TAKING STOCK OF SELF-CHECKOUT

JOHN KAROLEFSKI

It took more than a decade, but self-checkout systems that allow consumers to do their own scanning and process their own transactions have finally gained a significant foothold at stores around the country.

According to the Food Marketing Institute, Washington, 19% of chains with at least 11 stores are using self-checkout in at least one store in 2002, compared with 6% in 1999. Greg Buzek, president of IHL Consulting Group, Franklin, Tenn., goes even further, declaring that nearly one quarter of supermarket chains have either committed to self-checkout or are testing it.

Abingdon, Va.-based Food City Supermarkets, operated by K-V-A-T Food Stores, installed its first self-checkout unit in June 2000, and now has 22 stores equipped with units from NCR, Duluth, Ga. "It's just good customer service," said Tom Hembree, senior vice president of the 86-store chain. "It allows people to have more privacy because they can scan and bag their own orders."

Now that self-checkout has made some headway, it's time to take stock: What lessons have been learned so far by retailers? What has been their biggest surprise? What's next?

For example, what are the optimal number of checkout lanes per store and the number of employees needed to monitor them? Experts say the variables to consider include store layout, average basket size and the availability of manned registers. Retailers typically allocate from a quarter to a third of lanes to self-checkout in stores with 12 to 16 lanes. That usually results in four self-checkouts with one supervisor overseeing them to help shoppers if needed.

"You should expect to have about one-third of lanes set up for self-checkout. This roughly equates to the percent of customers that you expect to see using the technology," said Doug Miller, director of store systems at Food Lion, a Salisbury, N.C.-based division of Delhaize America. The retailer had the unit installed in a test store in early 1999, and followed with an additional 10 test stores the next year.

There is an average of two lanes with scan-and-bag units (as opposed to conveyor belt self-check systems) in Food City supermarkets. The retailer uses a "page system" that enables shoppers who need help to summon a clerk on duty in front of the store. Scanning alcohol automatically triggers a page.

Does self-checkout serve to reduce labor costs? Hembree acknowledged some labor savings, but the ability of customers to check themselves out has been the main advantage. Buzek contends that most retailers are not looking to reduce the number of jobs. "They don't have enough people to staff the stores as it is," he said. "So when you say, 'Save labor,' it means that they're able to put their people in front of their highest-margin customers. Self-checkout allows you to re-deploy labor."

What are the biggest keys to self-checkout success? Since installing its first self-checkout lane in October 2001, Kmart Corp., Troy, Mich., has discovered that employee training and customer assistance are critical ingredients, said Dennis Nido, application manager of information technology. The retailer now has over 1,000 stores nationally offering scan-and-bag lanes. As with ATMs, some customers may need to be persuaded and given assistance to use the new technology, he said.

Food Lion's Miller concurs. "We found that the most important critical success factor is to have a well-trained and supportive store staff," he said. "This is far more important than technology, demographics, etc."

Deciding which system to offer -- scan-and-bag or belt -- typically depends on the nature of the store and the kinds of orders. At Food Lion, "we tested scan-and-bag solutions and found that they didn't generate the customer usage we came to expect in our belted-solution installations," said Miller. But Hembree of Food City said many baskets in his stores contain small orders that call for a scan-and-bag system.

Carlene Thissen, an in-store consultant, agreed with Hembree's approach. "If you have a lot of small orders, then I think the scan-and-bag makes more sense. If you're in a warehouse format, I'd be more inclined to look at a belt system for larger orders," said Thissen, president of Retail Systems Consulting, Naples, Fla. On the other hand, noted Hembree, "It's amazing how many people do large orders on the scan-and-bag."

In the end it may come down to one fundamental decision, according to Buzek. "Are you looking at self-checkout to be a replacement for the express lane? Or are you looking at it to handle any size order? If you've got a belt system, any size order works better. If you're looking to replace the Express Lane -- which many retailers are -- then you're looking at a scan-and-bag type of approach. In the small, express-type situations, where you have 12 or 15 items or less, it really cuts costs to use self-checkout. And those are the people who want to use it the most."

An unexpected result of self-checkout is that it allows retailers in some regions to better serve Hispanic customers who have trouble with English, said Buzek. Units can be equipped to offer bilingual instructions much like an ATM machine. "It's a way of reaching out to customers who have had trouble in the past," he said.

Another surprise, said Buzek, comes from retailers who say the units have brought down the level of theft and fraud. "Over 50% of all shrink comes from employees," he explained. "So you actually are reducing the number of employees involved. With self-checkout, you've got one person watching four lanes instead of four checkout people."

