90 shipping points, and may increase CRP vendor involvement by 20% in the next year.

It is also nearing its goal of using CRP to cut warehouse days of supply, out-of-stocks and purchase-order lead time by 50%.

Getting the maximum benefit from CRP means relinquishing much control over purchase orders and inventory management to manufacturer partners, Wegmans told SN.

"Manufacturers are totally controlling purchase orders and Wegmans' warehouse inventories," said Tom Adelsberger, manager of inventory management systems, earlier this year.

The chain uses electronic data interchange to send manufacturers daily status reports on their products in its distribution centers. The retailer supplies such information as the balance of stock on hand and on order, the number of cases shipped to stores on the previous day and the number of out-of-stocks.

Manufacturer partners create a purchase order and electronically send it to Wegmans, where the purchase order is reviewed by the retailer's staff. If there are no adjustments, the manufacturer then fills and ships the order.

Wegmans stressed that manufacturers must be technologically equipped and have a top-level commitment to make CRP work. The retailer weeds out unqualified candidates through an exhaustive interview process with potential partners and Wegmans' distribution and warehouse staff.

CRP is spurring category sales for Wegmans' partners, Adelsberger said. One cause of increased sales is the growth of streamlined manufacturer promotions, where only marginal excess stock remains at the end of the promotional period, Adelsberger said.

Because CRP partners can use Wegmans' sales data to accurately determine how much product is needed, a large amount of backup inventory is no longer required, he added.

Price Chopper Slashes Its Losses

SCHENECTADY, N.Y. -- Catwalks, color surveillance cameras and security tagging fill a large part of the arsenal in Price Chopper Supermarkets' battle on shrink, but it's a militia of loss-prevention auditors that are winning the war.

Most retailers know they can't ignore how mounting losses are chipping away at profits, but few invest in new technology and programs as aggressively as Price Chopper. The retailer's loss-prevention initiatives have succeeded in keeping shrink within corporate tolerance levels of 0.5% of sales in grocery and 1.5% in general merchandise for two years running.

By comparison, the industry overall reports a higher average rate of shrink -- nearly 2% of sales in 1994. Many retailers suffer larger losses.

Dave Proper, vice president of loss prevention and internal auditing, credits the program's success to the development of a team of shrink auditors. Analyses conducted regularly at all stores, as well as headquarters and warehouses, uncover problem areas and form the basis for "action plans" that enable the chain to customize technology and deploy practices accordingly.

Color closed-circuit TV cameras are a key part of the chain's loss-prevention strategy.

"There's so many things you can miss with black-and-white" surveillance cameras, Proper said, noting that color equipment delivers finer detail, especially when monitoring cash handling activities: "There is absolutely no comparison."

The chain is installing color cameras in about 90% of all new stores, he told SN.

Though color equipment is far more expensive than black-and-white, Proper said the investment is justified because it not only protects against theft but provides better documentation if lawsuits are brought against the chain.

"Today cameras are a must, but in a lot of locations, catwalks are the way to go," Proper said.The 4-foot-wide elevated platforms have been installed in more than half the chain's 81 stores and about 30% to 40% of new construction. The catwalks run the full length of the store's front end and are concealed by one-way glass.

"It's a great observation point," he added.

A Cash Business For A&P

MONTVALE, N.J. -- A&P is putting its money where its mouth is with a frequent shopper program touting cash and gift incentives.

The chain here has launched a program targeting what it calls moderate shoppers -- 20% of customers who account for 35% of sales -- by offering incentives for stepping up to a series of higher spending brackets.

The incentives range from a free gift, such as a pound of coffee, at the bottom rung of the program to cash vouchers of increasing value for use in A&P stores for customers ringing up the largest sales increases.

A test of the program was conducted this spring in nine A&P divisions involving 100 stores and 200,000 customers. It is expected to be rolled out to a much larger number of stores across the chain later this year and in 1996.

"I would suspect that we will be rolling out the program to all our stores. It has proven that successful," Lawrence Zimmerman, A&P's vice president of systems development, told SN earlier this fall.

Zimmerman declined to provide details on sales increases generated from the program, but said some consumers, for example, doubled their shopping levels from $250 to $500 during the test period.

One tenet of the program was that cash awards -- not product coupons or limited discount offers -- represent the most effective way to attract customers and build loyalty with a frequent shopper program.

"People want cash. They don't want a coupon or a gift box award or something like that. A bag of Eight O'Clock coffee might be the award for the lowest level of increased customer spending, but we offer cash awards for reaching certain higher incentive levels," he said.

Zimmerman declined to state the dollar amount of the incentive rewards. Asked whether they were in the range of $30 to $40, however, he said they went "higher."

"We started off with the premise that all customers are not equal. The top 10% of our customers account for 42% of total sales. The next 20%, which we call our moderate shoppers, account for another 35%.

"To some who are not used to these numbers, it may seem astonishing that over 75% of purchases come from 30% of customers. Those happen to be our numbers, but they come within a couple of percentage points of overall industry numbers," Zimmerman said.

At the other end of the spectrum, 20% of customers account for 15% of sales, while a striking 50% of customers generate only 8% of sales, he added.

IGA's Internet Assets

CHICAGO -- The expansive Internet and World Wide Web project under way at Independent Grocers Alliance here strikes an impressive balance between style and substance. Though IGA may not make most industry observers' short list of "bleeding edge" technology leaders, a close look at its broad-scope global communications initiative reveals an innovative business and marketing strategy. The organization is exploiting the vast Internet network to unify its 3,600 retailers worldwide through electronic mail communications with each other as well as suppliers, wholesalers and vendors.

