Probably the most striking finding in SN's 13th annual State of the Industry Report on Supermarket Technology is the emphasis food retailers and wholesalers placed on disaster recovery in 2006.
A year after Hurricane Katrina smashed New Orleans and the Gulf Coast, almost half (47%) of the companies that responded to the survey upon which the Technology Report is based said that disaster recovery systems were a high-priority IT application in 2006. In addition, 38% said that these systems would be a priority this year. By contrast, in last year's report, 27% of respondents had made disaster recovery a priority in 2005.
Of course, since the Sept. 11 terrorist attacks, safeguarding mission-critical data and processes — upon which business continuity depends — has been on the agenda of most retailers. But the addition of natural disasters to the equation, coupled with growing concerns about global warming and a bird flu pandemic, has apparently sharpened the focus of retailers and their IT staffs on disaster recovery.
In addition to backing up systems or establishing off-site locations for essential data and services, some companies are developing business strategies and applications for responding to disasters. One example can be found at Associated Grocers of Florida, Pompano Beach, which has leveraged a demand-forecasting engine to determine what products should be ordered prior to and following a hurricane so that its independent retailers can continue operating.
A related area is the need to secure data from hackers and cyber-thieves. Though just 20% of respondents expect data security to be a high priority this year, there's little doubt that this topic is of growing importance to the industry. Indeed, many food retailers are working hard at making sure they comply with the Payment Card Industry (PCI) data security standard required by Visa and MasterCard.
OTHER PRIORITIES
SN's 2007 Technology Report, which looks at trends in retail technology based on confidential feedback from 45 retailers and wholesalers, also pointed to considerable interest in several other IT applications in terms of usage, expansion or upgrades. In 2006, these high-priority applications included in-store handhelds, POS systems and data warehousing. This year, respondents most often cited category management, pricing management and time-and-attendance as important IT systems.
In-store handhelds, long a staple technology for retailers, have usually ranked high on the priority list, and this year's report was no exception as 38% of respondents said handhelds were a priority in 2006 and 36% said they would be again in 2007.
It's no wonder retailers are looking at upgrading their wireless handheld devices. In addition to supporting traditional retail applications such as inventory and pricing management, the latest models are much more versatile, serving as Web-based dashboards that free managers from the back room and allow them to be on the sales floor.
These new wireless devices are allowing store personnel to do everything from access sales information, check stock levels, and change messages on electronic advertising displays, to send and receive email, manage labor schedules, and even check out shoppers. Managers can receive alerts about problems occurring elsewhere in the store.
Mission-critical POS systems continue to be a high-priority technology in the SN survey. More retailers are finally upgrading these workhorse systems, whose average age is about nine years, according to IHL Consulting Group, Franklin, Tenn. For both 2006 and 2007, POS systems were cited as a high-priority technology by 38% of respondents.
In particular, 38% of respondents said they upgraded their POS software substantially in 2006 and will do so in 2007. Smaller percentages of respondents said they substantially upgraded POS hardware last year (22%) and planned to do so this year (31%).
While POS is probably the most vital technology in the store, retailers are increasingly able — and willing — to take their POS systems in a myriad of new directions that emphasize greater flexibility. For example, the systems are more open than ever, allowing retailers to move from fixed proprietary configurations to an open best-of-breed scenario integrating a mix of operating systems, checkout software and hardware.
Moreover, the POS needs to embrace a host of new peripheral applications, including touchscreen keyboards, flashy loyalty programs and exotic payment options such as biometrics and contactless cards, not to mention links to other devices in the store like mobile handhelds.
Card-based loyalty programs are offered by 31% of respondents, which is lower than other industry estimates. Of those offering the programs, most (86%) said they use the data from the program for such purposes as targeted promotions, category management and the dissemination of food safety information.
Since 2005, retailers have been expected to be capable of scanning and processing 13-digit EAN bar codes used outside North America. Among survey respondents 80% said they could scan these codes at the POS and 84% said they could process them. Fewer (67%) said they could scan 14-digit bar codes, which will be used in new bar codes such as Reduced Space Symbology (RSS) codes on coupons and produce.
