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    TECHNOLOGY: Groundbreakers

    These grocers are among the ones that just get it -- and they're helping pull the industry into retail technology's new age.

    The past 12 months saw early adopters bringing entire new classes of technology to bear on food retailing, by making real headway with initiatives such as tying loyalty programs to a consumer's fingerprint, effective marketing to mobile phones, and offering contactless card payment to shoppers on the run.

    These pioneering grocers have moved the industry a step closer to the ideal of a fully tech-enabled market, equipped with accurate knowledge of what consumers want, and the ability to efficiently deliver it to them. Here they are:

    Loyalty with a finger

    One of grocers' biggest gripes about loyalty programs is that the data most programs generate isn't very reliable or actionable. Shoppers forget to bring their cards for every trip, and/or borrow someone else's, and the integrity of the data is then compromised.

    Pretty soon all the intelligence that an expensive loyalty program has gathered is useless. This leads grocers to misapply the programs.

    "Quite frankly, we've been hard-pressed to find retailers that are doing the customer loyalty program with specific customer successes," says Greg Buzek, president of Franklin, Tenn.-based retail technology consulting firm IHL Consulting. "Most retailers use the loyalty card as a discount card only to identify certain brands, rather than to target specific individuals. Instead of targeting specific offers to specific customers, the system is set up to target certain products to the masses, at a discount."

    But now some retailers can take technology that has been relied on for years to identify crooks, and tie that to their loyalty systems so that they can reliably link a transaction to one person -- and one person alone.

    In January Green Hills, an independent one-store operator based near Syracuse, N.Y., launched its Pay By Touch SmartShop service, in which biometric technologies teamed with Green Hills' marketing services to provide a loyalty program that's directly linked to individual customers. SmartShop gives shoppers customized offers on the products they buy most when they enter the store -- before they shop.

    "The SmartShop service has been extremely popular, and shopper participation is already impacting 50 percent of store revenue," says Gary Hawkins, c.e.o., Hawkins Strategic and proprietor of Green Hills. "We have seen offer redemption rates exceeding 20 percent, and SmartShop is driving a significant increase in revenue."

    A new self-awareness

    Wegmans' decision last month to close its 20-year-old in-store video rental departments to make way for Redbox video kiosks shows just how far self-service technology has come. Letting shoppers serve themselves is now being recognized by some operators as a new form of valuable service. They've come to realize that self-service systems, including self-checkout units, kiosks for dispensing information and taking orders, and DVD vending machines, can complement even the most service-oriented operation.

    The technology may not be new, but the way some retailers view it today certainly is.

    Newport Avenue Market, an upscale supermarket in Bend, Ore., is well known for delivering excellent customer service. As such, owner Rudy Dory only reluctantly considered installing a self-checkout system. He ultimately decided it was a competitive necessity, since most of the retailers in his trade area already had such systems.

    Still, Dory feared he might be going against his store's roots, and that shoppers might agree. "I thought my shoppers would view it as a reduction in service levels," he recalls.

    Sometimes, guessing wrong isn't a bad thing. After Dory installed the Fujitsu U-Scan self-checkout system, he saw customer acceptance and usage take off immediately. Most shoppers were happy to choose self-checkout for a five- to 10-item basket.

    "We saw about 20 percent of our total transactions through self-checkout during the first month, and it quickly escalated to 35 percent by the second month," says Dory. "And we've continued to average right around 35 percent since then."

    "Self-service is good customer service," agrees Ray Carlin, c.e.o. of StoreNext, which markets the self-checkout system Dory installed, as part of a suite of solutions aimed at independent grocers.

    According to IHL, stores with self-checkout systems see from 25 percent to 40 percent of transactions, and 15 percent to 25 percent of the total dollar volume gravitates to those systems. In a recent IHL Consulting Group/RIS News survey of retailers, The Consumer-driven Store, 60 percent of respondents said they were planning to purchase self-checkout systems by this June.

