(The following article with accompaning charts may be downloaded as a .pdf file. Click on the "Reports & Analysis" bar, and look for Progressive Grocer's In-Depth Feature.)

Industry executives seem to be increasingly comfortable with technology, and most agree that new POS, category management, price management and employee training systems are having an extreme impact on day-to-day operations.

However, executives across different disciplines are mixed on whether technology is improving the bottom line or customer service. These were some of the issues revealed in an extensive survey on the state of retail and wholesale technology by Progressive Grocer in partnership with Coinstar, Bellevue, Wash.

The survey was conducted in July and August among 332 CEOs, buyers/merchandisers, IT executives, store operations managers and sales and marketing executives. The survey focused on the impact of technology on operations, what's hot in new technology and whether respondents were satisfied with the current state of supermarket technology.

It is interesting to note that while POS was the hottest category in the entire study, less than two-thirds of respondents were satisfied with these systems. This same trend–in varying degrees–is true of every category in the study, indicating a major opportunity to develop systems that not only fill a need in the industry, but also perform better.

Underscoring the survey results is an exclusive technology Q&A with Dennis Post, vice president, information technology and services, Meijer Inc., Grand Rapids, Mich.; Marvin Imus, vice president, Paw Paw Shopping Center, Paw Paw, Mich.; Bob Borlik, senior vice president/chief information officer, Supervalu, Eden Prairie, Minn.; Bob Schoening, CIO, Pathmark Stores, Carteret, N.J.; Nick Liakopulos, vice president, information technology, IGA, Chicago; and Bob Jenkins, MIS director, Ingles Markets, Asheville, N.C.

How do you see technology changing in the next two to three years?

Schoening: "Companies that are developing programs for wider use of wireless technologies are becoming increasingly important. Not only PDAs, but also how we communicate between different devices, such as scales or point of sale. Anything to help store management have information at their fingertips without having to make periodic trips to gather information."

Borlik: "In the past few years we've focused on store systems and productivity. The relationship between the retail organization and the customer is going to get much closer, which is going to require system enhancements and a lot more data than we have today."

Imus: "We'll go deeper into thin client and wireless networking. Self-scanning is going to continue to grow significantly, if not dramatically. I think it's going to be a standard customer service, instead of something unique."

Liakopulos: "Even though we've had the dot-com crash, I still believe the Internet will be a key element to share knowledge, information and data. Supermarket managers will be accessing information and managing business remotely."

Post: "We see packaged software improving both in terms of functionality and quality. We will see a maturity of Web-based applications."

Jenkins: "We'll be putting kiosks in the store for customers to check retail prices or product ingredients."

How will technology spending change in the next 24 to 36 months?

Schoening: "Since April we've been on an aggressive technology replacement program. We are rapidly spending dollars to upgrade our Wide Area Network communications to frame relay and a major corporate upgrade to the Carteret campus. I've got capital spending taking place today replacing point-of-sale controllers in all of our stores this fall. Next year we will be rolling out IBM SurePos 750s. I expect that we will be rolling out self-scan technology in the majority of our stores concurrent with that upgrade. This fall we're also testing a scale management system. I expect to do a rollout in the first half of next year. We're in the process of putting together a project plan for shifting to a Lotus Notes e-mail system to be implemented at headquarters and in the stores. We're now in the final stages of a major project that will replace all of our financial software. With that we're looking to implement a new capability that will allow the store to do e-requisitions and e-receiving of product.

"Probably software with the most impact on our business is in merchandising. We continue with a task group reviewing products from many software providers to replace our marketing and merchandising systems. We'll have a decision made this fall, and then through the balance of 2002 and into 2003 put a lot of energy into replacing that software, which will also include the implementation of data warehousing."

Post: "The only change is that we'll be more prudent. We've always been very pragmatic about spending, but I think we will get more for less because of the Web-computing model, as well as better applications and more choices."