Self-checkout systems, which have entered the mainstream of supermarkets in recent years, are a high priority for both 2006 and 2007 among 22% of respondents. In fact, according to IHL Consulting Group, many grocers are planning to install self-checkout before replacing aging POS systems.
Data warehousing was another high-priority item in 2006, cited by 36% of respondents. Toronto-based Loblaw demonstrated the importance of its data warehouse last year when the chain doubled the size of its data warehouse to 90 terabytes to bolster the deployment of a demand-based forecasting technology used to order products at stores.
While smaller numbers of respondents tested or launched applications in 2006, the largest group (16%) selected Web portals. Some retailers, like Hannaford Bros. and Supervalu, view portals as important links to suppliers, while others see it as a key internal resource. Online selling to consumers, which traditionally gets very little play in the SN survey, was tested or launched by a somewhat higher 13% of respondents last year.
LOOKING AHEAD
For 2007, category management was the application deemed a high priority by the most respondents (47%). The ability to maximize category sales and profits by analyzing contributions by stockkeeping unit is clearly becoming a competitive necessity for a growing number of retailers. One independent retailer, Van's Markets, Bozeman, Mont., considers its home-grown category management a key to surviving in an area where it competes toe-to-toe with powerful chain operators.
Pricing management is another system highly regarded for 2007 by a sizeable chunk of respondents (40%). Closely aligned to category management, pricing systems allow retailers to tweak prices to remain competitive or make up for ad losses.
A smaller group of respondents (22%) plan to take pricing to the next level in 2007 via price optimization systems. While DemandTec has been a leader in this area, other vendors, such as KSS and Revionics, have emerged with optimization solutions. Meanwhile, SAP will be competing in this market with its KhiMetrics acquisition.
Labor, a retailer's largest expense, inspired 40% of respondents to put time-and-attendance on their high-priority list for 2007, while almost as many (36%) added labor scheduling. According to Greg Buzek, president of IHL Consulting Group, many retailers are “looking to implement integrated workforce-management systems that integrate labor scheduling, task management, time-and-attendance and other features.” The computing power and complexity of these systems are beginning to approach that of enterprise resource planning (ERP) systems, he added.
More than a third of respondents (36%) put computer-based store ordering on their high-priority list for 2007. Computer-based ordering, incorporating perpetual inventory and demand-based forecasting, has been talked about since the 1980s but not implemented widely in the U.S. By contrast, European retailers have been actively deploying these systems for years. Now the trend is starting to move to the States as several European vendors, including SAF, SAP and Aldata, have begun marketing their computer-based ordering systems to U.S. retailers.
Another application considered high-priority for 2007 by 36% of respondents is headquarter-store communications. One new voice/data communication technology growing by leaps and bounds is Multi-Protocol Label Switching (MPLS), which enables voice, video and data to each get the quality of service it needs while on the network. Price Chopper Supermarkets, Schenectady, N.Y., upgraded to MPLS last year to support high-bandwidth applications like video, and Raley's, West Sacramento, Calif., is currently rolling out MPLS to its stores.
For 2007, nearly one in four (24%) of respondents said they would test or launch electronic check conversion, which allows retailers to capture magnetic ink character recognition data on checks and transmit it for processing through the Automated Clearing House (ACH); the paper checks are returned to shoppers at the POS. Some retailers are looking at bringing check conversion to their back rooms under a process called back-office conversion, which the industry can start using in March.
Retailers are also exploring the use of ACH to process electronic payments in lieu of far more costly credit and debit card transactions. Though only about one in five (22%) are currently trying to convert credit and debit to ACH payments, slightly more than half (51%) said it was under consideration.
One in five respondents said they planned to test biometric payment systems in 2007. Biometric systems, using a fingerscan reader at the POS, are slowly finding retail installations. About 1,000 U.S. food retail and convenience store locations now use these systems, according to biometrics vendor Pay By Touch, San Francisco.
GROWTH POTENTIAL
Data synchronization — the sharing of accurate, standard product data between manufacturers and retailers — has gained momentum in the past few years. Nearly 11,000 manufacturers now use the Global Data Synchronization Network (GDSN) to publish changes in their product data.