Retailers told SN that their most pleasant surprise about self-checkout has been how readily shoppers have accepted the system -- regardless of demographics. "Everybody who tries [self-check] likes it," said Hembree. "You'd think that younger people would be using it rather than older. But we're getting a real good cross section of all our customers." Said Miller of Food Lion: "Customer interest and usage exceeded our expectations."

Both retailers plan to increase installations in the future. For example, all new Food City stores will have two or three self-checkout lanes. Forty percent of its stores will have self-checkout by next year, and a full-chain rollout will happen "eventually," said Hembree.

Food Lion is outfitting about 50 more stores with self-checkout this year as an expanded test. All of the chain's units are a belt system from Productivity Solutions Inc., Jacksonville, Fla.

"We are continuing to work with the technology in our lab and test stores to evaluate enhancements that are being offered by the vendors and refine the ROI to determine if, and how many, additional stores will be installed in the next couple of years," said Miller.

Nido said Kmart's specific plans are confidential, but "multiple installations are under way."

As the number of installations around the country increases, so do improvements in hardware and software. IHL's Buzek said there has been a lot of progress in the last two years, such as taking cash in the lane and converting checks to debit. Vendors are working on designs to reduce interventions by clerks and to authenticate shoppers via biometrics, using a thumbprint as verification for credit.

Credit can be a sensitive issue because "credit card companies look at self-checkout as a card-not-present transaction," Buzek said. "Some stores require a signature for any amount; others don't require a signature up to $40 or $50. In those situations where the cashier is not taking the card and looking at the signature, it's almost like a pay-at-the-pump transaction. That could increase fraud."

Another concern is that not all self-checkout machines scan and validate coupons, noted Thissen of Retail Systems Consulting. "You have to go to a cashier at the end and give the coupons. I would suggest that the vendors start accepting coupons and tie that into the regular point-of-sale system."

For those retailers planning their first test of self-checkout, Buzek advised asking themselves some hard questions: What am I trying to do with self-checkout? Am I trying to increase customer service? Am I trying to reduce labor costs at the checkout and re-deploy that labor? Am I trying to improve the speed at which things are handled at self-checkout? Am I trying to lower my costs?

And Kmart's Nido advised having a very close working relationship with the product vendor for support and assistance.

Mobile Self-Checkout's New Move

While stationary self-checkout has begun to make inroads in the United States, mobile self-checkout, using self-scanning devices, has so far been mostly rejected, though it has found many users in Europe. But some new tests this year hope to change the way mobile self-checkout is viewed in the States.

In the new tests, consumers will be able to take a store's special handheld units or their own special cell phones up and down the aisle to scan and bag groceries while they shop. What's different this time, besides the introduction of the cell-phone scanners, is that the mobile units will be tied to stationary self-service checkouts, where shoppers will pay for their scanned items, and to an electronic discount program from Catalina Marketing, St. Petersburg, Fla.

The in-store self-scanners are the brainchild of Symbol Technologies, Holtsville, N.Y., which markets them as the Portable Shopping System. Under the new scenario, they will be tested by three supermarket companies -- two chains and one independent -- located in Canada, and in the Western and Central United States, said Frank Riso, Symbol's director of business development for retail food and drug accounts. He declined to name the retailers.

The stationary self-checkout units in the test will be the U-Scan stations from Optimal Robotics, Montreal. Talks are under way with other vendors.

According to Riso, the mobile system has flourished in Europe after being installed in the early 1990s in supermarkets operated by Albert Heijn. More than 500 stores offer mobile scanning throughout Western Europe, largely in the United Kingdom and the Netherlands. Tests in the United States about five years ago did not fare well, Riso said, because shoppers complained that they were doing work for the store by bagging groceries and not getting anything for it. So this time, Symbol will be piloting a "payment" system that essentially involves an in-aisle version of Catalina Marketing's Checkout Coupon program, which prints coupons at the point of sale. Shoppers would receive a message in the scanning units that a discount is available for certain brands of products they have scanned, or that a discount off the total bill has been earned for purchasing the same brand several times.

The new "scan-phones" will be made by Motorola and include a scanner from Symbol, and software from AirClic. The first 12,000 of these new cell phones will be available by Thanksgiving when tests would begin in supermarkets operated by two chains in the Midwest and two on the East Coast. The scan-phones will be sold through Nextel stores.

"If consumers are Nextel customers, they can upgrade their phones. If they're not a Nextel customer, they could convert to a Nextel system and get a hefty rebate," said Leib Lurie, president of Beeline Shopper, an Internet-based information service purchased by AirClic last year.