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    EXECUTIVE ROUNDTABLE SERIES: Technology: Pioneering profits

    The grocers at Progressive Grocer's latest roundtable are all breaking new ground in consumer-facing technology.

    Price optimization, biometric-enabled loyalty, payment solutions, mobile marketing -- one by one, the spheres of retail technology once closed to independent grocers are now opening, and eager prospectors from that retail segment are pushing forward to mine them for all they're worth.

    A handful of those retail (and wholesale) pioneers gathered to trade ideas and experiences at Progressive Grocer's fifth Executive Roundtable on Technology and the Independent Grocer -- part of a series of retail intelligence reports sponsored by Duluth, Ga.-based NCR Corp. This latest chapter of a continuing conversation about independents and technology took place at NCR headquarters Oct. 3.

    The pioneers on PG's latest panel are Don Fallon, general manager, Ring Bros. Markets, South Dennis, Mass.; Larry Foster, senior director of e-commerce and retail services for Edina, Minn.-based Nash Finch; Ed Goebel, director of information systems, Yoke's Foods, Inc., Spokane, Wash.; Gary Hawkins, c.e.o., and Sterling Hawkins, v.p., Green Hills, Syracuse, N.Y.; Bob Henry, IT director, Goodwin's Markets, Crestline, Calif.; and Ricky Landry, controller, Zuppardo's Economical Supermarkets, Metairie, La.

    John Saccomanno, director of food industry marketing at NCR, rounded out the group.

    Price optimization, previously only available to the large chains that could afford it, is now accessible for even the single-store operator, thanks to the entry of new vendors and hosted solutions in the space. As a result such retailers as Nash Finch and Yoke's are already venturing into this territory.

    And while biometric technology has become increasingly popular among grocers that use it in their check-cashing services, its applications extended to loyalty systems only since earlier this year -- and among PG's panelists was the originator of that application, Gary Hawkins of Green Hills.

    Also at the table was Don Fallon of Ring Bros., one of the first independents to successfully deploy a mobile marketing program whose members now have basket sizes double those of non-members.

    This article will focus on the above three retail technologies and how these indie innovators put them to the test.

    Progressive Grocer: Ed [Goebel], you just invested in a price optimization system. Tell us why.

    Ed Goebel: We've been using a rules-based pricing system for years, and wanted to add some science on top of our existing pricing mechanism without having to replace it. We spent about the last nine months doing due diligence, and settled on KSS.

    Because we have one category manager who manages all our pricing for our grocery department in 12 stores, it's difficult to really handle individual items on a detailed basis. Price optimization will allow him to streamline his pricing strategy. Also, we'd like to stay on a level playing field with many of the large competitors, such as Wal-Mart, Safeway, and Albertsons, which are using that science.

    We are on target to start the first price category optimization Oct. 15.

    Progressive Grocer: Any challenges so far?

    Goebel: Interfaces seem to be a big issue, especially for a small independent who doesn't have an IT staff. I am our IT staff, so we are concerned about interfaces. But KSS stepped up and wrote data, and mapped the data for us from the exports that we were already using.

    Bob Henry: What have you been promised?

    Goebel: There are some very large ROIs that have been promised up front. Without having implemented the product yet, I can't speak to how well it's performed. You have to put some faith in the system. The optimization engine is kept pretty well hidden by all of the players in that arena. It's the intelligence that they're selling. But we do believe in the product.

    Henry: I believe in the concept, for sure. But did all the main players offer a similar ROI? Were they insistent in their promises?

    Goebel: Similar returns, yes; [they promise] extraordinary returns.

    Henry: Within a year or two years?

    Goebel: Within a year, sometimes a shorter period.

    Larry Foster: We're going down the same road, looking at some of the same vendors, and have gotten some pretty high promises. It's a little bit different being a wholesaler. We maintain a lot of house zones in the interest of our retail customers. But we haven't implemented yet, either, [so the return] remains to be seen.

    Henry: This is a huge opportunity for independent retailers to bump their bottom lines significantly without doing anything other than implementing the solution.

    Foster: Not only does it optimize your base prices, but also DPRs, ads, [and] window run ads, and some of them can even recommend where to display the ad. These are difficult to keep track of.

