Retail Technology for Recessionary Times
By Tom Ryan
Supermarket News recently highlighted five “must-have” technology
tools for grocers to manage the downturn. They are labor management, loyalty,
price optimization, loss prevention and business intelligence.
“In an economic climate as difficult as the current
one — and with 2010 likely to be challenging as well — food retailers are
leaning on new and traditional technology applications for direction, insight
and control,” wrote
Michael Garry, the trade magazine’s technology editor.
Mr. Garry then profiled
the latest advances in each technology and its application for food retailers:
Labor
Management: Supermarket News
noted that Price Chopper Supermarkets for one has made a major investment over
the past year in centralized, Web-based labor technology from Logile. Said Greg
Zeh, Price Chopper’s vice president of information systems, “Labor is a huge
part of whether we’re profitable or not. Therefore, he added, even during this
economy, labor management technology is regarded by Price Chopper as a “corporate
A” initiative, meaning it has senior management approval. “There are only so
many corporate A’s that we fund each year.”
Loyalty Systems: With retailers stepping up efforts
to gain customers through discounts and other means, it becomes more essential
to hold onto core shoppers. Many stores are increasingly looking to card-based
loyalty systems to retain customers but the best are reaching them through innovative
ways. For instance, under its fuelperks! program, Giant Eagle provides discounts
on gasoline.
Price Optimization: Described as “one of the hottest
retail technology applications this year,” the technology has also become more
affordable, including software is being sold in some cases on a software-as-a-service
(SaaS) basis. Said Nikki Baird, managing editor at Retail Systems Research, “Price
optimization is available to mid-tier and small-tier grocers. It’s not just for
the big guys anymore.”
Business Intelligence: Analyzing revenue drivers
and inefficiencies across organizations becomes more critical in economic downturns.
Said Shilpa Rao, solutions manager of merchandising in the retail practice of
Tata Consultancy Services, “We are seeing an increased number of queries about
BI, especially after the economic downturn. They want to leverage BI to understand
where their costs are and measure them.”
Loss Prevention: Tough times increase the temptation
to steal for both shoppers and store employees. Supermarket News said
video surveillance systems and POS exception have been particularly beneficial
in cutting down the losses. Combining the two — matching video and data records
— enables stores to address cashier-related shrink.
Discussion
Questions: Of the mentioned technologies (labor management, loyalty,
price optimization, business intelligence, loss prevention) which should
grocers most focus on to best manage the downturn? Which ones offer the
best near-term ROI?
- The Fab Five:
Must-Have Technology Applications – Supermarket
News (Sub. Required) - Labor Management: ‘Corporate A’ Initiative – Supermarket
News (Sub. Required) - Loyalty Systems:
Fuel for Thought – Supermarket News (Sub.
Required) - Price Optimization:
Uncovering Hidden Trends – Supermarket
News (Sub. Required) - Business Intelligence:
Understanding Data – Supermarket News (Sub.
Required) - Loss Prevention:
Fixing Operations – Supermarket News (Sub.
Required)
It depends on the retailer which one is the most important. I love loyalty cards because that’s part of my business. However, I have some small, very successful independent clients that have their own back-woods versions of these technology tools.
Labor Management – everyone simply works hard or they are fired.
Loyalty System – learn all your customers’ names and see what they buy.
Price Optimization – study the competitor’s ads and do regular price checks.
Business Intelligence – I think that’s what you get after 25 years in the business.
Loss Prevention – theft is dealt with, with an old-fashioned ride out to the country.
As the article points out, all 5 of them are key initiatives at one great retailer or another. The real question is, what are a company’s key drivers at this point in time and where do they feel they will get the best return?
I also disagree with the question asked because it is only focused on the short term and each of these items is going to have a major long-term effect.
While all of the Fab Five have tremendous potential, I believe labor management has the best near-term ROI. Any change in the cost of labor has an immediate, defined impact on operational costs. These savings can directly flow to the bottom line on a daily basis. This occurs regardless of sales, gross margin, shrink, etc.
In many cases the shrink line is equal to or exceeds the net-profit after-tax line. The technology mentioned is good, but some of the latest systems take a much broader view and refer to it as “loss” rather than shrink. While we often tell clients they can not save themselves to prosperity, labor savings and loss reduction can help fund the efforts to drive the top lines.
To drive the top lines, I would vote for a focus on price optimization. This technology has application in a downturn, but can also assist supermarkets as the recovery begins to occur.
Loyalty is the biggest opportunity in a down economy. How do you retain your best customers and attract new customers? Pricing is interesting, but can you really (and do you want to) compete with Wal-Mart? They already own that tag line. Why not focus on something you can be great at: Hugging your customers!
