TRADER JOE'S SATELLITE NETWORK CUTS CREDIT TRANSACTION COSTS

ADAM BLAIR

SOUTH PASADENA, Calif. -- Use of a satellite communications network has allowed Trader Joe's here to achieve chainwide cost savings in both its credit card transaction and settlement costs.

The savings, achieved with the use of an electronic gateway processor that bundles the credit transaction information, was one factor that helped cost-justify the satellite system, according to Fred Morsheimer, vice president and chief information officer at Trader Joe's. The satellite network has been in use for less than a year.

Because the credit authorizations are all coming off of a single transmitter, Trader Joe's can present these transactions in a way the bank prefers, Morsheimer explained. "The bank can capture each transaction cleanly, so that each one doesn't require a separate dial-up initiation," he said.

Another factor that helped the retailer justify investment in the satellite network is its participation in Retex, New York, a 1,500-member retail technology buying consortium with members outside the supermarket industry. Trader Joe's is a founding member of the consortium, said Morsheimer.

"The volume discount on credit authorization [from Retex] cost-justified the satellite network for us," said Morsheimer. "Now we have also improved communication to our stores, which should also help customer service."

The network is capable of carrying numerous kinds of data from the nearly 100 Trader Joe's stores to its headquarters, including sales data, product availability and spoilage information, delivery schedules, personnel and payroll data and e-mail messages, he said.

Each store is equipped with a Very Small Aperture Terminal and a satellite dish, Morsheimer explained. Data is uplinked to a satellite and gathered at a hub operated by Hughes Network Systems, Minneapolis.

"We partnered with Harmonic Systems, Minneapolis, on the technology that allows a single port to interweave all sorts of different data protocols," said Morsheimer. "For instance, it routes the credit authorizations immediately, then sends e-mail to the appropriate computer for that."

Information destined for headquarters is sent, via a leased, dedicated phone line, from the Minneapolis hub to a site in Chino Hills, Calif., and then via another dedicated line to Trader Joe's headquarters here. Morsheimer explained the Chino Hills site is a parallel disaster recovery site.

"We have a backup that communicates via modem if the satellite system fails, which is how we communicated before installing the satellite system," said Morsheimer.

Morsheimer anticipates the chain will achieve a return on investment for the satellite system within 18 months, though it had originally anticipated a one-year ROI cycle. "We were a beta site for a lot of this technology, so we put more in support behind it than we might have anticipated," said Morsheimer. "But we are now getting the overall performance and network reliability we anticipated."

He added that all 97 Trader Joe's stores are currently equipped with satellite dishes, and that they will be installed in stores under construction. The chain has stores in several Western states as well as in New England and New York.