As labor costs continue to rise, retailers are seeking out new ways to provide customers with the most efficient and convenient in-store experience without busting their IT budgets. By adopting more self-service technologies across departments, grocers are managing to slash operating costs while re-inventing customer service.
More shoppers are embracing self-service technology across the retail industry, so much so that transactions could surpass $775 billion in 2009. Adoption will only continue to rise and could reach more than $1.6 trillion by 2013, according to the recently released 2009 North American Self-Service Kiosks study, conducted by the IHL Group, based in Franklin, Tenn.
The future of self-service solutions looks bright, especially as the sluggish economy forces all chains into survival mode: a strategy that includes finding ways to operate as efficiently as possible and equally important, keeping operating costs in check. This is not an easy task as minimum wage continues to climb (the rate has jumped 40% in three years) and shoppers become more discerning.
Time-starved shoppers are focused on making educated purchase decisions, finding their merchandise “and avoiding any obstacles on the way through checkout so they can get to their cars and back home,” explains Stephen Reed, director of operations for Bowling Green Ky.-based Houchens, a division of Houchens Industries that operates 31 Houchens Markets, 199 Save-A-Lot stores, seven Foodland/Piggly Wiggly/IGA stores and 41 Jr. Food Stores. “Consumers are not shopping on a 9 a.m. to 5 p.m. schedule; they shop 24 hours a day,” says Reed. “Due to smaller operating budgets, grocers’ labor is strained, making it difficult to meet demand.”
While staff reductions are clearly pushing retailers to consider self-service, experts say consumers’ needs must stay top of mind. “The technology can’t jeopardize the high level of service shoppers expect,” explains Frank Riso, senior director of retail solutions for Holtsville, N.Y.-based Motorola. “Ideally, the units are a way to provide consistent—even top-notch—service in areas where staff is limited or where there are associates who may not be fully trained on all aspects of the business.”
This factor, even more than dollars and cents, is what moved St. Louis-based Schnuck Markets to install the technology, according to officials for the retailer. The company, which began adding self-checkout technology more than six years ago, has installed units that provide a variety of services, including recipes and guidance on choosing wine and spirits.
“While a return on investment is clearly important, we were more attracted to the technology to help us offer superior customer service,” says Larry Maggio, the chain’s director of marketing services.
Retail self-service is a natural progression from consumers’ comfort level with similar technologies such as ATMs and airport check-in kiosks. It was only a matter of time until shoppers began demanding the solutions at the store level, industry observers say.
Early self-checkout systems were built on complex coding that was often disparate from traditional front-end systems—a factor that kept retailers from making significant investments. “Point-of-sale is a huge capital expenditure, so it is a big ordeal to switch out systems and it is equally difficult to maintain two different systems,” Reed says.
A renewed focus on self-service is currently being ushered by new versions of the technology and more open solutions that are easily integrated with existing platforms. Many are based on the .Net language from Redmond, Wash.-based Microsoft, making it extremely simple to “plug-and-play” units into the front end, as well as seamlessly integrate peripherals.
“After researching kiosks for approximately a decade, the units’ cost and reliability have finally intersected,” Maggio says. “They are now affordable, reliable and applications are so robust that consumers are demanding them at the store level.”
Originally many chains were attracted to informational units, including recipe, wine and gift registry kiosks. Now these units are paving the way for more transactional units.
More specifically, units that will boost the customer experience by providing value, efficiency, speed or assistance in completing their purchase are gaining shopper approval. This acceptance was a strong driver for the Houchens chain.
Even before the financial crisis initially rattled the global economy more than a year ago, Houchens’ Reed had been following the trends of how self-service could enhance customer service as well as streamline internal costs.
“We don’t consider ourselves pioneers as much as just wanting to stay ahead of the curve,” Reed explains. “We saw the writing on the wall. Consumers want this and we wanted to be prepared.”
The move toward self-service has also helped Houchens adapt to a more lean operating model caused by the turbulent economy, according to company officials. Houchens deployed units from Pan-Oston, based in Bowling Green, Ky. Each store features one or multiple units, depending on available space.