    Self-checkout is sharing the DIY revolution with information kiosks, as consumers seek to learn more about their purchases. Originally designed to deliver health and drug information -- as with the now widespread Healthnotes kiosks often tied to in-store pharmacies -- these freestanding units are popping up elsewhere in the store, serving as founts of information about products in almost every department.

    Supervalu's Farm Fresh Stores division, for example, employs information kiosks in the produce departments to make nutritional data and recipe suggestions for fruits and vegetables easily available.

    Other retailers have installed wine kiosks to create an entire consumer experience based on wine-and-food pairings, which is especially useful for a potentially profitable department that tends to intimidate consumers.

    While no kiosk can replace a knowledgeable and personable live in-store wine expert, some retailers are using the kiosks to provide ratings and reviews for all of their wines, along with recommendations for complementary cheeses and recipes. The kiosks also provide targeted promotional opportunities.

    Kiosks benefit other in-store users besides shoppers. The units can also help shorten the learning curve for employees who are new to a department, and the specialty products within. It's often a lifesaver in the produce department, for example.

    Deli-ordering kiosks, such as those the Fort Lee, Va.-based Defense Commissary Agency is installing this month, help relieve the lunchtime burden on service deli staffs, freeing clerks from the task of ringing up orders so there are more hands making sandwiches.

    Price optimization for all

    Many chains have already proved that consumer demand management technology can work. Delhaize America, Ahold's Giant-Carlisle, HEB, and Safeway have used the technology for years, and have renewed or expanded their vendor contracts because of this success.

    This technology used to be too expensive for smaller retailers, but not anymore. Several months ago, new vendors began offering less expensive, Web-based versions of the software, and demand management technology has been picking up steam among independents and smaller chains ever since.

    Community-based grocer Mollie Stone's Markets is using Web-based price optimization software from Sacramento, Calif.-based Revionics, to help generate demand and better analyze item movement. Revionics offers retailers and distributors the software as a weekly subscription model over the Internet.

    "Price optimization systems provide tremendous value," says Mike Stone, owner of Mill Valley, Calif.-based Mollie Stone's. "The price of every item is optimized each week, allowances are more easily managed, and the visibility we'll have into our product selection and its movement will greatly improve our category management."

    Other independents that have begun licensing software and managing pricing like the big boys include Roth's Markets, Vallarta Supermarkets, and Ball's Food Stores.

    On the move

    The past 12 months also saw retailers experimenting with different ways of extending their brands to consumers' mobile phones, a trend that's sure to catch on as mobile devices with advanced functionality become more commonplace.

    Community-based independent Chevy Chase Supermarket launched a program to offer its customers rewards and instant savings linked to their cell phones. The Maryland retailer is using the Mobile Rewards solution from Boston-based MobileLime, which has developed technology that turns a lowly mobile phone into a marketing, loyalty, and payment device.

    "As a neighborhood grocer, we want to build a relationship with our patrons, and MobileLime's Mobile Rewards program enables us to interact with them in real time, communicating up-to-the-minute specials and events," explains Chevy Chase spokesman Kevin Kirsch. "Shoppers can now get instant savings without carrying a card, and receive just-in-time shopping information about new products, events, sales, and promotions on their cell phones. And down the road we expect to add mobile payments to the mix as well."

    Twin Cities regional online grocer SimonDelivers, Inc. extended its customers' online ordering capabilities with a new service that gives them the ability to place orders using their wireless mobile devices.

    Called SimonDelivers Mobile 1.0, the service allows customers to place orders from any mobile device that has a Web browser -- including a BlackBerry, which the retailer is offering free to active customers to encourage participation.

    Mobile 1.0 allows customers to view grocery lists, click on the items they want, and check out, all from their cell phones.

    "It's all about extending convenience to our customers," notes Steven Lauder, v.p. customer relations. "People use us to make their lives easier. Technology is rapidly converging to help us perfect this goal. Mobile devices, in particular, are about convenience, and SimonDelivers Mobile 1.0 is a strategic first step in developing alternate and easier ways for consumers to shop with us."

