Are Independent Retailers Technophobic?

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Oct 27, 2005
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By Bill Bittner, President, BWH Consulting


Two surveys, the annual Minnesota University Supermarket Survey on supermarket operations
and performance and one I conducted with the Rutgers Business School, confirm that independent and small chain supermarkets are far behind their big cousins in implementing assortment
planning, computer assisted ordering, and pricing applications to help them increase inventory returns.


In the RBS survey, we asked convenience store and supermarket operators what type of Internet connection they had (thinking of hosted applications) and what other applications they had in the store for labor scheduling or sign printing (to understand their technical sophistication). In many instances, there seemed to be no technical obstacles to implementing inventory management applications. The infrastructure was available and technology was being used in other areas. The goal was to see if the reason for a lack of use was the overhead of maintaining item data and whether a service could be provided.


I had considered that the lack of participation was merely a technical issue. What is needed, I thought, is a “Retailer Catalog Service” that would help independents maintain the retail attributes necessary to sell items and drive inventory applications. These would be things like taxability, food stamps, and the links between UPC’s (GTIN’s) that are supposed to have the same price, are considered the same for merchandising and replenishment, follow the same markdown policy and share other interrelationships necessary to support the applications that drive them. I thought the overhead of understanding and maintaining these often-subtle item relationships was what was preventing the use of the applications. The “Retailer Catalog Service” would address this overhead directly.


It is unfortunate, but the RBS survey did not ask the $64,000 question.


It did not ask retailers if they wanted to get more return on their inventory through increased use of technology?


This has left us open to an interesting hypothetical.


Could it be that independent retailers do not want the increased accuracy of a fully integrated receiving and point of sale inventory management system? Do they prefer the flexibility of a cash business to the precise record keeping of a fully automated solution?


I have to believe that there is a certain amount of truth in the hypothesis. Especially for independents, which may be family operations, there may not be a need for the increased precision. Besides, they may want to employ cousin Johnny rather than pay for a computer or computer service that does not benefit anyone in the family. Since they are likely non-union, wages may be lower, making the breakeven point for technology more difficult. It is a rather interesting question and certainly bodes considering when trying to size the market for technology to this segment.


Moderator’s Comment: At what point does a retailer really need to have a fully integrated receiving and point of sale inventory management system? When
the decision is made to automate, what should retailers do to make sure they purchase the right system and make best use of it once it is installed?

Bill Bittner – Moderator

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7 Comments on "Are Independent Retailers Technophobic?"


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David Mallon
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David Mallon
15 years 4 months ago

Independents don’t have the scale to invest and manage complex info technology. Maybe there’s opportunity here for companies like Retalix and Fujitsu to manage these tech services for Independents at a cost that achieves an acceptable return for these retailers.

M. Jericho Banks PhD
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M. Jericho Banks PhD
15 years 4 months ago
Independents have been trained to adopt technology as suppliers and others are willing to pay for it. Otherwise, they’re doing just fine. Mark Lilien made a well-informed comment regarding independents’ reluctance to pay taxes. I know that, after thirteen years with wholesalers, avoiding taxes involves hiding income. And hiding income makes qualifying for loans for major upgrades and remodels problematic. This by no means applies to all or, in this day and age, most independents. But, it’s done. Coffee cans buried in the back yard, if you know what I mean. I could be wrong, but I’d speculate that the data from the C-store respondents to this study skewed the overall findings in the direction of less technological integration and more hands-on applications. As a long-time contributor to 7-Eleven marketing, I’ve learned that C-store owners and franchisees count on the suppliers of their highest-velocity items to make sure they’re never out-of-stock on key items. The Pepsi, Busch, Miller, Coke, Coors, dairy, cigarette, bakery, and Frito-Lay route drivers come by as often as necessary, because that’s… Read more »
Steve Grossberg
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Steve Grossberg
15 years 4 months ago

It goes way beyond the internet. Real estate is not the only arena in which the Big Blue Engine is dominating the smaller retailer. Even many of the larger chains still conduct daily operations on paper. The investment in digital infrastructure is minimal compared to increased labor and management costs. Consider maintenance and facility operations over a large geographic footprint. Automated inventory control, point of sale integration, service dispatch, asset management, energy management,…ROI – SchmaROI. The choice is simple, catch up or give up. Welcome to the ’80’s.

Camille P. Schuster, PhD.
Guest
15 years 4 months ago

Not all independent retailers are way behind in the use of technology. The real question is why some independent retailers are using technology successfully and saving costs. What prompted them to take the plunge? How did they get started? Two factors are critical: (1) the commitment of top leadership and (2) collaboration with business partners. Working with suppliers can help retailers decide where to get started and how, within a realistic budget. The change, however, is systemic and will affect the whole organization. If the people at the top are not committed, the attempt to integrate technology won’t work. An interesting study would be to focus on the independents that are using technology effectively – how and why?

John Rand
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John Rand
15 years 4 months ago

Of course, there is a barrier to retailers in terms of the business case – both the actual ROI and the potential difficulties of losing what we might want to call “flexibility,” to maintain politeness.

But another barrier for this group is more cultural. There are many independent business operators who simply don’t believe that they aren’t doing a damn fine job already and that simply don’t believe a technological improvement is warranted. And another fairly large group probably would respect the potential business improvement in theory, but don’t believe their staff would accept and use it all that well.

In both cases, some of them are right. Not all, of course, but a pretty good number of merchants have a real good feel for their business and their people and their skepticism about payback may well be justified.

The ones that are wrong, of course, will slowly wither away.

Ron Margulis
Guest
15 years 4 months ago

To a large degree, independent retailers with sales of more than $1 million per year need to install some kind of management and control systems at the point of sale and at the point of product receipt. Lower than that and it is more than likely the owner or manager is on site during most opening hours and there is that human management and control system. Over that amount and there is the need for delegation of management which raises the opportunity for shrink at the front and back doors.

Also, independent retailers that are members of coops have an inherent advantage over independents that are not. Look at the sophistication of retail members of Wakefern versus a company that only has a supply relationship with its wholesaler.

Mark Lilien
Guest
15 years 4 months ago
Two big obstacles to systems investment by independents: (1) they don’t like to pay taxes and (2) many retailers would be happy to buy a system if they could mark it up and sell it. To address the tax issue: how many single-location retailers would leave the business if they had state-issued point of sale computer systems that polled the actual sales and sales taxes collected every night? My guess: over 50%. Sales taxes are a great margin enhancement. They are collected, but are they reported 100%? Fairly recently Stew Leonard, the prominent supermarket operator, went to jail for having a cash register that was offline, taxwise. The biggest threat to independent retailers is the growth of noncash payments, all processed through banks, so the payments can easily be audited. To address #2: retailers are comfortable with investing in inventory they can sell. They do that every day. People are comfortable with what they do daily, not what they do rarely. Systems investments by independents are not a daily activity.
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