As the economy begins to pull out of the recession, food retailers and wholesalers are showing a greater propensity to spend on technology, according to SN’s annual technology survey conducted last month.
The online survey of food retail and wholesale subscribers to Supermarket News and the SN daily newsletter, which forms the basis of this 16th annual State of the Industry Report on Supermarket Technology, indicates that more than half (54.4%) of the respondents plan to increase their IT budgets this year by up to 10%, and 62% overall expect to spend more on IT. That represents an uptick from last year’s survey, when about one-third (34%) said their IT budget would grow up to 10%, and 49% overall said it would increase.
The SN survey received input from 34 retailers, 21 wholesalers, 9 combined retailer/wholesaler companies and 15 respondents who did not identify the primary business of their organization.
The rebound in IT investment reflected in the survey correlates to the findings of other studies. For example, Forrester Research, Cambridge, Mass., predicted last month that IT spending in the U.S. will grow by 6.6% in 2010, after declining by 8.2% last year. “All the pieces are in place for a 2010 tech-spending rebound,” said Andrew Bartels, vice president and principal analyst, Forrester Research. “In the U.S., the tech recovery will be much stronger than the overall economic recovery, with technology spending growing at more than twice the rate of the gross domestic product this year.”
The SN survey results also demonstrated the impact the recession had on IT spending last year. Almost half of respondents (46.8%) said they had undertaken moderate cutbacks in IT spending because of the recession. And a larger percentage of respondents (43%) said their budgets were 1% of sales or less than stated that last year (34%).
One way businesses can reduce their IT spending is to employ applications on a software-as-a-service (SaaS) basis – essentially renting their software, rather than paying for a full license and installation. A significant percentage of respondents (43%) said they use SaaS for up to 25% of new applications. But almost a third (30.4%) said they don’t have any applications running via SaaS.
Another way to cut IT costs is to use computer virtualization, which allows a single physical computer with a single operating system to be subdivided into many “virtual” computers, each with its own operating system. Last year, 11.4% of respondents said they tested or launched virtualization. Associated Grocers of Baton Rouge and Winn-Dixie Stores are among the food distributors that have adopted this strategy.
FOCUS ON INVENTORY
The impact of the economy is also seen in the type of applications regarded as high priority by significant percentages of respondents.
For example, business intelligence, which helps retailers understand their business through deep analysis of key performance indicators, was deemed a high-priority application by 22.8% of respondents last year, sixth on the list. It jumped to second place on the 2010 list of high-priority applications, selected by 34.2% of respondents.
“We are seeing an increased number of queries about BI, especially after the economic downturn,” Shilpa Rao, solutions manager of merchandising in the retail practice of Tata Consultancy Services, a Mumbai, India-based firm with offices in New York, said last fall. “They want to leverage BI to understand where their costs are and measure them.”
In addition, she said, retailers want to use BI to predict consumer behavior and formulate a more accurate assessment of inventory requirements. “Inventory is the biggest issue during an economic downturn,” said Rao.
Inventory’s importance was further underscored by the popularity of inventory management itself, which was third on the 2009 priority list, selected by 27.8% of respondents, and fourth on the 2010 list, with 30.4% of respondents choosing them. Moreover, at the National Retail Federation’s annual Convention & Expo held last month in New York, inventory control, particularly replenishment and out-of-stock prevention, was a frequent topic across many sessions and exhibit booths.
Another example of inventory management – computer-based ordering at the store level – was chosen by 27.8% of respondents as a high-priority item for 2010; and 24.1% of respondents said they would either test or launch computer-based ordering in 2010, up from 10.1% who did so last year.
While European retailers have long embraced computer-based ordering and replenishment for stores, in the U.S. this application has been leveraged mainly by such pioneers as Price Chopper Supermarkets, Schenectady, N.Y., Hannaford Bros. and a handful of others. But the survey results plus anecdotal comments from technology suppliers indicate that this system may finally be gaining traction in the U.S., as retailers understand its potential for cutting inventory and out-of-stocks at the same time. Winn-Dixie is among those chains beginning to roll out computer-generated ordering.