Borlik: "Overall, I don't think you're going to see gross increases in spending. We will prioritize things differently. In the past, we spent a lot of money on point-of-sale systems or different kinds of host support. We'll spend more money in areas that directly affect customers, and that could be Internet access or customer relationship systems that capture more information."

Imus: "Spending can be pretty static in a dollars sense, but actually you're buying more because technology prices continue to drop. What you buy today for $5,000 is dramatically different than what $5,000 will buy next year."

Has your company experienced difficulties in implementing new technology?

Schoening: "No. If you go back to the '80s, Pathmark was one of the leaders in technology, and then as it suffered the last 13 years living under an LBO and heavy debt, it didn't have the capacity to spend on information technology. When the company went public last September, it created an opportunity and a change in the cash flow. The whole financial structure of the company is geared to invest back in stores and remodels, as well as in technology."

Borlik: Generally speaking, no. The key is finding the skills to implement new technology. One of the biggest problems is the training programs that require skill resources. Many times you have to fall back on using expensive outside consultants."

Imus: "Yes and no. Part of my problem is that I try to do too many different things. We do a lot of developmental work with software companies, so we have issues."

Liakopulos: "Adoption of new technology means learning to do your business in a different process flow. It takes a while for people to adapt."

Post: "I think companies would be lying if they say they haven't experienced difficulties. We purchased applications that lack maturity in conforming to a Web model. Some vendors may be two to four years away from conforming with our infrastructure."

Jenkins: "No, but we use a third party—they do all our maintenance and installation of POS and other store equipment."

To what extent has technology improved customer service?

Schoening: "Frame relay is about the only thing that has been put in place as part of our new initiatives, and in the 53 stores that I have up and running, we've seen a significant improvement in response time and tendering of debit and credit and EBT transactions. The impact on the customer is getting them through the checkout and out of the store. It has improved the general communication for those stores with headquarters operations, simply because of the speed with which we are able to move the transactions through the network.

"In the point-of-sale area, I've got the first of some new controllers in place. We've been using 10- to 12-year-old hardware in the stores. New technology reduces the frequency of breakdowns. It also enhances the ability of our office people to be more efficient.

"We expect to have significant improvements in the financial area by moving a lot of manual processes to automation as we replace our 25-year-old legacy systems."

Imus: "We do a lot of data mining, using that information to do category management and target marketing. When a customer imparts information about lack of service, one of the things we look at is how often and how much they shop with us. If they are a very large shopper, we tend to be very open with our response. A $5 or $10 response to an issue with a consumer pales in significance to a $5,000 a year revenue stream for us."

Post: "It has helped us lower the cost of goods and allows us to be more efficient. We use technology to collaborate better with our vendors, thereby improving in-stock conditions. That's a customer service component."

Borlik: "The technology we are using to improve the customer experience will improve our performance, such as on-time deliveries and elimination of miss-picks."

Jenkins: "I can't give you a dollar figure. But we are getting more timely information for our purchasing side, which helps customers at store level."

Liakopulos: "One of the good things that I hear from retailers is that the customer loyalty is stronger because of the customization and personalization offered by technology."

To what extent has technology improved profitability?

Post: "If we hadn't invested in technology, I don't think we would even be a viable competitor."

Imus: "It's a critical aspect. We wouldn't be as profitable without the information that technology provides."

Schoening: "It's too early to comment because there's only a minimal amount in place and what's in place has not been here for an entire accounting period. We're going to see the impact on profits over the next several reporting periods."

Jenkins: "We have reduced some costs by implementing EDI and have increased throughput on the front end. And with some of the programs that we have in place we've been able to significantly cut bad checks expense."

Borlik: "We're using technology to leverage our procurement opportunities through the WorldWide Retail Exchange. We're looking at improving our costs by changing from a proprietary application to more of a Web-enabled Internet version."

What are the hot areas in store operations?

