Electronic shelf labels refuse to die. But will they ever find a home in the U.S. supermarket industry?
ESLs — wireless plastic modules that display digital prices on LCD or LED screens and are controlled from a back room — have been marketed to U.S. food retailers by a slew of small and large technology vendors over the past two decades, to little or no avail. Despite their ability to execute thousands of price changes electronically, thereby eliminating the labor- and time-consuming manual process of creating and changing paper price labels, most U.S. food retailers have declined to deploy ESL systems. The consensus has been that they are too costly and offer an unsatisfactory return on investment.
In recent years, ESL systems have averaged between $6 and $8 per label, though some vendors are now marketing a $5 version. ESLs have typically been used in Center Store and nonfood departments along shelf edges in place of traditional paper labels, with a total cost per store generally exceeding $100,000. “I believe there is interest [in ESLs], but the price points of the tags still makes cost a challenge,” said Mike Brown, general manager, Unified Grocers, Commerce, Calif.
Greg Buzek, president of IHL Group, Franklin, Tenn., who tracks the deployment of retail technology by food retailers, pointed out that the very effectiveness of ESLs in cutting labor costs may be inhibiting their adoption. “These devices affect the number of labor hours used in the store for item management, and unless the labor is redeployed, there is a loss of jobs,” he said. “That is a big problem for those retailers who are unionized.”
At any rate, very few U.S. chains or independents are known to be using ESLs. There are exceptions, notably in Connecticut, which provides an exemption to its item-pricing law to retailers who use ESLs, vastly improving the business case for the technology. But even there the acceptance of ESLs has waned since the Nutmeg State changed its item-pricing law in October 2007 to also allow exemptions for retailers that install in-aisle price scanners.
“Several [Connecticut] independents started removing ESLs in 2008 and more in 2009,” said Steve Methvin, vice president of retail technologies and ecommerce systems for Bozzuto's, a wholesaler based in Cheshire. Those retailers opted to install in-aisle price scanners because “paper tags were less expensive to maintain and upgrades to the ESL systems were expensive,” he noted. Still, Methvin added, most of the Bozzuto's independent retailers that elected to use ESLs continue to use them today.
Another issue cited by Methvin is the readability of the labels. “ESLs are hard to read and even the newer tags have not overcome this issue,” he said. “I believe this is why customer acceptance for ESLs was never good and they are disappearing. Even in the ESL stores, we have resorted to printing overlays to help customers read the tag.”
Despite ESLs' checkered history, there remain vendors and retailers that believe in their potential to cut in-store costs and improve pricing and marketing efficiency. In Europe, for example, ESLs have found a much wider rate of adoption than in the U.S.
Moreover, improvements in technology are bolstering the business case for ESLs, raising the prospects for adoption by major chains in this country. In addition, the growth of price optimization systems has sparked interest in how they could work in tandem with ESLs. Some retailers praise ESLs for cutting paper label usage and thereby helping the environment.
“I still believe in the future of this technology,” said Brown. “Maybe other business drivers like price optimization, changes to local state or federal laws requiring price marking if ESLs are not used will create more future demand.”
ESLS IN OREGON
Outside of Connecticut, a small pocket of ESL adoption has formed on the other side of the U.S., in central Oregon. There, two single-store independent retailers — first Newport Avenue Market in Bend, and then Terrebonne Thriftway in Terrebonne — have installed ESLs over the past few years.
Bonnie Villastrigo, owner of the Terrebonne Thriftway, learned about ESLs from Newport Avenue Market, located about 20 miles from her store. (See “Newport Avenue Market: Creating an Image Through Technology,” SN, May 5, 2008.) “I went there several times to look at them and see how they liked them and how easy it was to switch over,” she said. “They did nothing but rave about them.” So in late 2008, she installed the same infrared-based ESLs — from Pricer, Stockholm, Sweden — in all departments of her 10,000-square-foot store apart from deli, meat and produce. The installation cost $124,000.
The dot-matrix labels display regular and sale prices, and feature a red blinking light to call attention to sales. They run on batteries that last eight to 10 years when running all the time; Terrebonne's labels shut down overnight. Unlike Methvin, Villastrigo said customers find the labels easy to read. The labels electronically sync with the POS, preventing price discrepancies between the front-end and shelves.
Villastrigo estimated that the ESLs save about 20 to 24 hours per week of labor that was being spent printing and hanging shelf tags, in addition to savings in paper, plastic, clips and ink. The store makes between 500 and 1,000 regular price changes every Friday, between 200 and 300 promotional price changes on Wednesday, and between 500 and 1,000 temporary price reductions on Monday. The employee who had been hanging paper tags now edits the price changes in about 20 minutes and executes them electronically in 30 seconds; she is thereby able to spend more time as a cashier, allowing Villastrigo to cut part-time cashier hours. “But I didn't lay anybody off,” she noted.
Bozzuto's Methvin believes a retailer like Terrebonne Thriftway that makes hundreds of price changes weekly can benefit from ESLs. “ESLs are only valuable when you are frequently changing the price point,” he said. “If you intend to do more than 500 changes weekly, you need an electronic system to audit the changes.”