Another application finding favor in recessionary times is price optimization, often marketed on an SaaS basis. Retailers are using this application to determine pricing strategies that can retain margin in a very competitive environment. More than one in five (21.5%) respondents are making price optimization a high priority this year, while 17.7% are either testing or launching it, which 12.7% did last year.
“Price optimization is available to mid-tier and small-tier grocers,” said Nikki Baird, analyst and co-founder of Retail Systems Research, Miami. “It’s not just for the big guys anymore.” Among its capabilities, the technology “uncovers trends and important characteristics that you don’t see at an aggregate level,” she added.
Also high on the agenda for many respondents last year was data accuracy – ensuring that the product data being synchronized with vendors and used in merchandising and inventory decisions accurately represents the physical dimensions, weight and other characteristics of the product on the shelf. Data accuracy was deemed a high priority by almost one-fourth (24.1%) of respondents for both 2009 and 2010.
Wal-Mart Stores plans to use a data accuracy scorecard to monitor the accuracy of the product data provided by its suppliers, according to a letter sent to its suppliers in December that is posted at www.1sync.org/walmart.html, part of the website of Wal-Mart’s data pool, 1SYNC.
Wal-Mart is not alone in using vendor scorecards. Food Lion, for example, has been using scorecards as part of its extensive data-sharing program with vendors. In the survey, 16.5% of respondents said they would test or launch vendor scorecards this year.
Meanwhile, category management remains an essential process for many food distributors, with 29.1% of respondents making it a high priority last year, 34.2% saying it would be a high priority in 2010. If anything, category management has increasingly become a joint project between retailers and their suppliers, as they share resources and data to maximize the impact of each product category.
The recession wasn’t the only factor impacting IT priorities last year. Data security was another, as the vulnerabilities exposed by the Hannaford Bros. data breach uncovered in early 2008 continued to worry retailers. In fact, 32.9% of respondents deemed data security a high-priority item in 2009, putting it at the top of the list. For 2010, data security is fifth on the list, with 29.1% of respondents selecting it.
Many retailers will be trying to comply with the Payment Card Industry (PCI) Data Security Standard established by the credit card industry. Dissatisfaction continues to be expressed about the PCI standard, both for the burden it places on retailers and for its lack of efficacy, given that it didn’t prevent a compliant Hannaford Bros. from being breached.
WEBSITE A PRIORITY
On a more positive note, retailers are putting a great deal more emphasis on their websites these days as an informational and marketing tool. Website topped the list of high-priority applications in 2010 as it was selected by 38% of respondents, compared with 27.8% who said it was a high priority last year.
Retailers are increasingly seeking to tap into the explosive growth in social networking vehicles such as Facebook, Twitter and blogs to form digital connections to their shoppers. For 2010, 17.7% of respondents said they would test or launch social networking in 2010, making it tied for second on the list of new applications; half as many respondents tested or launched social networking last year. Among the features they currently offer on their websites, 17.7% cited Facebook, 13.9% selected blogs and 12.7% chose Twitter.
Companies that leverage social media are doing better financially than those that don’t, according to a study conducted last year by Wetpaint and the Altimeter Group. Social-media adopters boosted company revenue by 18% over a 12-month period, while non-adopters saw revenues drop 6%, according to the study. Retailers actively using social media include Safeway, Whole Foods Market, Price Chopper, Hannaford Bros. and Dorothy Lane Market.
Online coupons are another growing phenomenon on retailers’ websites. In the survey, 16.5% of respondents said they would test or launch online coupons this year, making that tied for third on the list of new applications, compared with 5.1% who did so last year. Currently, 17.7% of respondents include online coupons on their websites.
Retailers with major coupon offerings on their websites, such as Safeway, Kroger, ShopRite, Giant Eagle and A&P, are allowing shoppers to download many of the coupons to their loyalty cards to eliminate the need to print the coupons and to make it easy to redeem them at the checkout.
Other features driving consumers to retail websites include weekly flier (offered by 35.4% of respondents), meal planning and recipes (22.8%), shopping lists (21.5%) and targeted offers (11.4%). Some retailers (19% of respondents) are communicating offers and coupons to shoppers via email. Marsh Supermarkets, for example, has about 75,000 subscribers in its weekly email program.
