Just the Facts: 2013 Technology Survey

Just the Facts: 2013 Technology Survey

Retailers and wholesalers in SN’s 19th annual State of the Industry Report on Supermarket Technology show a penchant for using data-driven applications rather than relying on hunches or experience

Data — big and small — is finding its way to the top of food retailers’ technology agenda.

Among applications/technologies that respondents to SN’s 2013 Technology Survey said they are using now, six of the 10 most commonly cited involve serious data crunching, including cashier monitoring, analytics, category management, data sharing with suppliers, data warehousing and business intelligence. These applications are being used by between 58.1% and 76.7% of respondents.

The preponderance of data-driven applications reflects the growing fascination among retailers with “Big Data,” the vast array of consumer data comprising POS, demographic, social media data and more. Asked whether their company leverages Big Data to better understand its customers, 20.9% of survey respondents said yes, and another 39.5% said they plan to do so, including 60% of larger respondents with 50 stores or more.

Not all data has to be big — there’s also room for “Small Data,” pointed out Citi Research, New York, led by analyst Deborah Weinswig, in its “2013 Retail Technology Deep Dive” report. Small Data can yield “quick, effective results,” the report said, “through the systematic study of customer response to promotions,” isolating the impact of factors like price, offer type and seasonality, and measuring ROI.

This new attitude toward data was captured by Nirup Krishnamurthy, A&P’s chief information officer, who said at the National Retail Federation’s Annual Conference, held in New York in January, “We plan to move from a gut-based, experience-based decision-making process to a fact-based, analytically oriented one tied to customer behavior and sales.”

SN’s survey of the technology used by food retailers forms the basis of this 19th annual State of the Industry Report on Supermarket Technology. The anonymous online survey, conducted Feb. 15-24 by Penton Research, a division of SN parent company Penton Media, elicited responses from 32 food retailers, five wholesalers with oversight of the technology applications used by the stores they supply, and six retail/wholesale companies.

More than one-third (37%) of respondents have annual sales in excess of $1 billion and about the same percentage (35%) operate or oversee 50 or more stores. Overall, the results reflect the state of supermarket technology across the industry, from operators with one store to those operating more than 750 stores.

The survey gathered information on applications currently being used and those planned for deployment in the next 12 months. It also looked at what companies are doing with websites, mobile marketing and social media, and inquired about cloud-based applications, online shopping, omnichannel retailing, Big Data and ability to scan the GS1 DataBar.

Needless to say, digital media play an increasingly prominent role at respondent companies. Asked whether mobile retailing and social media have changed their business, 34.9% of respondents said “a lot” or “somewhat” for the former while 41.9% said “a lot” or “somewhat” for the latter.

In terms of their IT budgets, food retailers and wholesalers were fairly conservative last year, as 65.1% maintained an IT budget that was 1% of sales or less. A majority of respondents (51.2%) said their IT budget would remain the same this year, and 20% of larger operators (50 stores or more) said they would cut their IT budgets.

On the other hand, there was a notable difference between small (1 to 49 stores) and larger operators, with 40% of the latter but only 14.3% of the former having IT budgets that were between 1.1% and 2% of sales.

Applications Table

Ordering by Computer

The currently used applications cited by the most respondents were bread-and-butter technologies — time and attendance (used by 86%), cash/check/EFT reconciliation (83.7%) and item/price management (83.7%).

But interest in more sophisticated data-driven systems is growing. In addition to the six top-10 favorites, computer-based ordering is another example of data-intensive store automation whose time has come. Overall, almost half of respondents (48.8%) said they use computer-based ordering, including two-thirds of respondents with 50 or more stores. That is a substantial uptick from five years ago, when just a handful of regional chains were leveraging computers to come up with store replenishment orders.

Another data-fed system, used by 46.5% of respondents, is demand-forecasting, which supports applications like computer-based ordering, price optimization and other analytical systems.

A number of technologies designed to improve the checkout process are being used by a wide swath of respondents. For example, check conversion, which turns paper checks into an electronic transaction, was cited by 46.5% of respondents. Imaging scanners, which allow cashiers to scan 2-D bar codes and coupons on mobile phone screens, are being employed by 46.5% of respondents, including a surprising two-thirds of companies with 50 or more stores.