    Goebel: Another challenge is the fact that this is based on historical data, and you don't know what the historical data is yet. It's a huge decision point to use it. We're starting with a year's worth of history and have a two-year track, but we feel we're fairly clean within the last 12 months.

    Don Fallon: How would this work for a single-store operator? Would it be cost-effective?

    Goebel: I think the new software is a service model; several of the vendors offer it. A single independent can use it without the worry about hosting the product and making them take care of the management of the product. I think it's definitely worth looking at.

    Henry: Is that what KSS does?

    Goebel: Revionics has that, but we're going to host KSS, and KSS is not Web-based. It's just hosted by the individual retailer.

    Henry: So you have to pay for the software?

    Goebel: Yes.

    Foster: They handle a lot of the interfaces for you, too. All of your data has to be moved from your location to their location, every day, every week, however often you choose to update. You're moving a lot of data.

    Goebel: We're actually tracking movement on a daily basis and rolling it up into weekly buckets, if you will, for analysis.

    Foster: The vendors all want about two years, with about as much item detail as you can get them, such as if it was on ad, what the ad price was, if you have display information, where it was displayed, even where it was in the ad, and that's not something too many people keep.

    Goebel: We'd also like to find a way to include competitive data. [To the entire roundtable] How are you collecting competitive data? Do you have an automated system that can track key categories, or are you using specific tools? Third-party companies will do data collection, but unless they're currently in your marketplace, it's kind of cost-prohibitive. For individual local stores, how do you do it? Do you mark it on a pen and paper?

    Fallon: Our guys do a little bit of that. They'll visit a nearby competitor and walk through the appropriate section and see where they're at. But we don't have the facility to do a large-scale collection.

    Goebel:At the wholesale level, do you [Foster] have any collection tools?

    Foster: We've done a couple of things. We subcontract it out to a third-party company. We sub out some price checks that we use internally, and as part of our agreement with our retailers, we can leverage that service to them. One thing that we did is update most of our hand-held order entries to dumb terminals, where you enter an item code and you enter a quantity, and that's all it's good for.

    We use a Windows-based application that runs on a hand-held, and one of the things we added to that order process is a price check option where you can go out and scan a UPC and enter a retail price. It will also let you indicate if it's based at TPR or whatever, but it defaults to base. A lot of our customers use that to scan the base and enter the code.

    The problem with this is that it's real obvious what you're doing. It's a pretty big hand-held, and a lot of competitors aren't real big on that. If you can get through the store quick, scan one section, and run, it works well. Some other competitors, though, don't seem to have a problem with people coming in and checking.

    Goebel: Our largest competitor is far less discreet. They actually bring in three individuals to walk in the store. The first one grabs and walks with the product, the second scans the item, and the third person brings it back to where they found it.

    Fallon: Do you allow them to do it?

    Goebel:Yes. It's kind of an unwritten reciprocal agreement. If they do it in our store, we can do it in theirs.

    Sterling Hawkins: I think we can add a different perspective to price optimization, which is optimizing by the individual customer. We've done a lot of work using loyalty data, and launched our first custom program back in 1993. Then we recently developed and implemented a program called "SmartShop."

    The basis of it is that we can essentially customize an ad for each individual shopper. Instead of sending out 10,000 of the same ad, we personalize them to each household, and we communicate them through digital channels such as the kiosk in the store, e-mail, and also the Web site.

    Foster: How's the maintenance?

    Gary Hawkins: There are a number of pieces to it, and technologies that have been brought together. The heart of it is what we call a next-generation targeting engine put together by several math geeks at Berkeley to effectively automate this whole process. So, in very simplified terms, the system can take a library or a pool of offers or promotions, and score those against each customer's purchasing behavior, and output the top-end number of offers or promotions that are most relevant to that shopper.

    Within that process you can assign different strategies to any of those different offers. The name of the game in our mind is, maximize the customer lifetime value, but also maximize out of your available customer pool how many of those shoppers you actually get into your store each week. We launched 16 months ago, and the uptake on it has been very strong.