Online shopping remains a minor factor for most food distributors as only 7.6% of respondents offer it on their websites, with 12.7% offering in-store pickup of orders. But interest may be growing with 15.2% saying they will test or launch online sales this year and 16.5% making it a high priority this year.
Perhaps the biggest buzz when it comes to digital media is emanating from mobile phone applications. In the survey, 12.7% of respondents are planning to test or launch mobile phone marketing in 2010, compared with just 2.5% last year. Retailers like Marsh have pioneered this area with text-message programs sending offers to shoppers who opt in. Shoppers at Safeway and Kroger can access coupons from Cellfire and Shortcuts.com via their mobile phones, and download them to their loyalty cards. In November, Coupons.com began offering a free application for the iPhone that allows shoppers to print out coupons.
READINESS FOR CHANGE
One of the biggest technology changes coming to food retail over the next few years is the GS1 DataBar, which is smaller than the UPC bar code yet holds more data. To date the primary uses of the DataBar have been on loose produce items and coupons, where it appears along with the UPC-A code.
Retailers were expected to adjust their scanning systems and POS software to be able to scan and process the produce DataBar by Jan. 1, 2010, the so-called sunrise date. In the survey, about one-third of respondents (31.6%) said they can scan and process the DataBar for perishables. About 37% of those saying they can’t indicated they expected to be able to do so by 2011.
The sunrise date for coupons – when manufacturers can begin using only the DataBar on coupons – was originally Jan. 1, 2010, but the date was postponed one year by the Joint Industry Coupon Committee when it determined that many retailers’ POS systems wouldn’t be ready by 2010. Among survey respondents, 38% said they can scan and process the DataBar on coupons; of those that can’t, 39% expected to do so by 2011.
Another major industry program is the year-old Produce Traceability Initiative, which seeks to achieve standardized traceability throughout the produce industry supply chain. Last year, growers, producers, wholesalers and retailers began meeting the first three of seven milestones for getting their systems and procedures capable of collecting and transmitting traceability data. The last milestone passed was Sept. 30, which was for trading partners to exchange a product’s GTIN (global trade item number) and corresponding data.
This year, suppliers will need to be able to encode the GTIN and lot numbers on case bar codes, as well as provide human readable information, by the third quarter. In 2011, retailers and wholesalers will need to have their systems ready to read and store the GTIN and lot number from each case of produce received. And in 2012 distributors will need to be able to read and store information on outbound cases.
In the survey, 28% of respondents said they were planning to meet the traceability requirements set by the Produce Traceability Initiative, while another 43% said it was under consideration.
Given the marked rise in the number of food recalls in recent years, the industry has set about developing better systems for communicating recall information. To that end, the Food Marketing Institute and GS1 US last September unveiled a revamped version of their online recall portal, dubbed the Rapid Recall Exchange.
Among survey respondents, 45.6% said they were able to receive recall information from suppliers electronically while 21.5% said it was under consideration.
A lingering issue that has cropped up at industry meetings and online discussions is the apparent communication problem that retail IT departments have with the business and operations departments at their companies, neither side being able to grasp the jargon and acronyms of the other. But in the survey, almost half of respondents (46.8%) said the communications between their IT department and the business/operations departments was good; just 19% said it needs improvement.
