WILD OATS' IT PROJECTS DESIGNED TO REIGNITE BUSINESS

CHRISTINA VEIDERS

BOULDER, Colo. -- Wild Oats announced it will open in mid-April a new store in Long Beach, Calif., where it will introduce a new planogram information technology system to better track product movement, maximize margin mix and implement shelf planning.

Perry Odak, chief executive officer, Wild Oats, said the company intends to roll out the system -- Plan-O-Gram IT -- to other stores this year.

It is just one of several IT initiatives the company is pursuing in an effort to turn its operational finances around.

Odak told analysts here last month, during the company's fourth-quarter and year-end earnings conference call, that the company is dedicated in 2002 to enhancing the customers' overall shopping experience. This will be achieved, in part, through IT investments. "Our IT investments focus on supporting our marketing, merchandising and overall customer service strategies," he said.

The company declined to say how much it was spending on IT initiatives and would not give further details on individual projects. However, one industry source estimated Wild Oats' IT investments for the year at between $3 million and $3.5 million.

Besides the investment in the planogram IT system, Odak said the natural food retailer would begin installing systems to better manage direct-store delivery receiving and labor scheduling.

Last year the company also invested in a data warehousing system. "This is designed to help us more efficiently access, manage and analyze data relative to product sales, category management, merchandising, marketing and financial analysis," said Odak. The system is currently in the testing phase, and the company expects it to be operational in the first quarter, he said.

Odak also said the company is implementing a new promotional management software program to more effectively and efficiently manage a greater number of advertising flier variations and promotional programs to support the company's overall marketing program.

Other IT projects begun last year include the development of employee training programs to provide employees with skills and product knowledge to provide customers with value-added service. Wild Oats also centralized its marketing, merchandising and purchasing functions, said Odak.

Ed Dunlap, chief financial officer, noted that in the year ahead the company would shift its focus from facilities to re-engineering its distribution and logistics. "We are implementing in-store procedures for greater cost management, in-store execution and consistency throughout our stores," he said.

In conjunction with efficient distribution, Wild Oats is in the process of renegotiating a contract with its main wholesaler United Natural Foods, Dayville, Conn., and in doing so the company is reviewing its options, said Dunlap. Wild Oats expects to sign a new distribution agreement in the next 45 days on more competitive terms, he said.

According to Chuck Cerankosky, an analyst with McDonald & Co., Cleveland, Wild Oats' move to centralization will help it in negotiating a more favorable arrangement with a distributor.

Most analysts agreed Wild Oats is headed in the right direction on its IT investments in order to engineer a turnaround. Jonathan Ziegler, San Francisco-based managing director, Deutsche Banc Alex. Brown, New York, said, "Wild Oats is coming from behind, so its [IT investments] may provide them with a nice opportunity."

However, Monica Aggarwal, an analyst with Merrill Lynch, New York, points out that much will depend upon Wild Oats' ability to come up with equity financing, not only for its future IT investments but for its plans to open 10 stores in 2003 and 20 stores in 2004. She said Wild Oats' main competitor, Whole Foods, is slightly ahead of Wild Oats in terms of technology development, but neither one is on the cutting edge.

"They [Wild Oats] are moving toward centralization and will probably do better in terms of labor scheduling," she said.

Cerankosky said Wild Oats is pursuing a dual-track process. "With a lack of [IT] systems, they are centralizing certain purchasing functions and trying to update the merchandising strategy, while at the same time installing systems like point-of-sale data capture so they can get better at merchandising, inventory control and product procurement," he said. "The new management team is dealing with a lot of inefficiencies in this company that involve every aspect of the operation -- from store level staff training to advanced information systems."

However, Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., questions whether Wild Oats' heavy emphasis on IT investments is the right strategy given the differences between conventional food retailing and a natural food retailer. "It's [natural food retailing] a much different industry. The customers are different. Even the store employees can be different."

He points to the success of Whole Foods, Austin, Texas, which he describes as a category killer and destination that can draw customers from a 10-to-20-mile radius. "If you start putting in more conventional-oriented IT systems and planograms, you may end up with very edited assortments," said Wolf. "A Whole Foods is a different economic model from a mass merchant, and it is much more assortment-driven."

Whole Foods' success has come from providing customer service and great merchandising, said Wolf.

"There is nothing better than people who really know merchandising. It's better than a computer," Wolf explained.