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A small retail technology company based in Riverside, Calif. is making a name for itself overseas. Called IT Retail, the company sells an open POS system robust enough to outperform one of the Big Three POS vendors in a head-to-head test at a store with 32 checkout lanes. Now Martin Goodwin, IT Retail's c.e.o., is focusing on meeting the needs of independent grocers in the U.S. market -- a club of which he happens to be a member.
The major POS suppliers might just shrug off this kind of competition, confident that their army of resellers with solid industry knowledge is formidable enough to maintain their foothold in the independent market. But Goodwin's company has something they don't: a leader who's also a retailer, and has been one for the past 32 years.
Because he's the co-owner and v.p. of administration for Goodwin's Markets, a three-store family-owned operation, when he calls another grocer, that grocer picks up the phone.
Goodwin learned the family retailing business from the inside out. "My dad wouldn't let me get away from anything, including maintenance," he says. "I've worked at every position, coming up the ranks -- produce, meat, bakery, grocery, front end, liquor, wine, general merchandise. It gave me a good foundation for the business."
After graduating from USC's Food Marketing and Management program, to which he was awarded a scholarship, Goodwin began managing stores. Right away he saw that there was plenty of room for improvement. "The thing that really troubled me in our operations -- and in supermarkets in general -- was the productivity and the organizational structure," he says. "So I studied organizations for over a year and a half, looking for a solution."
He found one in the form of the Israeli army's organizational structure in combat. "Unlike many armies, they put their commanders out in front," he says. "In most other militaries you see someone in power in the back and the troops in the front. The Israelis put all of their leaders in front. They do get killed, but there are others right behind them who are trained well, who can take their place immediately.
"So we did that with our organization," says Goodwin. "We broke everything into groups. We no longer have a store manager, an assistant store manager, or a meat manager, for example; we just have all the functional responsibilities broken out into groups. You choose what group you want to be in, and those groups form the policies, determine how to carry out their policies; and then people are assigned to them and given goals, and wages are based on profits. Everyone is being utilized according to their capacity, and can grow as much as they want to."
There are a front end service group, meat service group, produce service group, liquor and wine service group, and groups for building and maintenance, administration, bakery, general merchandise, deli, and training.
As he put this structure in place, Goodwin realized that to maximize the potential of each group, he needed to arm the front-line folks with information, something that was difficult to do with the proprietary POS system he was using.
"All we could get were the system's reports that we had to manually enter into spreadsheets," says Goodwin. "We couldn't access the accounting information, POS info, sales information, and DSD information the way we needed to."
He needed an open system, one that had the flexibility to talk to other systems, but that was adapted to the harsh retail environment. Not satisfied with available technology, he decided to design one of his own. He envisioned how it should operate on paper -- everything from accounting, POS, DSD, and electronic payments.
Building the system
Goodwin took his design to Microsoft, but found the price the vendor quoted to develop the system -- approximately $250,000 -- a bit discouraging. Then Goodwin's brother suggested they might be able to sell it afterward, which would change the equation. "We had a family meeting, and the board, which is six children and my parents, voted on whether or not to do it," recalls Goodwin. "We were all in favor of it, so we took out a line of credit and started with Microsoft."
Seven months later, in September 1993, the new system was ready to install. Goodwin deployed it in an eight-lane supermarket, which he felt closely represented FMI's average supermarket statistics in number of lanes, employees, and products: eight lanes, 40,000 square feet of selling space, 45,000 items, and 90 employees.
Once the basic system was up and running smoothly, it was time to take it on the road, to make it pay for itself, and maybe more. Goodwin hired a friend who was a c.i.o. at another business, and launched a technology company, MS Solutions, DBA of Goodwin's Markets.
"We hired a few skilled programmers and built a model for how we were going to sell it," says Goodwin. "We followed the model of the Microsoft solution providers channel. We know grocery and how to write software, but we didn't know how to market it or support it."