Among applications that your company currently employs, which received the highest priority in terms of usage, expansion or upgrades in 2009?*
Data Security 32.9%
Category Management 29.1%
Inventory Management 27.8%
Data Accuracy 24.1%
Business Intelligence 22.8%
Data Warehousing 22.8%
Profit Analysis 22.8%
Price Management 20.3%
Labor Scheduling 17.7%
POS Hardware 17.7%
POS Software 17.7%
Loyalty Marketing 16.5%
Price Optimization 16.5%
Promotion Planning 16.5%
Transportation Management 16.5%
Video Surveillance 16.5%
Warehouse Management 16.5%
Space Management 15.2%
Data Synchronization 13.9%
POS Monitoring (for shrink) 13.9%
Computer-Based Ordering 12.7%
Demand Forecasting 12.7%
Disaster Recovery 12.7%
Trade Promotion Management 12.7%
Master Data Management 11.4%
Store Network 11.4%
Among applications that your company currently employs, which will receive the highest priority in terms of usage, expansion or upgrades in 2010?*
Business Intelligence 34.2%
Category Management 34.2%
Inventory Management 30.4%
Data Security 29.1%
Computer-Based Ordering 27.8%
Profit Analysis 25.3%
Data Accuracy 24.1%
Labor Scheduling 22.8%
POS Software 22.8%
Price Management 22.8%
Loyalty Marketing 21.5%
POS Hardware 21.5%
Price Optimization 21.5%
Promotion Planning 21.5%
Warehouse Management 21.5%
Online Coupons 20.3%
Transportation Management 20.3%
Data Warehousing 19.0%
Data Sharing With Suppliers 17.7%
Video Surveillance 17.7%
Data Synchronization 16.5%
Online Sales 16.5%
Vendor Portal 15.2%
Computer Virtualization 13.9%
Master Data Management 13.9%
Social Networking 13.9%
Demand Forecasting 12.7%
Disaster Recovery 12.7%
Space Management 12.7%
Store Network 11.4%
Trade Promotion Management 11.4%
*May reflect multiple answers
NEW APPLICATIONS IN 2009
ALL OUTLET SALES
Which new applications were tested or launched in 2009?
Price Optimization 12.7%
Computer Virtualization 11.4%
Data (Item) Synchronization 11.4%
Computer-Based Ordering 10.1%
POS Check Conversion 10.1%
Back-Office Check Conversion 8.9%
Online Sales 8.9%
Social Networking 8.9%
Data (Price) Synchronization 7.6%
Fuel Marketing 7.6%
Trade Promotion Management 7.6%
Vendor Scorecards 7.6%
Digital Signs 5.1%
Online Coupons 5.1%
NEW APPLICATIONS FOR 2010
Which new applications will be tested or launched in 2010?
Computer-Based Ordering 24.1%
Price Optimization 17.7%
Social Networking 17.7%
Online Coupons 16.5%
Vendor Scorecards 16.5%
Online Sales 15.2%
Mobile Phone Marketing 12.7%
Data (Item) Synchronization 11.4%
Data Sharing With Suppliers 11.4%
Data (Price) Synchronization 10.1%
POS Check Conversion 10.1%
Computer Virtualization 8.9%
Cloud Computing 7.6%
Digital Signs 6.3%
Electronic Shelf Labels 6.3%
Fuel Marketing 6.3%
Task Management 6.3%
Trade Promotion Management 5.1%
Which features are available on your company website or via email?
Company history 58.2%
Corporate information 48.1%
Job openings/recruitment 45.6%
Store locator 40.5%
Weekly flier 35.4%
Food safety information 34.2%
Email feedback from customers 32.9%
Company policies 25.3%
Catering information 24.1%
Health-related information 22.8%
Loyalty card information 22.8%
Meal planning/recipes 22.8%
Store events calendar 22.8%
Shopping lists 21.5%
Customer testimonials 20.3%
Department-level information 19.0%
Send promotional email 19.0%
Online coupons 17.7%
Send informational email 17.7%
ABOUT THE SURVEY –
SN’s 16th annual State of the Industry Report on Supermarket Technology is based on a survey developed by SN editors and conducted by the research department of Penton Media, New York, parent company of SN.
The survey was emailed on Jan. 11, 2010, to 14,544 subscribers of SN and SN’s daily newsletter. A follow-up email was sent on Jan. 26. Responses were received from 79 individuals, representing 34 retailers, 21 wholesalers and 9 combined retailer/wholesaler companies, as well as 15 companies that were not identified. Individual survey results are confidential and not tied to participating companies.
Respondents included directors (19%), chief executive officers (7.6%), presidents (8.9%), senior vice presidents or chief information officers (16.5%) and vice presidents (12.7%), among others.
For those companies submitting sales volume figures for 2009 (43 out of 79 respondents), the average was $1.2 billion. For those companies submitting figures on the number of stores operated and/or supplied (43 out of 79), the average was 420, and 253 for retailers only.
© 2010 Penton Media. Displayed by permission. All rights reserved.