Villastrigo acknowledged that she hasn't done a close calculation of the payback period for the investment in ESLs. “I do what I think is going to work in the long run and I think this is going to,” she said. “We have an efficient store and this has made it even better.” While speaking with SN, she estimated that the payback period for labor savings alone is six or seven years, possibly less.
DELI SIGNS
Another retailer in the Pacific Northwest, PCC Natural Markets, Seattle, announced last September that it would be testing RF-based ESLs from ZBD Solutions, Windsor, U.K. In December, PCC, which operates nine natural-food stores, began installing the ESLs — ZBD calls them electronic point-of-purchase (epop) signs — in lieu of paper signs in a deli case at a store in Issaquah, Wash.
More than 100 epop signs, showing product name, price, description and ingredients, were expected to be used in the deli case alongside of products, said PCC spokeswoman Diana Crane, adding that one sign will monitor the case's temperature. The signs, measuring 4 by 3.5 inches, will be installed in one other store's deli case. Price and information changes will be implemented at PCC headquarters and in the stores. “I believe there will be some labor savings with the deli signs and they will look better than the paper signs,” said Crane.
“Implementation of ZBD's epop solution promises to help us take another step towards better serving our customers with current, best-available prices and most up-to-date product information, and towards optimum use of store staff skills,” said Tracy Wolpert, PCC's chief executive officer, in a statement.
PCC was impressed by the epop sign because it digitally displays not just price information but also product information such as description and pack size, which has typically been printed on ESLs around the digital screen, noted Crane. “It seemed like the next generation of signs,” she said.
Sunit Saxena, chief executive officer of ESL provider Altierre, San Jose, Calif., said that one reason ESLs have not caught on among U.S. supermarkets is that earlier generations of tags could only display price information digitally. Altierre's ESL models, he noted, have solved that problem by incorporating dot matrix displays — similar to computer screens — that can display any information digitally while drawing their power from batteries that last five years.
PCC was also interested in ESLs as a tool that could complement its investment in price optimization software from KSS Retail, Florham Park, N.J. The two technologies “are a natural fit,” said Crane.
“It seems that as pricing systems are becoming more sophisticated and optimized, you could actually change prices based on time-of-day or week, but only an ESL system could allow this approach,” observed Bozzuto's Methvin.
PCC plans to begin installing conventionally sized ZBD ESLs in a single Center Store category, such as cereal, across its nine stores later this year. Then the price optimization system will be applied to each category so the two systems can run in tandem. Without ESLs, the price changes requested by the price optimization system can't be executed right away, noted Crane.
“It might take six weeks to implement a change,” she said. “If we can get the prices out sooner, then we can see much faster if price optimization is doing what we're expecting.” This marriage of the two technologies represents “the real value of the tags,” she added. “It's how we can use the technology to better price our stores.”
Crane envisions other uses for the ESLs, such as disseminating additional product information and even running paid advertising. PCC may also link the ESLs to planogram information to facilitate overnight stocking. She declined to discuss costs or ROI pending results of the test, which will continue for 12 to 18 months. “We will be looking at the labor and supply savings and how ESLs tie to price optimization.”
LARGE CHAIN TESTS
Some independents have taken the plunge with ESLs, but what about large chain operators? ESL provider Altierre says it has conducted single-store tests of its LCD ESLs with two of the following chains: Safeway, Kroger and Wal-Mart. During the past year, one of the chains has been running a test of between 3,000 and 4,000 Altierre ESLs at a Cincinnati store in high-labor sections that experience a lot of price changes, said Altierre CEO Saxena. A U.S. department store chain is also running a pilot of larger electronic signs from Altierre, he said. Altierre is also marketing its ESLs in Europe.
According to Saxena, the trials have gone well. “The technology works, it does its job and there have been no issues with consumers.” Still, the U.S. grocery industry continues to move slowly with ESLs, he acknowledged. “But it's not stopping and if we're patient, there will be a breakthrough.” The strategy employed at the Cincinnati store — testing ESLs in part of the store while consumers get used to them — “is probably the right strategy for the labels to get widely deployed over the long haul.”
Saxena noted that Altierre has kept the cost of its ESL in the $5 range by developing its own RF and display chips for this application. “The only way you can keep the cost down is by owning your own chip,” he said. The Altierre tag, which has a five-year lifespan, also features “glow bars” — blinking promotional lights on each side — that draw attention to the tags without being offensive to consumers, he said.
The radio frequency infrastructure employed by Altierre is designed to support more than price changes, Saxena noted. He envisions other types of information, such as recall notices, being disseminated through the ESLs. The infrastructure can also support other kinds of tags, such as temperature sensors that report on the temperature variations in cold cases every 15 to 30 minutes; several hundred of these sensors are already being tested in the Cincinnati store, Saxena said.
Altierre has also developed another tag leveraging the same infrastructure that monitors the presence of products on a shelf, indicating where there are out-of-stock conditions. In addition, the company is developing a tag that can be attached to a shopping cart handle and convey marketing messages to consumers. “We've designed a network on which multiple wireless applications can co-exist,” said Saxena.