Also at the front-end, a high percentage (80%) of the larger operators said they use self-checkout lanes, while only one-fourth of smaller operators said the same, which could indicate a greater focus on customer interaction and service by the smaller operators.

The survey also asked about POS systems that respondents will upgrade in 2013. Overall, just under half of respondents (48.8%) plan to upgrade POS software, including 73.3% of the larger companies. Payment devices are being targeted for upgrade by 46.5% of respondents, including two-thirds of the larger companies. These results reflect the many changes that will impact software and payment systems, such as mobile payment and the coming influx of chip-based (EMV) payment cards, as well as the development of new loyalty systems and the proliferation of new coupons, paper and digital.

Already more than three-quarters (76.7%) of respondents, including 86.7% of operators with 50 or more stores, have adjusted their POS systems to be able to scan and process the GS1 DataBar bar code on coupons. More and more CPG coupons are being distributed with the DataBar only, shedding the previously used UPC-A code, so DataBar-scanning capability has become imperative for an efficient front-end. The DataBar contains more information than the UPC-A code, which benefits both retailers and manufacturers.

Other notable applications cited by respondents:

• Perhaps reflecting the upsurge in severe weather events over the past year, more than half of respondents (55.8%) are employing disaster-recovery systems such as off-site data repositories, including 80% of the larger operators.

• More than half (51.2%) said they are using digital signs in their stores.

• Among larger companies, one-third have kiosks in their stores, and 20% plan to deploy them over the next 12 months.

• Almost half (48.8%) are making use of computer virtualization to reduce their investment in servers, including 80% of the larger companies.

• Sixty percent of the larger respondents have struck scan-based trading arrangements with their suppliers.

• Just under 40% of respondents are using end-to-end data encryption to secure their payment data as it makes it way from the POS through the payment networks. With the recent POS data breaches at the Arizona-based chains Bashas’ and Sprouts Farmers Markets, more retailers may opt to secure their systems with end-to-end encryption, tokenization and other measures.

• Thanks to the spread of foodborne illness in recent years, recall systems are being employed by just under 40% of respondents, including 53.3% of larger operators. A prime example of a recall system is the Rapid Recall Exchange, a portal created by the Food Marketing Institute and GS1 US that has been joined by numerous retailers and manufacturers in recent years.

• Data synchronization, a standard way for manufacturers to exchange product data, is being leveraged by just under a third of respondents.

New Applications

The survey also asked about applications and technologies that will be deployed for the first time over the next 12 months. Only 53.5% of respondents provided answers to this question, indicating a fairly conservative technology investment posture.

The applications most often selected (by 18.6% of respondents) for upcoming deployment are mobile devices for managers and price optimization. The latter is an application whose popularity has been growing for a number of years, though it is being used by just under one-third of respondents. The availability of price optimization via software-as-a-service is making it more affordable for retailers and should drive adoption of price as well as promotion and assortment optimization, also selected by respondents (16.3% and 14%, respectively) for implementation over the next year.

Indeed, the cloud — the Internet platform for software-as-a-service as well as infrastructure (computing power)-as-a-service — is gradually becoming more accepted among retailers as a cost-saving alternative to investing in software and hardware behind their own firewall. While 30.2% of respondents don’t use the cloud, another 44.2% are leveraging it for less than 10% of their applications, including a whopping 80% of the larger retailers.

Mobile devices for managers are a more recent innovation that is already being used by 34.9% of respondents, including 46.7% of the larger players. Many retailers view this technology as a way for managers to keep tabs on labor requirements and other store-related tasks while on the sales floor, without being tethered to the back office.

Computer-based ordering and fresh-item management, both of which make calculations about how much product should be ordered or prepared, will be deployed over the next year by 14% of respondents.

Trade promotion management, used by only one in four respondents, is on the implementation agenda at 14% of the companies. This application, plus its more advanced version, trade promotion optimization, helps retailers and suppliers work together on fundamental promotional and merchandising decisions that result in mutually beneficial and sustainable outcomes. Workforce management, already used by more than half (51.2%) of respondents, is another application set to be deployed by 14%; this application is seen as an increasingly necessary weapon in dealing with low-margin  competitors.