Goodwin visited many countries, stopping by the Microsoft branch office in each one and demonstrating his solution. Acceptance was easy; the system was based on Microsoft Office, with a word-processing system, spreadsheet, and database integrated into POS, inventory, accounting, and electronic payments.
"We passed it on to the solution provider that we felt was the best in each country, and we taught them how to use it, gave them the source code and licenses," he says. "We take 40 percent, and they take 60 percent and can sell whatever hardware they want -- we get nothing on their PCs or their services."
Right off the bat, Goodwin had success in Mexico with its two largest retailers. One was Soriana, which has more than 100 stores and 32 lanes per store. It wasn't easy, however, and proved to be the first real stress test of the system.
"Soriana was running a proprietary system, and when its vendor learned we were approaching, it launched a campaign of fear, uncertainty, and doubt," says Goodwin. "Whenever this happens, the vendor brings in a top v.p. or a president and tries to scare the operator away from us."
For three months the deal was in a state of limbo. Finally, to settle the matter, Soriana decided to test the systems head-to-head. It ran each on 32 lanes of a store, with a checker and a bag of groceries ringing items as fast as possible to see what the breaking point of each system was. Goodwin's system outperformed the vendor's, and he won the account.
Country after country, it was the same story. Goodwin picked up retailers throughout Cantral America, South America, Canada, India, England, Turkey, and Egypt.
The domestic market was a different story, however. "Overseas they seem to have more vision than here when it comes to technology," he points out. "Here they still see Microsoft as just desktop software, for small things. They don't think it's industrial enough for retail."
Goodwin realized that to crack the U.S. market, he needed a hardware partner. After a brief stint with Hewlett Packard that ended when the company left vertical retail, he formed a partnership with Dell, which applies its U.S. service team to the support and maintenance of the system. Five years of service also comes with the contract.
Dell also teamed up with peripherals companies such as Epson for printers and PSC for scanners, and bundled them together with the software. "Now we do direct and indirect sales in the U.S., and overseas only direct," notes Goodwin.
Since he's now going direct in the United States, Goodwin has started offering services to independent retailers here. "The real need today for the independent grocer is to have systems that analyze the supply channels, products, customers, and demographics, in order to provide the right mix of products that will meet consumer needs," he explains. "That's when we changed the company name to IT Retail. We'll offer our software if you want to run it yourself, and every year we'll come up with a new solution, the newest technology from Microsoft. But we also have the IT version, which we can outsource to you, and we'll give you all the information you need to run your operations."
Goodwin literally stands behind his product. Each one is deployed and tested in his stores until it's ready to be commercially released. Currently in beta testing at his stores is an inventory/DSD product for independent grocers that measures gross margins coming in and going out of the store.
"It's very difficult for small- and medium-sized operations to have the discipline to carry out a good DSD program, because you have probably 40 to 50 vendors with 30 percent of the store's products coming at that back door, and that doesn't cover the other 70 percent from your wholesaler," he says. "And you can't take a scanner to your wholesaler's deliveries, because they have it on pallets, they're all bundled up and mixed together."
While he won't give details on the product until it's released, Goodwin will say that the system takes all the work out of the retailer's hands -- the operator provides the required data, and IT Retail responds with reports via e-mail.
He's also testing the Pay By Touch biometric payment systems in an effort to reduce the cost of credit card transactions by encouraging customers to pay by PIN debit through the system.
A loyalty program is also in the works. "Just because someone is one of your best shoppers doesn't mean they're a loyal customer," says Goodwin. "You don't know exactly how big their family is or where else they shop, so you have to have a tool that measures these items, but then you also have a tool to measure their satisfaction levels."
"Plus we have communication with the customer through the receipts and through e-mail. When you can measure from one to 10 their top categories vs. their money spending according to their income, then you have true loyalty. Until you get that, it's a gimmick, points. It's not really delivering customer satisfaction."