However, the number of retailers receiving those data changes via the GDSN, though including prominent names like Wegmans, Supervalu and Wal-Mart, has grown more slowly and is currently at 135. Among respondents to the SN survey, just 18% said they were involved in data synchronization with trading partners. However, another 65% said they expected to be active in the next year or two, with just 23% not expecting to use this technology at all.
Only 4% of survey respondents said they were piloting RFID technology incorporating the electronic product code (EPC), which has been pioneered in food retailing by Wal-Mart Stores and a handful of other retailers. However, with costs coming down and standards in place or under development, 16% expect to test RFID in the next one or two years, and nearly half (47%) expect to test it in the next three to five years.
Online sales is another arena that respondents expect to grow over time. Over the next year, most (87%) said it would only account for less than 5% of total food sales, but over the next three years, nearly one quarter (24%) said it would jump to between 6% and 10% of sales. Over the next five years, nearly one-third (31%) expect online sales to generate between 6% and 10% of sales.
Only 11% of respondents currently offer home shopping via their websites, though websites continue to be the repository of a wide and growing number of applications.
A new acronym in food retailing IT circles, SOA (service-oriented architecture) represents a software architecture based on loosely coupled software services that support business processes and software users. While only 11% of respondents said they were exploring or using SOA, 29% said it was under consideration.
Outsourcing of IT, especially data management and integration services, to offshore providers in India is a trend that has included some food retailers, such as Hannaford Bros. However, 75% of respondents said they outsource just 10% or less of their IT responsibilities. Similarly, 75% of respondents said that only 10% or less of their application software is hosted by a third-party company.
In-house development is a strategy employed by a number of survey respondents. Thirty-eight percent said they develop more than half their applications in-house.
Overall, respondents continue to spend frugally on IT, with nearly three-quarters (73%) budgeting under 1% of sales for technology in 2006, and 42% planning to increase the IT budget between 1% and 10%. More than half of the respondents describe their approach to IT as moderate, and 18% call it conservative. That stills leaves about one in four respondents willing to call themselves aggressive when it comes to IT.
| Category Management | 47% |
| Pricing Management | 40% |
| Time-and-Attendance | 40% |
| Disaster Recovery | 38% |
| POS Systems | 38% |
| Computer-Based Ordering | 36% |
| DSD Systems | 36% |
| HQ-Store Communications | 36% |
| In-Store Handhelds | 36% |
| Labor Scheduling | 36% |
| Loss Prevention | 33% |
| Data Warehousing | 31% |
| Electronic Data Interchange | 27% |
| Label Systems | 27% |
| Promotion Management | 27% |
| Electronic Check Conversion | 24% |
| Forecasting Systems | 24% |
| Warehouse Management Systems | 24% |
| Price Optimization | 22% |
| Self-Checkout | 22% |
| Database Security | 20% |
| POS Monitoring (for shrink) | 20% |
| Web Portals | 20% |
| Data Synchronization | 18% |
| Financial Systems | 18% |
| Customer Loyalty Programs | 16% |
| Profit Analysis | 16% |
| Scale Management | 16% |
| Video Surveillance Systems | 16% |
| Yard Management | 16% |
| Advertising Systems | 13% |
| Fresh Item Management | 13% |
| Transportation Management | 13% |
| Voice-Based DC Applications | 13% |
| Kiosks | 11% |
| Online Sales to Consumers | 9% |
| Scan-Based Trading | 9% |
| Digital Signs | 7% |
| Electronic Article Surveillance | 2% |
| Disaster Recovery | 47% |
| In-Store Handhelds | 38% |