Interactive Websites

Retailers have been spending much of their attention of late beefing up their presence online in an effort to make their website as appealing to consumers as their stores. For example, interactive online features that allow shoppers to manipulate lists, recipes and fliers are used by 44.2% of respondents, including 60% of the larger companies. About 42% of respondents enable customers to personalize their lists and recipes.

Coupons represent a growing presence on websites, as 58.1% of overall respondents and 73.3% of larger companies offer printable online offers, while 30.2% of the former and 40% of the latter provide coupons that can be downloaded to a loyalty card or phone.

Notably, 14.3% of smaller respondents with fewer than 50 stores did not supply feedback on their website, suggesting that they don’t have one, a glaring omission in today’s marketplace. None of the larger companies fell into this category.

Online food shopping continues to gain traction in the industry. A little more than one-third (34.9%) of respondents offer online shopping, including 46.7% of larger operators. Another 14% of respondents plan to roll it out this year, though nearly half (48.8%) have no plans to do so. Of those companies that offer online shopping, both home delivery (80%) and store pick-up (60%) are widely used options; most of these companies (73.3%) rely on their stores as fulfillment centers for online orders.

Social media — particularly Facebook — has become almost as basic to retailers as their websites. Almost three-quarters of all respondents (72.1%) have a Facebook page while 41.9% send out messages on Twitter. Common social media features include coupons (44.2% of respondents), promotional information (37.2%) and responding to shopper-generated questions/complaints (39.5%); the last is more frequently cited by smaller companies (42.9%) than larger ones (33.3%), indicating a greater sensitivity to shoppers among the smaller  operators.

Shopping is one feature that has not been widely offered on social media as only 18.6% of respondents cited it. And customer analytics was selected by just 20.9% of respondents, indicating that many retailers are still getting up to speed when it comes to understanding the significance of their social media data, a key part of Big Data. Notably, 25.6% of respondents did not provide feedback on social media, which is not quite as ubiquitous in retail as websites, though gaining fast.

In its report, Citi Research sees first-mover advantage for retailers who use social media to connect with consumers on a more personal level and formulate it to drive sales “in a manner that doesn’t merely replicate their ecommerce websites.”

The most popular features in the mobile apps offered by respondents are coupon downloads and list making, both cited by 34.9%. Bar-code scanning is tied for second at 27.9% with loyalty programs and recipes. Scanning can be used for a number of purposes, such as to scan QR codes for web links or bar codes for product or pricing information. Some chains, such as Ahold USA and more recently Wal-Mart Stores and Woodman’s Food Markets (both on a limited basis), allow shoppers to use their smartphones to scan and bag as they shop and then pay conventionally at the front end.

Paying by means of a smartphone is still in the early stages of adoption in the U.S., with just 7% of respondents offering this feature. A number of players, including Google, Isis, PayPal and the Merchant Customer Exchange (MCX), are jockeying for position in the emerging mobile payment market.

Surprisingly, text messages, one of the earliest mobile apps offered by retailers, were cited by only 16.3% of respondents. Daily deals, at 18.6%, did not fare much better. A sizable percentage of respondents, 37.2%, did not deliver any feedback on mobile apps — more so among smaller companies (42.9%) than larger ones (26.7%), indicating that mobile app adoption across the industry is far from ubiquitous.

Much has been said about the need for retailers to integrate their store, online and mobile marketing channels into one omnichannel platform, but only 16.3% of respondents indicated that they have done so. Still, another 65.1% said that this is under consideration or in development. 

About This Survey

SN’s 19th annual State of the Industry Report on Supermarket Technology is based on a survey of 43 food distribution companies, including 32 food retailers, five wholesalers with oversight of the technology applications used by the stores they supply, and six retail/wholesale companies. The survey was developed by SN editors and conducted Feb. 15-24 by Penton Research, a division of SN parent company Penton Media.

Of the 43 respondents, 28 (65.2%) represented companies with fewer than 50 stores, and 15 (34.8%) were from companies with 50 or more stores. In addition, 62.8% said their company had sales of under $1 billion, while 37.2% of respondents reported that their company’s annual sales were $1 billion or more.

The job titles of respondents included CIO, CTO or VP of MIS (32.6%), IT director or manager (14%), president (27.9%), non-IT vice president or C-level (7.0%) and a variety of others, including category manager, CFO, controller, EVP and CIO, sales director and store manager.

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