BRANCHING OUT

Automated teller machines started out at banks, and then began turning up at other outlets. Before you knew it, they were ubiquitous. Could self-checkout systems be following the same pattern?Self-checkout, complete with scanners, POS terminals and payment machines, began purely as a supermarket application aimed at giving shoppers the opportunity to scan their own groceries while helping stores manage

Automated teller machines started out at banks, and then began turning up at other outlets. Before you knew it, they were ubiquitous. Could self-checkout systems be following the same pattern?

Self-checkout, complete with scanners, POS terminals and payment machines, began purely as a supermarket application aimed at giving shoppers the opportunity to scan their own groceries while helping stores manage labor costs. But over the past year, the customer-service and labor-management benefits of self-checkout technology have started to attract the interest of retailers outside the grocery channel, including home improvement and club retailers.

Industry observers are excited by the potential "halo effect" this trend could have for supermarkets as consumers become more familiar with the technology. That is, the more commonplace self-checkout becomes, the greater its usage may be in supermarkets.

"Anybody who implements self-checkout well automatically helps self-checkout in other retail environments," said Ed Doud, director of retail technology for Knowlan's Festival Foods, Vadnais Heights, Minn.

The breakout year for self-checkout was 2001, when huge rollouts by Kroger and Kmart spiked the number of lane installations to 11,000, said Greg Buzek, president, IHL Consulting Group, Franklin, Tenn. Earlier this year, Kmart, during its Chapter 11 bankruptcy proceedings, asked the U.S. bankruptcy court to void leasing agreements for its self-checkout machines citing the cost of maintenance and risk of theft.

IHL Consulting just released its annual self-checkout survey, "Retail Self-Checkout Systems in North America," which indicated that while overall activity in 2002 was less heated, self-checkout branched out into different retail channels, Buzek noted.

"The breadth of customers that installed was much higher [in 2002]," said Buzek. "You have a lot more places that are installing self-checkouts and trying them out."

Throughout retail, the installation base of self-checkout lanes grew 47% year over year in 2002, according to the IHL study. The study predicts that the retail self-checkout business in North America will surpass $1 billion in market value by 2005.

The biggest win for self-checkout last year -- indicative of the broader reach of the technology -- was The Home Depot, Atlanta. In other channels, Walgreens, Deerfield, Ill., and 7-Eleven, Dallas, are testing self-checkout registers, noted Buzek. Also starting to express interest are Lowe's, Wilksboro, N.C.; Office Depot, Delray Beach, Fla.; Sears, Hoffman Estates, Ill.; and Staples, Framingham, Mass., as well as a multitude of smaller grocery retailers and other chains, according to Buzek's findings. BJ's, Natick, Mass., became the first wholesale club to enter this arena with its plan to roll out an installation across 140 stores by the end of the year.

Robin Yaffe, director of marketing for Optimal Robotics, a self-checkout vendor based in Montreal, said that many different types of retailers, including convenience stores and smaller stores, have started to express interest in the technology as larger chains show positive reactions.

NCR, the Duluth, Ga.-based technology provider of retail systems, has seen the same channel proliferation, said Mike Webster, vice president and general manager for NCR FastLane, the company's self-checkout POS device. The company has moved beyond grocery into the drug, wholesale, discount, toy and office supply arenas. Vendors are also making the design of self-checkout lanes more flexible, offering scan-and-bag as well as conveyor belt units. Trying a new tack, NCR just unveiled the NCR FastLane Mini, a smaller unit designed for space-constrained retail locations such as convenience stores. The unit is one-third smaller than the standard FastLane model, Webster said. First installations of the smaller self-checkout model are scheduled for early in the third quarter.

Pioneering Independent

Knowlan's Festival Foods is one of the first independent operators to embrace self-checkout.

Knowlan's operates two small, conventional Knowlan's Super Markets and five upscale warehouse-formatted Festival Foods in Minnesota.

Doud oversaw installation of ACM (Automated Checkout Machine) conveyor-based self-checkout systems from Productivity Solutions Inc. (PSI), Norwalk, Conn., in three Festival Foods stores -- two over a year ago and one in the last six months in a new store.

Knowlan's stores also did a bit of pioneering in its market area, Doud said, and consequently had to train customers to use self-checkout lanes. Once trial was achieved, consumers responded positively, he noted, adding that familiarity with the technology at other formats should lead more customers to the units now.