    The other unique twist is that this whole thing is done biometrically, so there are no loyalty cards. The rationale behind that is very simple. Loyalty cards have proven to be a very ineffective way of gathering accurate customer data; you're locked into a household level at best. Biometrics allows us to work at the individual or household level.

    So far we have 6,000 members in the program, and we're doing 60 percent of our total weekly volume through them.

    Goebel: How is customer acceptance of biometrics?

    Gary Hawkins: Of the 6,000 people who enrolled over the past 16 months, quite literally only one to two people have been vocally opposed to it. For everyone else it's a range, like always. Some people walk in, see it, think it's really cool, and sign up right away without knowing anything about it. Others a little bit more apprehensive. They want to know how it works, what information is gathered; they think about it for a bit, [and] then eventually sign up.

    At Green Hills our shoppers have a choice. They can enroll in the system purely for what I'll call marketing benefits, to receive their personalized savings. They also have the option of adding up to several payment vehicles to an electronic wallet, which can include their checking account, credit card, debit card, benefits, and so on.

    Sometimes shoppers enroll originally just for the marketing and savings benefits, and once they get comfortable with it, they add a payment vehicle. More than half, probably closer to three-quarters, have enrolled some payment vehicle in their wallet.

    Fallon: What are the demographics of your customers? Does participation skew to any specific group?

    Gary Hawkins: On the whole, I would say it skews toward slightly older consumers, but overall it's a fairly eclectic customer base. The core of our business and our core demographic is what I would call basic Middle America, but extends beyond that. In one direction you get into the inner-city trade. Surprisingly, a number of our older shoppers have really taken to the system and enjoy it.

    Foster: On the payment side, have you noticed a propensity for one form over another?

    Gary Hawkins: We had no provision for ACH or electronic checks before implementing this. Without any real push or drive, we now do 8 percent of our total sales volume by ACH, which is certainly a gain. We just launched a program that we developed to drive ACH activity.

    Henry: What percent are you doing by credit card?

    Gary Hawkins: It has grown tremendously over the last year or two.

    Henry: Over debit or basic debit/credit?

    Gary Hawkins: Basic debit/credit. Overall electronic payments have grown significantly over the last year or two.

    Henry: How about total electronic payments?

    Gary Hawkins: I would say well upwards of 50 percent now, total.

    Foster: It would ideally be nice to get more people in ACH. What does that do for your transaction rate, the card not present for credit card transactions?

    Gary Hawkins: We do pay a slightly higher card-not-present fee, but again, if you put us in the context of what our goals were, I'm more than glad to eat that cost. Our goals early on were founded on a belief that if we can improve the relevancy of our offerings, customers, would shop with us more. The goals were to get as many of our customers enrolled as quickly as we could. One part of the value proposition was offering a full wallet. If it was just ACH, we would put a roadblock up to people who wanted to enroll their credit card.

    Foster: It seems like it puts you in a great position to start moving people from credit to ACH.

    Gary Hawkins: Yes, we can do that, and another goal of the new program is to see if we can impact that. We're confident we can. But again, that card-not-present fee increase pales in comparison to the significant same-customer spending increases we are seeing.

    We're also seeing significant increases in shopping frequency and customer retention, consistent across every segment, from high-spending customers to low-spending ones. The differential between those people participating in SmartShop and those who aren't is almost mind-blowing.

    Foster: Do you have a tool to help you mine that data? You've got to be collecting a lot of data from the system. Are there reports that you track, or do you use a tool?

    Gary Hawkins: Since we've been working with loyalty programs for almost 14 years now, we're pretty comfortable using that data, and quite some time ago we incorporated customer-based metrics into our weekly sales reporting, weekly financial reporting, and even down to customer reporting levels. We've incorporated that information into our P&Ls and our balance sheets, and so on.

    Henry: What about the biometrics scanner itself? Do you have any problems with that? We've tried to use them, but they can be a headache. They have to be cleaned all the time.

    Gary Hawkins: That's true, and that technology isn't perfect, but it's improving all the time, and we're on third-generation scanners right now. I think the numbers speak for themselves.

    Sterling Hawkins: The system also increased our throughput, because for the biometrics user, all transactions are electronic. There are no paper coupons. There's no loyalty card that has to be scanned. If they're paying with the system, no signature is required for credit card purchases.