Meeting with over a dozen retailers over the last 6 months, I have seen some impressive and effective programs including: Gas Rewards, Charity tie-ins and money back. Two examples that stick out: Stop & Shop is currently running a program that allows you to build a % off starting at 5% and working your way up to 20%. The more you spend over a given period, the larger the % grows. Then when you are ready, you can take advantage of the reward. The second is Big Y that has the famous coin program and allows loyal customers to save.
People want to be part of a community, especially in tough times. Loyalty programs do just that–build a sense of community and loyalty. If I was a retailer, I would focus on what I did best, Hugging my customers and rewarding them for shopping with me. All the other technologies would come second to that.
These choices are apples vs. oranges. Labor Management Systems will control their cost and give the retailer some accountability, but…is that where the pain point is?! The main point is not missed though…companies should be looking at technology and where the gains are in their particular situation. What are they good at and what do they need help with to drive more dollars to the bottom line?
These are all really important factors to consider. Controlling labor is always my way of handling a slow time in sales. And by controlling, I don’t mean slashing and burning. In fact controlling is such an awful word. I would say optimizing labor is a better way to describe it. This is really where you have to know your people and who the star performers are and aren’t.
Loss prevention is also a big one that is always neglected. We know that in tough times, retail crime goes up. When sales are down and the basket is shrinking, you cannot give up any points to product walking out the door. Optimizing labor and controlling shrink are part and parcel. You can’t have one without the other. All these high tech applications are great but really, merchants should be focusing on their respective location and seeing what the customer sees. I say the best technology for managers is a yellow legal pad, a pen, and some comfortable walking shoes.
A pretty solid list. SN tech writer Garry is one of the best observers we have on supermarket technology. But I think this analysis stops just short of identifying what may be the opportunity with the largest potential financial upside: Merchandising Performance Management.
The ability to monitor, measure, and fix shelf conditions and promotion compliance will be a game changer for those retailers who embrace it. This goes beyond labor “push” tools like WFM (work force management) and SEM (store execution management) or BI tools to incorporate shelf-level sensing and remediation methods. The effectiveness of demand-based price applications is constrained by the accuracy of shelf-level compliance. And segmentation schemes that result from loyalty and shopper marketing analytics are way beyond most retailers’ present ability to implement at the shelf.
You can’t analyze what you can’t see. You can’t gauge the impact of activities you can’t measure. And you certainly can’t fix problems you can’t find.
The huge, steaming irony of the grocery industry’s roll toward “economies of scale” is that all these technologies are needed to offset the erosive complexities that result from bigness. To fight the slide into mediocrity, they also need merchandising performance data and in-store implementation methods.
The downturn has pressured retailers to cut costs and to understand customers better, and the technologies mentioned here are the first step towards that. Business intelligence, labor management, loss prevention…all to help to understand where the costs are and manage them better, whereas loyalty and price optimization help understand customers better and strategize accordingly.
All these technologies typically have a significant incubation time of 6 months to a year and sometimes even more; and a lot of change management is involved too. Retailers need to adopt newer models for these technologies like SaaS or business services to achieve quicker ROI. For example, outsourcing complex reporting/analytics could enable retailers to get the much needed insights without significant investments.
Taking a little bit of a liberty with the definition, I would argue that BI is the most important one, especially when you think about it in terms of analytics. If you don’t have good analytics, then you won’t know whether you are hitting your objectives around any of the other four. At RSR, our research finds that it’s the analytics that hold initiatives back from their full potential–in labor management, it’s not enough to know whether you need to adjust, but which adjustments were the most effective, and hopefully you’ve collected enough data to find out why. In loyalty, the top issue for retailers making the most of loyalty programs is getting good insights from customer data–both a technology and a skills issue. Same can be said for LP–it’s not the cameras, it’s video analytics. It’s not the sales auditing, it’s the exception triggers that analytics ID’s that you should be watching. And, you could make the argument that price optimization is in fact a specialized form of analytics.
Over the last two decades, we have added so many transactions and so much process visibility thanks to technology. We collect more data in one form or another than ever before. We should be doing more with it–more to understand the business, and more to understand the right response to changes in our business. As long as you look at BI as much more than tracking financial progress, then you can’t lose by applying BI to your business.
With the exception of loyalty programs, these “five ‘must have’…tools” mostly relate to the performance of the retailer, not the shopper. (OK, loss prevention is a shopper performance issue but even then, checkout fraud–retailer performance–is high on the list.)
My point is, retailers are only focusing on what shoppers take out the door, not shopper performance while in the store, that leads to the checkout. When shopper efficiency (dollars per minute) increases, so do sales. What isn’t measured, is not managed. And I don’t know a single retailer that measures shopper efficiency as a routine management tool.
I just had dinner with a bunch of CIOs who think that BI is the most important. One business case they mentioned was a retailer dropping a SKU, only to find later that it’s a favorite of its best customers. Knowledge is power.
