Making room in the budget

Multi-channel integration efforts top grocers’ IT priorities as spending slowly increases.

By Deena Amato-McCoy

Even with the severe tumbles and rebounds of the stock market, supermarket retailers’ IT budgets remain on the upswing. However, there is no room for frivolous technology projects on their agendas. Instead, grocers are retiring aging systems and focusing on integration efforts that will help deliver an efficient and more pleasant shopping experience.Grocers are forging ahead and using their IT budgets wisely. Salisbury, N.C.-based Delhaize America, which operates the Food Lion and Hannaford banners among others, plans to “spend more than last year,” according to Mark Alexander, the retailer’s manager of cost optimization.

Specifically, he says Delhaize is keeping a keen eye on technology that “has impact,” including systems that ease the shopping experience for customers and deliver efficiency.

The retailer is creating its IT to-do list by examining the cultural changes in the marketplace and adding solutions that are tied to these trends. “It’s a matter of really getting to know customers and moving into their world,” says Alexander. “Their needs might not be a part of traditional grocers’ business models, but it’s still very important [for us] to provide those services.”

“Over the last 18 months, the focus has been on cost containment,” says Jeff Roster, vice president of research for Stamford, Conn.-based Gartner. “The tides are finally shifting a bit and retailers are investing dollars to drive operational efficiency, as well as take costs out of the equation.”

During the recession, Roster says all retailers decreased IT spending. The grocery industry, being a competitive, high-velocity, low-margin segment, was one of the first to pull back on spending when the economy began its downward spiral.

Now, it’s one of the first retail verticals to loosen purse strings and “update the store environment to be more competitive,” says Mike Adams, manager of Dell Retail Solutions for Round Rock, Texas-based Dell. “All grocers want to increase their speed of service and that includes updating store operations and improving customer-facing solutions for associates and consumers so stores can support a more robust, efficient shopping experience.”

More spending at the store

Store-level IT spending across supermarkets is expected to jump 4.7% compared to 2010, according to IT and the North American Supermarket, a study recently released by IHL Group, a Franklin, Tenn.-based research firm. IT spending across the grocery enterprise is expected to rise 4.1%.

While there is still a lot of conservatism, “the mood is definitely shifting compared to last year,” says Steve Cole, chief marketing officer for Gladson, a Lisle-Ill.-based provider of syndicated consumer packaged goods product images and information. “Retailers are finally making those strategic investments they have been putting off for the last two years.” Their top focuses: solutions that speed up time to market, minimize unnecessary risks and “foster more connectivity between consumers and their retailers of choice,” says Dell’s Adams.

Generally, this means projects “that benefit the consumer and those that reduce costs will take priority,” says Todd Michaud, executive vice president, sales for Plano, Texas-based Retalix.

Biting the integration bullet

Clearly, many chains remain reluctant to jump into new solutions and instead continue to stretch older applications and legacy systems as far as they can. Grocers that are eager to create more intimate relationships with shoppers however, “need to finally cut the cord and take a dive,” says Bonnie Lawrence, director of industry marketing for RedPrairie, based in Alpharetta, Ga. “Grocers need to add solutions that speak to customers no matter what channel they interact with you. And these systems need to work together.”

Historically, disparate systems were commonplace across retail. Many systems were operated in silos and often created and managed for specific business divisions and needs. When grocers began shifting to multi-channel strategies, they followed a similar approach, in which they maintained multiple databases, inventory management systems, payment switches and marketing solutions.

“Grocers can no longer think about their solutions in silos,” says Retalix’s Michaud. “Today, it is important that the customer service infrastructure be designed to work together in an integrated way.”

This is a far cry from how solutions were historically designed. For example, tier one retailers created their own applications before packaged options were so readily available in the marketplace. “Oftentimes, master data management and hosting were written to work with mainframe computing,” says Lawrence. “Anytime they wanted to pursue new business operations, promotions or other opportunities, programmers had to manipulate the code,” she says. “This process was inefficient, time-consuming and at times, caused them to miss out on go-to-market opportunities.”

For many years, retailers have been moving toward integration by buying best-of-breed solutions and then trying to tie them together with interfaces and middleware. Instead of being successful, “it has resulted in a disjointed consumer experience,” says Michaud.

As more consumers began demanding a seamless, transparent shopping experience across channels, grocers began re-evaluating integration efforts. This includes breaking down the barriers separating otherwise combining otherwise disparate systems and linking them to work together.

“We see a new trend emerging where broad-based customer service software portfolios like point-of-sale, self-checkout, mobile and other shopping channels, are all designed to work together in a seamless, real-time fashion—leveraging the same data and same business logic,” Michaud says. “This gives consumers a more unified experience across the various shopping channels.”

The cross-channel experience

The cross-channel phenomenon has clearly taken hold at all types of retailers and the grocery segment is no exception. Within two years, most retailers have increased multi-channel strategies from online, brick-and-mortar stores and catalogs to approximately five channels, with the addition of mobile and social media, according to Enabling Buy Anywhere/Get Anywhere: The Future of Cross-Channel Retailing.  The study, from Miami-based Retail Systems Research, is based on 70 retailer responses. However, the study warned that not all retailers easily provide a seamless experience across these channels.

“Data touchpoints have grown exponentially,” says Delhaize’s Alexander. “We’ve got to be able to boil down data from each touch point into a useable format and gain a clearer understanding and meaning from them.”

One touchpoint that retailers are exploiting is kiosks. Whether it is used as an ordering solution, a checkout station or for informational means, kiosk usage is growing. “As long as they provide convenience and efficiency, consumers will use them,” says Shane Murphy, senior director of corporate accounts for Cummins-Allison, a Mt. Prospect, Ill.-based provider of money handling equipment.

Grocers featuring coin counting kiosks, for example experience up to 20 transactions on a typical day, up to 40 on weekends. Some companies are integrating marketing messages onto touch screens when units are not in use.

“Messages can run while customers’ cash exchange is being processed, or promotional messages can run in a loop until a shopper begins a transaction,” he says. “Whether it is video of private label merchandise, or national brands that can produce a revenue stream, the units deliver streamlined access to information at the right moment.”

Most industry observers agree that mobile is going to change the face of multi-channel strategies. “The key to driving the value of multi-channel is exploiting mobile with more value-add apps,” Gladson’s Cole explains. “Integration can make this a much easier concept to embark on.”

As more customized apps become available, consumers are demanding that more personalized information is pushed to their mobile device to help them make an educated purchase.

As for future IT investments, the customer is king, observers say. “The key is to make the shopping trip easier,” says Dell’s Adams.

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