The speed, reliability and inexpensive nature of E-mail, compared with telephone and fax communications, are expected to yield massive savings that can be reaped only by an organization so sizable and widely dispersed as IGA.

Further, the streamlining of data facilitated by the Internet should enable the company to leverage its weight and negotiate with business partners more effectively as a cohesive organization, observers say.Business-to-business relationships aside, IGA is also well ahead of the pack in the development of its World Wide Web site, which contains several consumer-oriented features. While many retailers have taken a wait-and-see stance on the web, IGA already has launched its second-generation site (http://www.igainc.com/).

IGA's new web site showcases enhanced graphics and interactivity and highlights the international flavor of a company with presence in 14 countries. Consumers are invited to explore the electronic pages, enter raffles and return often.

"Like most web sites, ours will be constantly under construction because we are committed to making the page a useful and entertaining tool for consumers," said Jim Anderson, vice president of finance and management information systems.

The site also provides a dynamic and inexpensive vehicle for promoting private-label products as well as keeping retailers up to speed on the latest manufacturer promotions.

Automation's in Order at Wakefern

ELIZABETH, N.J. -- Wakefern Food Corp. here is refining a next-generation version of computer-assisted ordering that requires little, if any, human effort to replenish its stores.

The retailer characterizes its new program as "computer-generated ordering." With CGO, Wakefern has gone beyond using computer-based data to help store managers create orders to almost completely automating the replenishment process.

Wakefern officials said more than 100 stores are using the system, which has already garnered significant results. The retailer attributes large same-store sales increases to the use of CGO, as well as up to a 60% reduction in store inventories.

With CGO, when a product is scanned at the point of sale, it triggers a process that ultimately may reorder the product that evening if in-store stock is low.

A batch of POS information is sent to the in-store processor each night. The processor analyzes the data according to set parameters and creates a store order that, once approved by the store manager, is sent via electronic data interchange to one of Wakefern's distribution centers. A truck shipment of the order arrives at the store receiving dock the next morning.

"It's not enough to know what you've sold," said Natan Tabak, vice president of administrative support, earlier this year. "The system has to look at the orders the store is about to receive."

To ensure the system's accuracy, Wakefern is bolstering efforts to enhance scan data integrity through "hundreds of hours" of employee training, he said. Convincing store managers to trust the new system also has been a challenge.

Wakefern now requires diligent maintenance of its item files at the store level to ensure that any discontinued or damaged items are factored into the store order equation. Out of roughly 20,000 new items introduced in Wakefern stores each year, 19,000 are soon discontinued, Tabak said.

An essential element for maintaining the system's success is consistent on-time deliveries from the distribution center. "A CGO anticipates the sales of tomorrow and wants the order in the store tomorrow," he said. "It's useless if the order comes a week later."

Finast Is Scanning Ahead

MAPLE HEIGHTS, Ohio -- Finast Supermarkets here is putting technology to the test like none other in North America: by putting it in shoppers' hands.

Through stationary customer self-scanning systems that date back several years, Finast built a record of experience that's led to its latest project. A group of 100 shoppers are now roaming one of its stores with portable scanners to record purchases. Next month the retailer will evaluate shopper acceptance as well as time saved in the checkout process.

Finast's Greg Spragg, vice president of marketing and operations, said the system promises to elevate service levels by providing an alternative to waiting in line at the checkstand.

Shoppers using the system need not unload their groceries in the checklane or stand by while a cashier scans each item, because they've already done the work in the store aisle. The portable devices tabulate totals throughout the shopping process and shoppers pay at a special designated checkstand.

"This is the start of a complete re-engineering of the checkout process," Spragg said.

The chain has experimented with stationary self-scanning checkstands in three stores, but the new test program reflects Finast's heightened commitment to developing the concept further.

"With our experience in customer self-scanning, we felt that this was a logical place for us to further the kind of research and development we were already pursuing," he said.

Finast's parent company, Ahold, Zaandam, Netherlands, developed the system jointly with Symbol Technologies, Bohemia, N.Y., and TNO Centre, a Dutch engineering firm.

At Hannaford, Consolidated Results

SCARBOROUGH, Maine -- Hannaford Bros. here is taking a major step forward in slashing product receiving and lead times by shifting the burden of smaller, inefficient shipments to a third-party provider.

The retailer began a program early this year in which less-than-truckload manufacturer orders are consolidated at a third-party distribution center and shipped in full truckloads to Hannaford's warehouses.

Supply chain management has been streamlined substantially by Hannaford's ability to place consolidated manufacturer orders using electronic data interchange transactions and knowing more precisely when to expect truckload shipments to arrive at its docks.

"Working with a third-party provider creates the opportunity to ship multiple vendors on one truck from one facility at one time," Gary Watson, director of logistics for Hannaford, said earlier this year.

In a year's time, Hannaford has cut product receiving time by 30% for participating vendors. Product lead time is now an average of five days, whereas some products in the past took up to two weeks.

Hannaford is aiming to reach one-day lead times eventually. "We're working toward that. We want to make sure the system works right the first time," he said."We'd like to be able to do it within hours. I think someday we'll get there."

Manufacturers also have gained efficiencies through the program, increasing product warehouse turns by up to 160%, with the majority achieving more than 100% increases, and slashing shipping costs up to 75%.

The program is conducted by Hannaford; five manufacturers, including Nabisco Foods Group, Parsippany, N.J.; a food broker, Merkert Enterprises, Canton, Mass., and Distribution Services of America, a third-party distribution center based in Foxboro, Mass.

Hannaford will expand the program to a third warehouse this month, according to company officials.