Just as people mull the pros and cons of buying a home versus renting a place to live, grocers are weighing similar options when it comes to their IT infrastructure. The ownership model comes with the associated maintenance headaches and sometimes unpredictable expenses. With software as a service (SaaS), the application and the data are typically hosted by the software provider for a monthly fee.

Grocers are increasingly choosing the SaaS option as a way to control costs and provide more flexibility in managing IT expenditures and resources.

“Grocers are the second highest retail segment that we found using SaaS,” says Sahir Anand, senior retail analyst and author of Boston-based Aberdeen Group’s “SaaS in Retail” report. “From the end user’s perspective, the key benefits are the opportunity to more freely try initiatives, remove technical complexity and ensure the highest levels of service. Other benefits include vastly improved scalability, lower total cost of ownership—as you only pay for what you use—and economies of scale.”

He says that retailers typically try the SaaS model in areas such as time and attendance, workforce management and kiosk applications rather than an enterprise solution. “Retailers are looking to SaaS to help them manage the pain points and fill in the gaps of their technical resources so they can focus on what they do best—attracting customers and building sales.”

Milwaukee-based RedPrairie, a provider of workforce, inventory and transportation management software, recently expanded its SaaS model to include all of its systems.

“There are really a couple of factors driving this move and speed to solution is one,” says Jim Hoefflin, executive vice president of products and marketing. “We can solve a problem in weeks or months, rather than years. The other driver is cost. If you look back a few years, there was a lot of anxiety about the [SaaS] model due to concerns about performance and giving up control. But the recession has accelerated people’s acceptance of SaaS. And they see their competitors doing it, so they are becoming more comfortable.”

“In the past, we offered extended contracts, broken down by user, as well as standard licensing deals,” says Llew Heinz, RedPrairie’s director of hosting strategy. “While those pricing models are still available, all of our products can now be contracted on a buy-by-user, by-order, or by-site basis. This additional flexibility will allow companies to rapidly scale solutions both up and down, easily, and at a lower cost.”

PROCESSING POWER
One of the hurdles to SaaS has been concern by retailers about having enough bandwidth and reliability to run powerful and crucial operations such as point-of-sale and payment processing.

“Most of the technical barriers have largely been dispensed with,” says Tony van Seventer, vice president of marketing and products for StoreNext Retail Technologies, a division of Dallas-based Retalix. StoreNext offers Connected Services, a full suite of Internet-based applications and Connected Payments for payment processing. “The economy has helped bring a fresh look to [SaaS] and is helping to overcome the obstacles some retailers might have.”

“Frankly, given today’s network reliability, along with Internet speeds and high bandwidth access and processing power our servers, this is much less of a concern,” says Marc Dietz, vice president of marketing for San Carlos, Calif.-based DemandTec, which offers systems for pricing, promotion, assortment planning as well as other merchandising and marketing tasks.

Ofer Nimtsovich, executive vice president, SaaS and managed services for Retalix, says retailers have asked about the security of their data and that providers have done much to alleviate those concerns over the past year.

“They have become much more comfortable with the idea over the past few years, as people use the Internet in their personal lives for sensitive financial transactions such as online banking,” he says.

“The security of the Internet has advanced significantly, and with retailers having to deal with PCI compliance and other issues, they are much more open to having the task done by an outsider to ensure compliance with regular and frequent updates. They don’t have the headache of making sure all of the updates happen at all of their stores, which can be a tremendous burden and leave retailers open to problems.”

“When retailers ask me about the security of a SaaS application, I turn the question around,” says Rafael Gonzalez Caloni, executive vice president for Atlanta-based Predictix, a provider of merchandising software. “I say to them, ‘We spend all day every day worrying about the security of your data along with all of the data we host. Do you?’ Are there risks? Of course there are risks with every scenario.”

In addition, many SaaS vendors go through a third-party audit of their data security procedures, observers says.
Internet-based solutions also enable access from any location, which is an especially attractive option for independent retailers, Nimtsovich says. “They can have security access and visibility to sales data and other information on an almost real-time basis from wherever they are.”

GOING UP
Another attractive feature of the SaaS model is the ability to scale the system to meet current and future needs.
“One of the important differences between SaaS and a traditional software model is scalability,” says Dietz. “With SaaS, you can scale usage according to the business needs. If you want to optimize the whole store or chain, or portions of the store or chain, it can be done. For a particular application it may make sense to start with a group of stores or an area of the business. When you own it, you’re paying for it whether or not you use all of it.”

Software updates—and the training users on the new features and functions of the systems—can be managed more easily in a SaaS model, Dietz says. “Instead of one big software upgrade that is usually rolled out once a year across the enterprise, we’re able to update the system more frequently,” he says.

 “We deliver new releases about four times a year, so there are smaller, bite-sized chunks of training.” This helps users retain the information and is less disruptive to work schedules, he explains.

It also makes it easier to manage upgrades to hardware, experts note. “SaaS is extremely convenient over time because you don’t have to re-install software every time you update your hardware or add a new store location,” says Dan Wittner, chief customer officer at Cambridge, Mass.-based RBM Technologies. “With SaaS, the software is there for us right away.” The company provides visual merchandise management systems.

For some retailers, the SaaS structure makes sense for smaller applications that are used by a finite set of users. “Our systems are about enhancing decision-making and are used by a small sub-set of users,” says Predictix’s Gonzalez Caloni. “They have a very light touch on the enterprise, so it makes sense for retailers to focus their internal efforts on systems with larger user groups.”

However, observers say that SaaS shouldn’t be just relegated to smaller applications. “There is a bit of a misconception that SaaS is for mid-market or only horizontal applications,” says Dietz. “These are full, retail-centric applications that offer the same depth and features of on-site applications.”

Gonzalez Caloni says that retailers may have the wrong impression about the features and functionality of SaaS software based on past experiences with the technology. “If you’re talking about the technology even two or three years ago, there was certainly a concern that this wasn’t ready for prime time, but the technology has progressed significantly,” he says.