    Among the larger chains, Meijer has piloted a gasoline text-messaging program that alerts customers in advance when the retailer's gasoline prices are going to go up, so they can fill up before the hikes actually hit the pump.

    "Text-messaging our customers about gas prices creates loyalty by sharing relevant information in an easy-to-use format," says Jeff Handler, Meijer's s.v.p./marketing and advertising. "Using a mobile channel to communicate is one way we will continue to meet the ever-evolving needs of our customers."

    Touch and go

    Like biometric and cell-phone-based payment systems, contactless payment systems are all about allowing shoppers to leave their credit cards at home. What's more, they speed throughput at the checkout—one of the key attributes accelerating their deployment.

    Spending on the contactless hardware, software, and services market is poised to hit $800 million by 2011, up from just $260 million last year, according to RFID Contactless Payments, a report from New York-based ABI Research.

    Elizabeth, N.J.-based Wakefern Food Corp. last month began accepting Visa cards with embedded contactless payment technology, allowing consumers to employ the technology to buy groceries at more than 4,000 POS locations in over 200 ShopRite and PriceRite stores across New Jersey, New York, Connecticut, Pennsylvania, Rhode Island, and Delaware.

    Contactless technology enables shoppers to buy items by holding their contactless cards near a secure reader at checkout instead of swiping them. A tiny radio frequency chip embedded in the card securely transmits the account information.

    The technology eliminates the signature requirement for most payments under $25, providing even more convenience to customers making small-ticket purchases. In addition, the chip embedded in the contactless cards generates data unique to each transaction, ensuring the same data can't be used for fraudulent contactless transaction.

    Shrink resistance

    Food retailers are increasingly employing technology such as digital surveillance, biometrics, and bottom-of-the basket scanners to thwart shrink at their operations, a strategy that has paid off in recent years: Losses from theft and other forms of shrink decreased to 1.69 percent of sales in 2005, down from 2 percent the previous year, according to the Food Marketing Institute's Supermarket Security and Loss Prevention 2006 report.

    New systems with advanced algorithms help sift through transaction data to spot activities that indicate potential shrink. United Supermarkets in Lubbock, Texas saw a 43 percent reduction in refunds and voids, a seven-cent increase in value per item, and a 5 percent increase in sales per customer just 12 weeks after deploying ShrinkTrax and DM2 loss prevention solutions from Scottsdale, Ariz.-based Trax Retail Solutions (now owned by March Networks).

    Lanham, Md.-based Shoppers Food & Pharmacy, another division of Minneapolis-based Supervalu, is installing a new loss prevention system developed to reduce bottom-of-the basket shrink at the checkout.

    Evolution Robotics Retail, Inc.'s LaneHawk Visual Scanner scans the bottom of the shopping cart at the checkout and automatically rings up the items or alerts the clerk of the presence of an item it can't read.

    Crying gas

    Erratic oil prices don't bother just consumers -- for retailers that sell fuel, a sudden spike can mean a significant loss of margin, unless they can price the product accordingly. To combat this, retailers are deploying price management software to manage their margins.

    Lufkin, Texas-based Brookshire Bros. has installed Florham Park, N.J.-based KSS' PriceNet solution, to model and forecast the impact of different fuel pump prices and consistently achieve volume and margin goals.

    "In an industry where daily rack price changes can result in 40 percent to 50 percent swings in street margin, it is imperative that we are competitive and profitable at every single location, for every single price decision," says Larry Negron, director of petroleum marketing at Brookshire Bros. "KSS PriceNet gives Brookshire Bros. a definite pricing advantage over our competition. We are able to analyze different pricing scenarios per location and price in a way that will not only generate the highest-volume results, but the greatest ROI as well.

    "With the volatility of gasoline prices today, it is extremely crucial for us to analyze our pricing and competition on a daily basis," concludes Negron.

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