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The stakes keep getting higher. Supermarket operators are increasingly seeking out new services to include among their offerings, and because of this, they're demanding more functionality and easy-to-use graphical interfaces from their point-of-sale systems.
Not surprisingly, this has spurred Windows-based POS systems -- particularly those with powerful processors -- to take the lead in terms of the size of the installed base. Indeed, 42 percent of all supermarkets at present have installed Windows-based POS systems, according to the "2008 North American Retail POS Terminal Study," released last month by Franklin, Tenn.-based retail technology consultancy IHL Group.
"Upgrades to POS technologies continue to drive store renovation and serve as the primary customer-facing device in retail," says Greg Buzek, president of IHL. "These new industry-standard installations open the door for retailers to add more advanced functionalities such as CRM loyalty systems, cross-channel integration -- merging the Web site with the store for a single view of the customer -- and better inventory visibility for associates at the point of customer interaction."
IBM has no plans to give up its foothold among tier 1 food retailers, and the continued reliability of its 4690 POS system makes grocers reluctant to give it up as well. While grocers already tend to hold onto their POS systems longer than other retailers -- with an average terminal replacement rate of about nine years -- among many IBM 4690 users, the rate extends even longer. This is primarily due to the high proliferation of IBM 4690 systems that have been in this market for years. One advantage of the 4690 POS is that it runs well on older systems using x286-/386-class processors. Indeed, the 4690 platform's stability has led retailers to hold onto their terminals far longer than even IBM would hope.
For those companies seeking to move forward, the more advanced processors mean a graphics capability at the POS that the 286/386 simply can't offer. According to IHL, grocers as a group are beginning to accelerate their systems' replacement rates, as maintenance costs now often exceed the cost of new units.
IBM dominates Tier 1
The IBM 4680/4690 Operating System still has a large foothold in the food/supermarket sector, with 39 percent of the total installed base, notes IHL, but among Tier 1 grocers its share soars to about 70 percent of the installed base among the top 20 food retailers. Because of this, industry consolidation continues to favor IBM.
However, this is steadily changing, IHL says. Faster processors and the promise of graphics have given rise to the emergence of both Windows XP and Linux (IBM's migration path for 4690) in this space. This is the fifth year that 4690 wasn't the overall leader in installed base. Windows NT/2K/XP systems now hold 42 percent of the overall share -- and the highest share among the tier 2/3 retailers.
Following are some trends that IHL says will affect retailers' future POS installation strategies:
Increased competition and margin pressure: Wal-Mart remains the No. 1 grocery retailer in the United States. Because the mega-retailer can leverage the margins of nonfood items, it can take a lower profit on the food items, thus driving down margins across the food segment. This lower-profit climate means that grocers will continue to focus their limited IT spending on improvements that can generate greater efficiencies and a stronger bottom line.
In addition, grocers' store remodels will be geared toward providing more value-added services for customers, such as pharmacies, meal replacements, and gas pumps, each of which requires more sophisticated POS solutions, and may drive POS replacements.
Component-level buying: Historically, grocers bought the entire POS system all at the same time. However, advancement in various technologies has now enabled upgrade replacements of the individual components at different times. For this reason, retailers are now breaking out all POS bids so that each component is being bid separately.
Integration: Retailers are also requiring that the new hardware and software work with existing hardware and peripherals. This trend is being influenced by open standards, but different operating platforms are easier than others to support on older hardware. The managing of these relationships and potential conflicts will be key to the planning of future POS deployments.
Self-checkout: IHL estimates that 95 percent of all North American grocery chains will have some form of self-checkout by 2009. The payback on the systems ranges from 12 to 15 months.
Electronic check conversion: The enactment of the Check21 legislation in October 2004 brought a higher profile to electronic check conversion (ECC), which is the conversion of a physical personal check into an electronic image of a personal check. ECC enables check truncation, which is the literal removal of the paper check from the payment-processing workflow. This benefits the retailer (and the banks) by eliminating paper-handling costs and payment float. Grocers with such systems claim a six-month payback or less. Based on this return, IHL expects this technology to quickly expand wherever checks are still a significant payment method.
Loyalty systems: The issuance of loyalty cards from retailers has added a new dimension to the POS system by determining specialized pricing for loyalty members. This functionality provides the opportunity to do targeted customer pricing beyond just two groups, and more concentrated to the individual customer. IHL expects retailers to move in the direction of customized pricing; however, they'll have to replace current back-office systems to support this level of customization.
Shrink: With the industry average for shrink at 1.65 percent of sales for all retail stores, it's obvious the potential effect it can have on a sector whose average net profit is 1.46 percent of sales. Because of this, grocers will increasingly seek POS systems that have theft deterrence as a primary feature and must easily integrate with loss prevention systems and store audit software.