LINKING GAS AND GROCERIES 2004-08-30 (1)

JULIE GALLAGHER

Though oil and water don't mix, gas and groceries apparently do.

The percentage of food retail companies selling gas in at least one store has grown to 10% from 6% the previous year, reported Food Marketing Institute, Washington, in its survey, "Food Marketing Industry Speaks 2004."

Just last week, Spartan Stores, Grand Rapids, Mich., broke ground on the construction of its first Quick Stop convenience and fuel center next to a corporate Glen's Markets location (see story, Page 43).

More than just sell gas, food retailers use it as a marketing tool, enabling purchasers of select groceries to take cents, and sometimes even dollars, off the price of gallons purchased at pumps maintained by supermarkets. This drives revenues and helps grocers compete with mass marketers, which have drawn customers with on-site fuel offers for nearly a decade.

Gas and groceries may be a good match. Yet from a technical point of view, it's not so simple. Before retailers can begin selling and cross-promoting food and fuel, they must scale hurdles associated with linking their in-store POS system with their fuel management system.

Take Abingdon, Va.-based K-VA-T Food Stores, for example. The retailer decided to replace its in-store POS system for food sales and another POS system for fuel sales with a single POS application from Retalix, Dallas, that handles both.

"The two systems produced two separate sales reports, and price changes that needed to be made at the fuel pumps and in the stores had to be executed separately," said Don Mascola, director of in-store services, K-VA-T. "Especially for accountability purposes we needed to get the systems under one structure."

Other food retailers, from giants like Kroger to small chains like Buehler Foods, are finding they need to figure out how to integrate their outside fuel systems and inside POS. "Systems integrations are not an easy thing to do," noted Lyle Walker, director of marketing, Retalix. "If you take an old Ford and try to fit it with a brand new fuel pump, you're going to have to wire it "on in order to make it work."

This is complicated for many large grocery chains, which still run older IBM 4690 legacy systems, according to Greg Buzek, president of IHL Consulting Group, Franklin, Tenn. Integration complexity is further compounded by disparate technologies resulting from retailer consolidations.

Fortunately for retailers looking to offer food and fuel promotions on-site or with a partner, POS and fuel management vendors have become more willing to work toward integrations than they were in the past.

"When Kroger began installing fuel pumps at its supermarkets [in 1998], the willingness of vendors to help integrate systems was about a one" on a scale of one to 10, said Tom Murphy, president of Peak Tech Consulting and former vice president of information technology for Kroger. "Now it's closer to a five or six."

Murphy explained that at the time of its first fuel integrations, Kroger was operating an IBM POS system in its supermarkets and an Alpharetta, Ga.-based Radiant system that combined POS and fuel management capabilities in its convenience stores.

According to Murphy, Radiant wasn't ready to get into the grocery industry yet, "so it wasn't interested in helping with an integration with an IBM system, and IBM wasn't interested in buying a company like Radiant."

As a result, each fuel station Kroger installed at its supermarkets acted as its own individual entity. "Numbers couldn't be drawn from the fuel system and taken into the [grocery] store," said Murphy. "It was very labor intensive, especially when it came to inventory."

However, Kroger, which revealed it operates 500 fuel centers, has since taken advantage of the greater integration options available, said Murphy. "IBM has come around and opened its POS applications to the fuel companies, and Radiant found out grocery stores were a real [fuel] player," he stated.

As a result, Kroger's supermarkets are operating a loyalty program with discount offers for their branded fuel stations, said Murphy. Kroger did not respond to requests for comment.

One for Two at K-VA-T

Like Kroger, K-VA-T Food Stores had to find a way to integrate its fuel and POS systems. The 88-store chain decided it would be cheaper to replace its previously installed pump-based VeriFone Ruby POS system and its in-store Innovax POS rather than attempt to integrate the two.

The retailer had been simultaneously maintaining the VeriFone system at the pump and the Innovax system in its stores when it began offering fuel -- without a promotions program -- four years ago.

To achieve its objective, K-VA-T decided to replace the POS systems in all its stores and fuel centers with Retalix's StoreLine POS system, which features built-in fuel management capabilities. Aside from creating more uniform POS management, the system will support a prepaid fuel "gift card" program, according to Mascola.

The program gives shoppers the opportunity to buy gift cards that take cents off the cost of each gallon of gas. The cards will be available for purchase within K-VA-T's grocery stores and at the fuel pump. K-VA-T hopes to have the program in place by the end of this year.