There is no universal answer to this question as it applies to grocers or retailers other than: it depends.
Unless a retailer is completely incapable on all these dimensions today, the answer is that it depends on what existing technology, systems, and capabilities a company has today. Based on what a company has and what works (and what doesn’t) it is then easier to prioritize.
In terms of driving growth, there is nothing like being able to identify, relevantly communicate with (which includes getting pricing and offers correct), and learn from customers. While we are indeed biased towards loyalty capabilities given our business, loyalty marketing is the fundamental answer to organic growth.
Price increases or markdowns are limited in their effectiveness–especially where profitability matters–but being able to manage customer relationships is what drives people “in the door” to “ring the register.” If you can’t do those things, you are left to changing prices for things that customers won’t buy, from sales people who aren’t needed.
Among the core benefits from loyalty marketing is the ability to make price less relevant which makes the business intelligence yielded from customer data more actionable.
Without loyal customers, the rest are hardly necessary for a retailer to grow and thrive.
I agree with Herb Sorensen that shopper-related metrics are key.
Enabling and incenting loyalty is critical, especially as the economy begins to recover. Further, some sort of simple dashboard of average ring/per shopper/by trip mission, along with dollars/per dwell time…something like this.
If this data weren’t separate analytics, but automatically tallied daily, it could be an ongoing report card for retail performance, using shopper behavior.
The question posed presents opportunities that are relatively independent and difficult to compare, however a solid technology solution should be considered that affects all. For example: A digital signage solution with a touchscreen kiosk can be utilized to address each item. When considering new technologies, the challenge is often caused when technology is limited to a single role, as opposed to being evaluated for its potential impact to the enterprise. How can this technology be leveraged to drive sales, aid in product development, support customer loyalty, and aid in distribution? If you look only at technologies limited to the five areas above then you may waste your investment.
Price optimization, labor management and loss prevention should be clear priorities, given an effectively implemented value proposition. Relatively few retail technologies return a hard ROI based on savings solely associated with implementation. Most require changes in management behavior or decision making. The three types mentioned above have a much higher potential for paying for themselves simply by how they make an impact.
Business Intelligence is an excellent example of technology that should not be purchased without a clear understanding of how the information is going to be used to make different decisions. There must be actual and measurable change in behavior within process(es) which impact either sales, margin or expenses. Without those, there is no ROI on this type of investment – don’t do it. The business case must be couched in terms of the difference the information is going to make, or the actionable insights now possible, with emphasis on articulating the action to be taken.
Wow, a fairly narrow view of technology necessities, even coming from a technology company. So labor management, loyalty, price optimization, loss prevention and business intelligence… and nothing specific to something as mundane, yet all encompassing, as the supply chain.
BI won’t in and of itself guarantee in-stock conditions. It can link to elements of the supply chain, but that’s a long way off from providing full visibility of the disposition of product from the supplier to the store. We’re not even talking about anything close to product traceability here – just basic supply chain inventory management. Gotta have it.
As far as the five mentioned, sure they are important, however there are still plenty of retailers out there doing just fine without price optimization. Is it a great tool? Absolutely! Is it a requirement? Nope. As for labor management, there are still several retailers of all types that still rely on hand-written schedules at store level every week. Can a big or small company save millions with an automated tool for this? You bet! Is it a requirement for profitability? Nope! I could go on, but I think you’re getting the point.
All good items, yet no computer automated ordering? Not much top-line interest in any of these, really. Loyalty programs aren’t worth their weight in cards. If managing in these times is only about managing costs, no wonder so many grocers are having a hard time.
Good times and hard times; either one, it’s about swinging the doors, taking care of your customers, and not sending them elsewhere. CAO helps, having the right staffing at the right times helps, losing focus by seeking the latest technology whim of the consultants and pundits never increases the top line. It does, however, fill the pockets of the consultants while your customers are busy finding other places to shop because you lost interest in the fundamentals.
If anything, these times are for blocking and tackling. They certainly aren’t times for seeking a silver lining in technology. Technology helps. Execution delivers customers again and again.
Where’s inventory management? What happened to the old saw, “The main source of lost sales is out-of-stocks?” And another old saw comes to mind, “You can’t control your way to growth, you can only sell your way to growth.” Of the five technologies listed, only one, Loyalty Systems, is a selling strategy. All the rest are control strategies. Majoring on the majors is the most important thing, and that’s selling more stuff. Only Loyalty Systems focuses on selling more stuff.
The golden rule for success in the retail industry is “Sell the right thing at the right price to the right customer.” If you miss this rule, you are sure to get out of the game.
Pricing is not a new discipline. However, in more recent times with the availability of advanced computing resources, it has become much easier to practice data-driven pricing. While chasing buzz words is one thing, achieving real pricing excellence is another. It is a blend of science and art and the sooner you get it, more likely you are to succeed in recessionary times.