Imus: "Self-checkout is a growing technology for all retailers. I'm not sure that all self-checkouts would work in a conventional supermarket. It would seem more likely in a limited-assortment store. With some of the issues among traditional grocers with different departments and unique promotions, the technology is not yet available for a self-scan environment. Right now we have a hard enough time training cashiers to handle a meal deal or buy one, get one free transaction, let alone trying to train consumers.

"But the wireless aspect of store operations is huge and is only going to get bigger. Information at the fingertips of the manager, no matter where he is, whether it's a PDA or a laptop screen pad, is a great tool.

"In-store kiosks are a tool, but we just haven't seen high enough usage rates with consumers. The primary grocery shopper is 40 to 50 years old, and they're not as Web savvy as the 20- to 30-year-olds. As the younger generation becomes the key to a supermarket's livelihood, they're going to demand better Web sites and more useful in-store technology.

"The biggest reason that the Internet hasn't really taken off for supermarkets is more an issue of broadband than of anything else. Consumers don't have time to sit down at a 56K modem and maybe get a 28 hookup and wait for the page to refresh every time they make a selection. It's just too time-consuming. Without broadband TV-like quality and response, you're just not going to get the penetration needed to get critical mass."

Schoening: "We're seeing a focus on wireless technology—trying to provide capabilities that improve information availability, not only to customers but to people that run stores. For many of us, there's a focus on loyalty. We've had a loyalty program in place for about a year. We're starting to benefit from information to better serve our customers. It tells us what goods we should have in place and how we should merchandise."

Post: "Most of what I see is ease of use and simplicity. The things that customers interact with–self-checkouts and kiosks–have to be rock-solid in terms of quality and simplicity. I see technology needing to become less complicated."

Borlik: "It's not yet ready, but radio frequency identification tags will allow the receiving process, and perhaps even the checkout process, to be much cheaper and more efficient. It's going to come down to how we can get the tags produced less expensively."

What are the hot areas in terms of buying/merchandising?

Schoening: "Systems that are able to deal with post-promotion price changes and those able to evaluate competitive prices are a hot area. Another hot button is promotional planning, taking offers from vendors and being able to view them in aggregate to prepare promotional plans across different departments in a meaningful way. It's difficult to find a single vendor that can serve these specific needs."

Borlik: "The data warehousing aspect of accumulating information—store level, shipment level, receiving level, and soon the customer piece, is critical to us, not only in accumulating that data but getting the decision support tools behind it."

Post:"There's a big future in scan-based trading. It works well with vendors who have consignment programs. One example is fireworks—you buy them once a year, a guaranteed sale item. We also see lots of opportunities in DSD, but there are some complexities you have to work through. Basically, it's a win-win, because it lowers the cost of doing business for retailers and the suppliers."

What are the hot areas in supply chain/distribution?

Schoening: "One of the hot areas is the potential benefit of the exchanges. There's a question of whether we need all of them. There has been so much hype that I think people are concerned because there hasn't been a tremendous benefit. Pathmark is actively investigating the role of exchanges. We strongly believe that it is part of our future. We have confidence that it's an area that needs time to develop the right capabilities within the exchanges that will serve the needs of both retailers and vendors."

Borlik: "For us, it's managing transportation better. It's a big cost, so we're looking at transportation management systems. We're implementing a lot of what people today are calling supply chain visibility and integration software, enabling manufacturers and retailers to know the status of particular orders."

Post: "There is a lot more that we can do in collaboration with vendors in predicting demand and executing

against it. We're looking to work more effectively with our suppliers to help us meet customer demand. There is a role for public exchanges in the future. But we're pursuing a private trading exchange path."

Imus: "Outside of DSD, more than half of the product we buy comes from our wholesaler. We have to make sure our wholesaler is up to speed. In our relationship with our DSD vendors, we must make sure we can accept the technologies that they are rolling out. This has created issues, because every DSD vendor seems to be trying to develop their own information network, which usually is not compatible with anyone else's.
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