"We decided on offering a gift card rather than promotions linked to a loyalty card not only to encourage purchases within the store, but also so we could save on fuel transaction fees" incurred when customers pay with credit cards at the pump, said Mascola.

Fuel Provider Partnership

Another fuel marketing integration strategy is being used by Buehler Foods, Jasper, Ind. The 28-store retailer operates on-site fuel centers at 12 of its locations. An additional four locations are linked to fuel programs through a partnership with Huck's Convenience Stores, Springfield, Ill.

The retailer, which first installed a fuel station on-site two years ago, has plans to either install fuel pumps on-site or establish links to outside fuel stations at all its stores over the next year or two, said Mike Queasar, director of marketing, Buehler Foods.

Buehler stores that have fuel centers on-site use the Digital Fuel Controller, from CCISTech, Irvine, Texas, as a fuel management system. The Digital Fuel Controller runs the pumps and handles pay-at-the-pump transactions, working with a Fujistu ISS45 POS system.

In-store, Buehler's runs an ISS45 POS system and CCISTech's Rewards Management Engine, which monitors POS transactions and applies discounts to specific items. Once all discounts have been identified at the POS, a bar code is printed on the customer's checkout receipt.

When the customer scans that receipt at the fuel center, the Digital Fuel Controller reads it and connects back to the Rewards Management Engine via a LAN connection so it can be validated. Customers have the ability to stack rewards and use them in combination to increase their discount, said Gary Trible, director of MIS, Buehler Foods.

Buehler Foods uses a different setup to link four stores with off-site fuel stations at two Huck's Convenience Stores. Instead of a controller, the convenience stores use a Rewards Gateway system from CCISTech to query the Rewards Management System via a WAN connection to find out if the customer has fuel discounts available. The Gateway also contacts the RMS after the transaction is completed.

Buehler's has also set up WAN communications between the four off-site stores and its 12 on-site fuel stores, and between the 12 on-site stores and the two Huck's stores. Robinson IGA, Robinson, Ill., explored the on-site fuel option, but decided to bypass the $250,000 investment. Instead, it allocated $20,000 to establish a cross-merchandising program, also via CCISTech, with a Marathon provider located one mile away.

Robinson IGA hopes the system, installed two weeks ago, will help promote sales and customer loyalty. The Marathon fuel provider hopes to sell an extra 30,000 to 40,000 gallons of gas per month. He invested about $10,000 in the program.

Robinson IGA's program is also powered in-store by CCISTech's Rewards Marketing Engine on the retailer side and the Rewards Gateway product on the fuel provider's side. The retailer's ISS45 POS system communicates with the Marathon provider's fuel management system via a WAN connection.

As a result of the interface, members of Robinson IGA's Perks loyalty club are eligible for discounts on items identified by 1,300 Gas Perks tags located throughout the grocery store. Discounts range from 2 cents to 35 cents off the price of a gallon of gas, up to 15 gallons. As consumers check out, discounts are recorded on their IGA Perks loyalty card, which can then be taken to the Marathon fuel center and scanned for discounts at the pump.

"Mass merchants are putting in fuel, and the rest of us need to get in the ball game," said Bob Rynke, vice president of Robinson IGA. "We couldn't put in our own fuel pump, so CCISTech provided the Gateway software that allowed us to execute a cross-merchandising program, even though we don't provide fuel on-site."

Spartan Building Fuel Sites

HARRISON, Mich. -- A groundbreaking ceremony was held here last Thursday for the first Quick Stop convenience and fuel center to be built by Grand Rapids, Mich.-based Spartan Stores.

The Quick Stop is being built on the lot of Glen's Markets, one of 54 supermarkets owned and operated by Spartan under the Glen's Markets and Family Fare Supermarkets banners. "Spartan Stores is excited to begin the development of new convenience and fueling stations at various Glen's and Family Fare supermarket locations in Michigan," said Craig Sturken, chairman, president and chief executive officer of Spartan Stores, in a statement. "Offering convenience and service is important to today's consumers, and central to our commitment to being a neighborhood supermarket."

Cross-merchandising discounts and promotions will be offered to fuel and food shoppers. The new Glen's Quick Stop will also feature an ATM machine, lottery tickets and food items made in the adjacent food store, including deli sandwiches and doughnuts. Spartan Stores expects to select additional sites later this year.

In addition to running 54 corporate supermarkets, Spartan distributes more than 40,000 private-label and national-brand products to 330 independent supermarkets in Michigan. It also owns and operates 21 The Pharm deep-discount drug stores.