A year ago, Reed hoped to have 15% of store transactions going through self-checkout weekly. The units have exceeded his expectations, processing 30% of transactions totaling about $1 million each week.
When you calculate the time it takes a full-time cashier to process the same transactions at a traditional point-of-sale and add in the average $8 per hour they earn, “we believe self-checkout is definitely providing us beneficial payback,” Reed says. “Overall, we continue to be drawn to self-service as a method that marries enhanced customer service, makes available labor more productive.”
As more shoppers opt for self-propelled technology, grocers began evaluating other departments, especially those that command a wait for service, where similar solutions could make a difference. It is not surprising that the deli department was an easy target.
According to statistics from the Arlington, Va.-based Food Marketing Institute (FMI), consumers enter a supermarket keeping mindful of a fixed amount of time they plan to spend shopping. “If they only allocate 30 minutes to shopping and wait on the deli line for 20 minutes, that only leaves 10 minutes to shop the rest of the store,” Motorola’s Riso explains.
Self-service kiosks are streamlining the ordering process and giving time back to shoppers—as well as providing dividends to grocers. For example, according to the International Dairy-Deli-Bakery Association, based in Madison, Wis., the average deli order is approximately $5.
“Retailers using our kiosks for fresh food ordering, including deli orders, are between 40% and 75% higher than over-the-counter transactions,” says Juan Perez, president of ADUSA, a Lombard, Ill.-based provider of self-service technology. “The units are processing thousands of dollars in orders a week, providing a return on investment within weeks.”
Retailers are also attracted to the units’ consistent selling power, Perez says. For example, if shoppers scan a loyalty card or input another piece of personal information, the units track shopping purchases, make order suggestions and upsell.
Retailers are also integrating personalization within the kiosks by allowing shoppers to input cell phone numbers and receive a text message when orders are complete—a process that cuts down on overhead noise and streamlines the ordering and fulfillment processes.
Officials at Schnuck Markets say the ADUSA self-ordering kiosks fits in well with its new Culinara format. The first store, which opened in August, is one-third the size of a traditional Schnuck unit and is stocked with 22,000 products, including the grocer’s premium Culinara private label brand. The 21,000-square-foot store also features a wine bar, customer lounge, hot and cold food bars and an array of made-to-order fresh foods.
As shoppers place an order into the kiosk, the unit displays where they are in the queue and the timeframe remaining until the order is ready. Simultaneously, butchers are alerted to the order. As they log their acceptance and completion of the order the system generates a text message to shoppers.
“The store is not sending a text just for the sake of sending a text, it is a component of queue management,” Perez says. “It optimizes the fresh ordering process and eliminates the need to ever spend a single minute in line.”
The deli kiosk is also available in two traditional Schnuck locations, Maggio says.
Consumers’ demand for an even stronger customer experience is prompting chains to consider other versions of self-service.
One example is kiosks that enable shoppers to purchase more general merchandise such as prepaid items and DVDs.
For example, Cumberland Farms is committed to reaching the growing—and very fickle—tween and Gen-Y demographics. Rather than dedicate specific aisles or displays to this group, the C-store chain added a line of gaming cards inside of its Pay As You Go prepaid card kiosks, from Coinstar, based in Bellevue, Wash.
In July, units across the chain’s 500 stores began carrying more than 15 prepaid cards that can be used toward Facebook and MySpace applications, online games and general web-based purchases, according to a Coinstar spokeswoman.
The units are also a viable way to free up valuable store-level real estate and internal labor and help chains optimize unused or poorly used space in the front of the store with services that benefit the shopper. For example, retailers that wielded full-scale DVD and video rental departments are feeling pressure from online on-demand DVD rental services.
Boise, Idaho-based Albertsons and Cincinnati-based Kroger Co., are among the grocers installing automated DVD rental kiosks from Redbox, a division of Coinstar. This summer, Albertsons embarked on the final phase of its rollout, which included adding units to stores across Arizona, Florida and New Mexico, a move that brings the chain’s kiosk fleet up to approximately 15,000 devices.
Kroger currently has 200 stores outfitted with the technology and the chain expects to feature the units in more than 2,600 Kroger supermarkets and convenience stores in the coming year.