By focusing on enterprise-wide data integration, supermarket chains are primed to boost customer service and profitability.
By Deena M. Amato-McCoy
While supermarket executives are looking to bolster customer service to stay competitive as the economy slowly improves, IT experts say their efforts are being hampered by a patchwork of information systems that were built over decades and don’t easily share information.
To address these challenges, grocers are joining forces with technology partners to eliminate disparate systems and data silos and work toward greater enterprise integration, according to industry observers.
Historically, the technology used by retailers—particularly grocers—has evolved in silos, as many codes and solutions were individually created and applied to specific business processes. Some chains may not even realize just how tangled legacy code really is or how far it dates back, according to experts.
“The number of home-grown systems that exist industrywide is shocking,” says Bill Campbell, senior vice president of retail sales for Retalix USA Inc., based in Plano, Texas. “They continue to exist because it’s daunting to unwind 30 years of legacy code, especially if the knowledge base evolved over decades and most of the original creators are gone and the programs are not documented well.”
Supermarkets are looking to replace these home-grown solutions with centralized, connected systems that will provide a better understanding of shoppers to instill greater loyalty. Grocers also need to comply with federal guidelines requiring them to maintain a single, centralized database in order to safeguard sensitive consumer information.
“This is where the integration nightmare begins,” says Randy Evins, industry principal, food and drug, for SAP America, based in Newtown Square, Pa. “Store-level information is not readily available and not enough executives have complete access to this data. Meanwhile, customer information is continually collected at point-of-sale, yet it is not actionable. Finally, too many chains do not have access to merchandise data, which impacts advertising and assortment planning and spending.”
The good news, observers note, is that the supermarket industry recognizes the value of integration and is making an effort to unwind the spaghetti of systems that have developed over the years. The bad news is that 70% of IT departments spend a majority of their time integrating systems to their existing architecture, Campbell says.
However, experts note that replacing an existing IT infrastructure, including hardware, can be costly and disruptive, leaving many retailers to attempt to integrate multiple disparate systems that run on various technology platforms. “While most systems are integrated at some level, due to the complexities and cost factors they are typically only integrated on absolutely necessary touchpoints,” says Christian Hutter, vice president of food and beverage for Junction Solutions, a Lincolnshire, Ill.-based software provider.
This roadblock increases as individual systems are upgraded, according to experts. Each time a part of the system is upgraded, integration work that was done to that system is potentially compromised and has to be redone. “This effectively locks the company into a system adoption stalemate which, over time, decreases the company’s ability to adapt efficiently to changing market conditions,” Hutter says.
Pricing and merchandising
When approaching an enterprise-wide project, many experts suggest that grocers concentrate on a few specific business functions to reap the greatest rewards. In the case of Sunbury, Pa.-based Weis Markets, executives decided to tackle merchandising and pricing.
Weis replaced “dozens of mainframe legacy systems” with Retalix HQ, a centralized, rules-based pricing and inventory management solution, according to officials for the grocer. In addition to standardizing the grocer’s pricing disciplines and supporting a consistent execution of its price strategy, officials for the chain say the solution also helps to efficiently develop, execute and analyze pricing and promotion plans. Rather than work from five or six sets of data, the centralized architecture rationalizes a common set of data for multiple purposes.
“We are replacing a number of internally developed and supported mainframe systems with Retail HQ’s capabilities, a move that will provide functionality that we believe will give us a competitive advantage,” according to Bob Mawyer, Weis’ vice president of information technology. “Retalix HQ and its new modules will give us even more visibility and control over our pricing operations, data analysis and vendor promotional monies at both the store and headquarters levels.”
While some supermarkets are choosing to focus on improving pricing and merchandising execution as a goal of system integration, others are looking to streamline the customer experience, specifically melding their online and in-store customer outreach efforts. “This means embracing the concept of ‘anytime, anywhere’ retailing and fully leveraging 24/7 sales channels, including the web and mobile devices and supporting digital coupons and other loyalty efforts,” explains Junction Solutions’ Hutter.
By integrating multiple sales channels, grocers can implement digital and mobile couponing programs and collect unique information about their shoppers, including information such as location, demographics and purchasing trends.
A single view
At the heart of the process is a single view of the customer, and that includes merging shopping data from all channels. “Grocers can then leverage analytics to evaluate buyer data and individual shopping patterns to better target product promotions and improve the overall customer experience,” Hutter says.
Internally, category managers and buyers are also looking at performance across all channels when creating assortments. “If store inventory, warehouse and distribution systems are consolidated, chains can minimize inventory carrying costs,” he says. “This inventory optimization allows distribution to smooth out replenishment requirements. While carrying costs [for inventory] may increase, they are often offset due to more predictable and executable replenishment. This example of cross-departmental analysis and margin optimization benefits is only possible with a fully integrated system.”
Integration is also paramount as chains look to deliver more personalized service to shoppers across channels, whether they’re shopping online, on their mobile phone or in the store. “Without integration, these processes are confusing and frustrating for the consumer and lack of communication could kill the loyalty grocers are after,” says Andrea Morgan-Vandome, vice president of strategy and solution marketing for Oracle Corp., based in Redwood City, Calif. “Grocers that can bring all of their channels together and have one view of the customer can offer a personalized customer experience across different touch points, especially mobile which is a highly personal consumer device.”
The road ahead
Even with increased attention, integration still remains in its infancy across the supermarket industry. And due to the constraints that the recession has put on retailers industry-wide, experts say efforts are not as far along as many analysts would hope.
“We might see a high level of integration done in one of the three avenues of the demand chain, but not across the board,” says Retalix’s Campbell.
Observers note that there is no definitive road map that retailers must follow and that integration projects differ from retailer to retailer, based on their specific operational constraints. However, they say the current sweet spots tend to be customer-service oriented.
“Many retailers want to execute services to shoppers in a consistent manner,” Campbell says. “While this includes operations such as pricing and merchandising, the project is much broader and must address all customer touch points, from kiosks and smart phones to retailers’ e-commerce sites.”
The next evolution of cross-channel integration is inevitably the addition of social media. “Grocers are looking at the benefits of a social presence and how to bring that into the store and overall brand,” explains Oracle’s Morgan-Vandome.
Grocers are clearly interested in more targeting initiatives and to succeed, merchandising needs to be tied into efforts as well. “There is definitely movement in this area and how advantageous it will be depends on where each company is or where their vision is. But make no mistake, this is the direction the industry is headed,” she says.