Currently, 25% to 28% of orders, on average, go through the three self-checkout lanes in the Festival Foods installations, Doud estimated. During busy hours, that number rises well into the 30th percentile, he said. Doud pointed out that usage rates had risen about 5% in the last year. Those numbers are roughly in line with industry rates; up to 35% of transaction volume at stores using self-checkout goes through those lanes, according to Buzek, who pointed out that other channels are testing to see if they can achieve the same rate of use.

The average order size for customers using self-checkout at Festival Foods is currently 25% smaller than that for users of a traditional point-of-sale lane, Doud said, but added that the gap has been steadily shrinking. He anticipates that as customers become more accustomed to using self-checkout, the difference will continue to decrease, predicting that order sizes will be the same a year from now. Other retailers believe self-checkout is better suited for smaller orders.

While most supermarkets use four lanes within a self-checkout "pod," Knowlan's stores operate with three-lane pods. But Doud anticipates that with demands on checkers growing, that number could increase.

Doud noted that cashiers need to accommodate exceptions during transactions, primarily the acceptance of checks and items not on file. He said that as exceptions decrease, it will become increasingly easy for retailers to implement self-checkout, further reducing labor needs.

Predictions from industry observers about where self-checkout technology is headed still vary considerably. The only point of agreement among observers is that the technology is here to stay.

"I see an expansion of self-checkout technology; I wouldn't even consider opening a store without it," Doud said. "When you open a store with it in place, it's just a part of your business that customers get used to right away."

Buzek agreed, pointing out that as pricing comes down, the labor savings and customer-service benefits pay for themselves faster. Currently, he said the average payback for a store with four self-checkout lanes is about one year. He cautioned, however, that mobile self-checkout units can add significantly to the cost of a traditional installation (see story, this page).

Buzek is very bullish about the technology's future, in spite of slower growth in 2002 than the previous year, predicting that within the next four years, 5% of all transaction lanes in all segments will be self-checkout.

WHY NOT MOBILE SELF-CHECKOUT?

If consumers are taking to self-checkout at the checkout lane, why not give them scanning capability as they traverse the aisles to expedite the process even further?

That's a concept pioneered by Symbol Technologies, Holtsville, N.Y., and successfully implemented in Europe, especially the United Kingdom at chains like Safeway UK. But over the past several years, despite several tests, it has never taken off in the United States.

To address this conundrum, Symbol, in partnership with Cuesol, Quincy, Mass. (formerly Unipower Solutions) and other companies, decided to add promotional targeting capabilities to the scanning function to see if that would drive interest in mobile self-checkout. Symbol is also partnering with lane-based self-checkout vendors to extend the self-service feature through the shopping trip to payment.

The first U.S. chain to test the Symbol-Cuesol solution, called Shopping Buddy, is Stop & Shop, a Quincy, Mass.-based Ahold division, which has already rolled out traditional self-scanning lanes at over a hundred stores, said Kelly O'Connor, manager of communications for the chain. In April, the chain launched a test of Shopping Buddy at a store in Braintree, Mass., and plans to add two stores by summer's end.

Shopping Buddy consists of a touchscreen tablet, attached to a shopping cart, featuring a wireless Web browser, combined with a detachable mobile self-scanning device holstered to the cart. Shoppers see targeted promotions on the screen and scan their groceries with the device, which is tied to self-checkout lanes at the Braintree store.

Consumers who use Shopping Buddy swipe their loyalty card to initiate use and to access a number of functions, including: purchase history; targeted coupons and promotions; a running basket total; store circular information; a product locator with an in-store map; price checks; and order-completion notification from store departments such as the deli. The browser-based software from Cuesol uses Stop & Shop's in-store LAN to access a server where customer information is stored. Infrared technology in the Shopping Buddy tracks a shopper through the store, allowing information to be targeted using both a consumer's shopping history and the consumer's location in the aisles.

When shoppers complete their shopping trip, O'Connor said, they use a dedicated self-checkout lane. Shoppers that have used the mobile scanner while shopping scan their loyalty card at the self-checkout lane.

Stop & Shop declined to comment on the current status of the test.

A similar mobile scanning/promotion test, called Preferred Card Shop n' Scan, is taking place at Jewel Osco, Chicago, using Symbol handheld terminals but no touchscreen tablet. Cuesol is not involved in this test. Jewel-Osco parent Albertsons, Boise, Idaho, which launched the test in one store in Barrington, Ill., last fall, recently said it would expand the test to six stores.