| POS Systems | 38% |
| Data Warehousing | 36% |
| Category Management | 29% |
| Electronic Data Interchange | 27% |
| HQ-Store Communications | 27% |
| Video Surveillance Systems | 27% |
| Computer-Based Ordering | 24% |
| Database Security | 24% |
| Financial Systems | 24% |
| Pricing Management | 24% |
| Warehouse Management Systems | 24% |
| Label Systems | 22% |
| Self-Checkout | 22% |
| DSD Systems | 20% |
| Loss Prevention | 20% |
| Time-and-Attendance | 20% |
| Labor Scheduling | 18% |
| Profit Analysis | 18% |
| Promotion Management | 16% |
| Web Portals | 16% |
| Customer Loyalty Programs | 13% |
| Data Synchronization | 13% |
| POS Monitoring (for shrink) | 13% |
| Voice-Based DC Applications | 13% |
| Digital Signs | 11% |
| Electronic Article Surveillance | 11% |
| Price Optimization | 11% |
| Scale Management | 11% |
| Electronic Check Conversion | 9% |
| Forecasting Systems | 9% |
| Advertising Systems | 7% |
| Kiosks | 7% |
| Online Sales to Consumers | 7% |
| Transportation Management | 7% |
| Scan-Based Trading | 4% |
| Yard Management | 4% |
| Fresh Item Management | 2% |
| Electronic Check Conversion | 24% |
| Biometric Systems | 20% |
| Computer-Based Ordering | 18% |
| Price Optimization | 18% |
| Promotion Management | 16% |
| Self-Checkout Lanes | 16% |
| Kiosks | 13% |
| Web-Based EDI | 13% |
| Data Synchronization | 11% |
| Fuel Marketing | 11% |
| Online Sales to Consumers | 11% |
| Web Portals | 11% |
| Scan-Based Trading | 9% |
| Advertising Systems | 7% |
| Shopping Cart Screens | 7% |
| Voice-Based DC Applications | 7% |
| Self-Checkout (Handheld) | 4% |
| Digital Signs | 2% |
| Electronic Shelf Labels | 2% |
| Task Management | 2% |
| Traceability Program | 2% |
| Web Portals | 16% |
| Electronic Check Conversion | 13% |
| Online Sales to Consumers | 13% |
| Self-Checkout Lanes | 13% |
| Biometric Systems | 9% |
| Computer-Based Ordering | 9% |
| Fuel Marketing | 9% |
| Price Optimization | 9% |
| Scan-Based Trading | 9% |
| Voice-Based DC Applications | 9% |
| Data Synchronization | 7% |
| Digital Signs | 7% |
| Self-Checkout (Handheld) | 7% |
| Web-Based EDI | 7% |
| Contactless Payment | 4% |
| Promotion Management | 4% |
| Task Management | 4% |
| Traceability Program | 4% |
| Advertising Systems | 2% |
| Electronic Shelf Labels | 2% |
| Kiosks | 2% |
| Mobile Phone Marketing | 2% |
| Store locator | 64% |
| Company history | 60% |
| Job openings/recruitment | 51% |
| Email feedback from customers | 49% |
| Send informational email | 44% |
| Corporate information | 44% |
| Meal planning/recipes | 42% |
| Send promotional email | 40% |
| Store events calendar | 33% |
| Online coupons | 31% |
| Loyalty card information | 27% |
| Health-related information | 24% |
| Local news/events | 22% |
| Company policies | 22% |
| Limited home shopping (gift items) | 20% |
| Shopping lists | 18% |
| Children's pages | 18% |
| Department-level information | 18% |
| Food safety information | 16% |
| Catering information | 16% |
| Prescription refills | 11% |
| Full home shopping | 11% |
| Local cross-promotions | 7% |
| Film processing | 4% |
About the Survey
SN's 13th Annual State of the Industry Report on Supermarket Technology is based on a survey developed by SN editors and conducted by Opinion Centers America, a marketing and research firm located in North Olmsted, Ohio.
Mailed to corporate and IT executives at food retailers and wholesalers in November and December 2006, the survey elicited responses from 45 companies operating or supplying approximately 12,221 stores. The mean number of stores operated or supplied was about 297, while the median was about 85.
Of the 45 responses, 29 (64%) came from retail companies, 15 (33%) from wholesalers and one from a combined retailer/wholesaler. Respondents included senior vice presidents or chief information officers (38%), IT directors (29%) and vice presidents (9%), among others.