    Gary Hawkins: And to drive more ACH purchases, we can leverage our online capability by messaging via the receipt to a specific customer base. So while Ed is paying with an enrolled credit card, we can print a message on the receipt that thanks him for shopping with us, and by the way, if you'd like to enroll your checking online and use it three times over the next month, we'll give you this offer.

    Goebel: Does enrollment take place in the lane?

    Gary Hawkins: No. It can be done at customer service, or at a kiosk.

    Henry: Does it interface with all point-of-sale systems?

    Gary Hawkins: Yes, it can be used with all POS systems.

    Ricky Landry: Did you have any issues with the storage of the data, such as the card information? How do make sure that that customers' data remains secure?

    Gary Hawkins:The payment side of it is handled by Pay By Touch, so they provide all the security, and their systems are built, you know, to financial companies' standards.

    Landry: They're not storing it in-house then?

    Gary Hawkins: No.

    Progressive Grocer: Don at Ring Bros. and I recently discussed the benefits of biometric-based loyalty solutions versus mobile-marketing based solutions. Since we have retailers at the table using each of these technologies, Don, please tell the group about your solution, and afterward I'd like you and Gary and Sterling Hawkins to compare the benefits of each.

    Fallon: We use Modiv Media's MobileLime system. Shoppers sign up in the store to receive marketing messages and promotions delivered to their mobile phones in the form of text messages. The same program can also be done via e-mail.

    Right now we're using a cumulative program based on the amount of a customer's spending per month. We send out two e-mails and two text messages a month, updates about how close they are to their next bonus, and that works really well. We find that right after we send out that message, we get a lot of traffic from customers close to a bonus, say $50 away from a $5 coupon.

    Our average spend for a customer is $20. The average spend for a MobileLime customer is $43, more than double.

    Henry: How do members identify themselves?

    Fallon: When they come to the cash register, we ask if they have a rewards code. If they do, we type it in. If they don't, we try to sign them up.

    Henry: But when you key in that code, is that a customer code or a promotion code?

    Fallon: : A customer number, their cell phone number, because just about everybody has a cell phone. If they don't have a cell phone, like some of our older shoppers, we have ways to work around that, but we find that most of them have a cell phone.

    Foster: What are the demographic of your customers?

    Fallon: It depends on what time of year it is. Cape Cod is very touristy. For the summer months it's all over the map, much younger, much wealthier. June, July, and August are the busiest months. Business doubles and triples during that time.

    Foster: Do vacation customers get on board, too?

    Fallon: Yes, they do. The program has great acceptance. A couple here and there has objected to getting the text messages after signing up.

    Gary Hawkins: What's the percentage of your customer base who participate?

    Fallon: About 30 percent use the rewards program actively, but we probably have 40 percent signed up.

    Sterling Hawkins: We very much see incorporating the cell phone into our system at some point in the future, as we believe in communicating with customers using whatever media they prefer. If they want to get messages on their cell phone one day, go to the kiosk another day, that's fine with us. Once you create that concept digitally, there's no cost in sending it out through multiple channels.

    Fallon: I totally agree.

    Gary Hawkins: The only point on which I would differ is we subscribe to the theory or belief that we want as much accurate customer data as we can possibly get. I'm not comfortable using a telephone number as that ID.

    Now, in your case, it's a different scenario, in the sense that your customers have a reason to give you the right phone number, so they get their rewards. But I find that many retailers, especially larger retailers that have enabled telephone to trigger the discounts, are saddled today with a huge amount of garbage data.

    We use customer data like we use scan data, and just as we use and rely on bar codes and accurate scan data to make decisions, we need to accurately identify and scan our customers.

    Progressive Grocer: Can customers pay using their phones?

    Fallon: Not yet. They have to put in their phone number.

    Gary Hawkins: MobileLime did offer that at one point.

    Fallon: They did. But I believe wholeheartedly that in the end biometrics will be the loyalty solution of choice.

    Gary Hawkins: Regardless of which technology is used, biometrics or mobile, make it valuable enough for me, and I'll adopt it.

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