Analytics, loss prevention and promotion management tools are among grocers’ top IT priorities for 2011.
By Deena M. Amato-McCoy
After 24 months of calculated IT investments that provided short-term benefits, many retailers are loosening their purse strings and setting ambitious information technology priorities for the future. They’re seeking out systems that will provide a balance of efficiency and consistency across the enterprise. Analytics, loss prevention, trade promotion and loyalty systems top the lists of projects that many supermarket IT professionals will be embarking on this year.
For grocers to keep their heads above water and come out stronger once the economy rebounds, they still need to keep operations lean and mean, according to industry experts.
“All chains want operations that will improve effectiveness, but too often, these processes provide quick, soft benefits,” says Derek Rodner, vice president of product strategy for Agilence Software, based in Camden, N.J. “More important however, is how to balance efficiency and effectiveness. This is how you grow business.”
The good news is retailers are making room in their budgets for investments that can truly improve revenue. According to the Second Annual Global Retail CIO Survey, conducted in the fourth quarter of 2009, the average IT spend for food retailers increased to 1.1% of sales in 2009, up from 0.9% of sales in the previous year. The survey was conducted by Elizabeth, N.J.-based Martec International and sponsored by Atlanta-based Aldata Solution and Armonk, N.Y.-based IBM.
“IT is no longer considered a mere technology platform. Today, it’s critical to business and related benefits,” says Madhu Janardan, associate vice president of Bangalore, India-based Infosys.
One of the top IT priorities to fit this enterprise-wide picture is the use of analytics. Whether it is gaining insight into shopper behavior, or forecasting demand to improve merchandise mixes or streamline pricing, retailers are making investments in artificial intelligence.
“Chains are looking for actionable insights. This is a very different result than they have gotten in the past,” Rodner says.
For example, he says they are seeking specific details that could impact merchandising tactics, pricing, promotions, or other practices that require calculated decisions and actions.
One of the primary objectives retailers have when looking at technology is that they want to invest in systems that will do double- and even triple-duty. For example, while loss prevention solutions work to prevent theft, when those systems work in concert with analytical software, retailers can gain insights into operational issues that are potentially detrimental to business.
“In addition to theft, chains are subject to losses that are hidden within everyday operations, such as supply chain management, poor promotion planning execution and other issues that are jeopardizing sales conversion at the point-of-sale,” Rodner says.
The issue is only intensified by a perfect storm settling over the industry, according to observers. “The economy forced companies to stop investing in technology. Now, they are feeling the backlash and need to catch up with the latest technologies to keep ahead of the criminals,” he says.
Four-store specialty grocer Draeger’s Markets, based in South San Francisco, is taking advantage of this very process with the help of a hosted service from Agilence. Based on cloud computing technology, the software sits on a server and Draeger’s can access it on-demand, which industry experts say is a much more cost-effective proposition in this tight economy.
It is also providing a much more user-friendly approach thanks to tight integration with the grocer’s existing hardware. Historically, companies have tried their best to network store-level POS systems with closed-circuit television and analytics, but since these tools are often not completely integrated together, identification is slow and ineffective. Further, traditional exception reports only recognize patterns after the activity has occurred.
“The reporting alerted us to hidden issues, saving us from further incidents of loss,” says Richard Draeger, vice president, treasurer and owner of the specialty grocer. “It also helped us clean up our corresponding policies and create tighter internal policies where there weren’t any.”
Making it stretch
Eager to continue cutting costs and gaining efficiencies, many companies are leveraging existing systems across new enterprise areas. “Retailers are not pigeon-holing themselves with solutions that can only impact one business division,” Rodner says. “The new priority is to find technology they can deploy across the board.”
For example, Draeger’s is currently applying its Agilence reporting software to a just-in-time inventory management program across its perishable departments and is already “highlighting shrink issues within our perishables area and allowing us to quickly address them,” Draeger says.
The solution is uncovering issues such as the “creation of fresh merchandise that is not on par with demand,” he says. “By redeveloping internal systems, we order the appropriate amounts of raw materials based on demand for specific days of the week and times of the year.”
Draeger’s deli operation is already benefiting from the reporting tool. The bakery department was expected to go live with the solution after the holidays, followed by the floral department in the second quarter.
Trade promotion management is also expected to get a boost from increased IT investment in the coming year. With a renewed focus on consumer-centricity, chains are tapping shopper purchase behavior to understand what they buy and when they shop. By sharing these details with consumer packaged goods manufacturer partners, grocers are in a better position to meet their shoppers’ needs. The only way to achieve this is through analytics.
“There are different types of shoppers, and analytics is the only way to understand what shoppers need in-store, and what encourages them to make a purchase,” says Derek Smith, vice president of global industry marketing, DemandTec, based in San Jose, Calif. “Knowing these details help supermarkets tailor assortments, prices and promotions.”
Mauldin, S.C.-based Bi-Lo is successfully marrying its merchandising decisions with customer segmentation through Deal Management, a module in DemandTec’s End-to-End Promotion Management Solution. The software analyzes consumer demand data so that Bi-Lo can make sense of shopper behavior and demand. This information is electronically shared with trading partners so they can essentially manage trade promotion funds through the process of deal entry, presentation, negotiation and reconciliation. The team can also electronically manage the entire promotion process, from collaborative promotion planning and deal management to in-store execution and post-event analysis.
“Prior to implementing DemandTec, the trade fund management process was lengthy and labor-intensive for Bi-Lo and our trading partners,” says Carol DeWitt, Bi-Lo’s vice president and CIO. “We have streamlined the process, and boosted team productivity.”
Industry observers say that sharing data across the enterprise is also a priority as consumers find new ways to interact with chains. Shoppers are still reaching for traditional media, such as their weekly circulars, newspapers, television and radio advertising. With the growing adoption of retailer websites and emerging media, including smart phone applications, electronic coupon sites and text messages, consumers are educating themselves before making a purchase and comparing everything from price to shopping experiences before parting with their discretionary income.
In fact, 45% of grocery shoppers use the web to research products before going to the store and more than 30% use mobile phones in the stores to research products, according to industry statistics. That is why observers say its is more important than ever for chains to deliver a consistent image across all channels.
“Inconsistency is deadly,” says Steve Cole, CMO for Gladson, Lisle, Ill. “New media is changing the game for retailers and adding pressure for grocers to keep their value and brand consistent.”
“Retailers are looking for effective ways to reach consumers, especially as their interest in mobile advertising and couponing increases,” says Brian Schulte, director of retail industry marketing, for Intermec, based in Everett, Wash.
A consistent message
As a result, retailers are investing in communication “hubs” that contains all information that defines a product, and then use that data to feed all downstream systems, including kiosks, point-of-sale, websites and e-commerce, shelf-edge technology and digital signage. “With an average of 75,000-plus products on a retailer website, there is no scalable way for a retailer to manage this information in-house,” he says.
Companies such as Gladson however, are helping them with the task. Gladson owns “the largest database of product content for the CPG industry,” according to Cole, including data such as photos, weight and size dimensions, nutritional content and multi-pack information.
The ability to providing consistent information across the enterprise is also crucial across grocers’ direct store delivery operations. “Grocers build their business on high-volume products with a short shelf-life, and from a promotion and pricing standpoint, retailers need to ensure their data is in sync with CPG partners from every step in the supply chain all the way down to their placement on store shelves,” explains Schulte.