Equipping the future store
In the years to come, technology will strongly impact store operations and shopping experiences.
The question, however, is twofold: does the customer accept technology and can the retailer afford it.
Elsevier Food International, Vol. 6, Number 3, September 2003
Pascal Kuipers
Take a good look at future store developments on a ten year time frame. In the past ten years, retailers and manufacturers have become much better users of IT. Quality and accuracy of information have improved strongly. POS systems and barcode scanning were introduced in the early 80s but the benefits were reaped in the early 90s. With the new technologies that are being developed today - like RFlD - we are entering a new ten year cycle."
"We can dream about what the future store will look like, but there are concrete things that need to be done now to lead us to that future. Let's focus on what we can do now and move forward. Be very practical about what we are able to do. Metro Group's Future Store Initiative is a very constructive contribution to bring it to life. From here we can discover where to go next."
It does not matter whether we look ten years or only one day ahead. In fact, both quotes point in the same direction. That is that the industry deals with change very pragmatically and that future developments are assessed hands-on. "The industry itself is moving at a fast pace, but is slow to change. It's efficient, practical and pragmatic. Focused on evolution. Not on revolution," says George W. Off, chairman and CEO of Checkpoint Systems and source of the first quote. "That's why I use the ten year perspective. There are still major inadequacies in systems. For instance, orders still have to deal with a two to four per cent error rate which is difficult to track. Radio Frequency Identification (RFID) offers the opportunity for incredible accuracy. New systems based on new technology will improve this, but the industry requires that they must be compatible with systems that are used today."
The second quote comes from Paul Polman, Procter & Gamble's president Western Europe. "Innovations are only worth as much as you can commercialise them," he states and this also applies to technological innovation that needs to bring in a short-term return instead of being a remote promise.
Defensive and cost-driven
 'This is how you shop at Oy!': The stores of this Norwegian hard discount banner have no conventional checkouts, but three self-checkouts per store, to reduce costs and lower prices. The instruction panel tells customers how to handle it. |
"Over the last six years leading food retailers have succeeded in exploiting new technologies - such as the Internet, e-marketplaces, storage area networks and radio frequency data transmission - and have delivered real business benefits in areas such as customer service, supply chain efficiency and the cost of IT," says Penfold. "Many companies, however, are adopting defensive, cost-driven strategies and take a tougher stance with suppliers in areas such as the cost and frequency of software upgrades."
New technologies are extremely expensive and the write-offs are huge. "Emerging technologies are inherently risky and their integration with existing systems may be expensive, and yet are still subject to a high rate of technological change," reads the KPMG/CIE5 survey. "The timing of new technology implementation is essential: aligning IT solutions with the business strategy, at the optimum product life cycle of the new technology."
RFID and beyond
Polman (P&G) already referred to Metro Group's Future Store Initiative in the German town of Rheinberg, which will add valuable experience to the use of state-of-the-art technology in real life. This store 'This is how you shop at Oy! ', The stores of this Norwegian hard discount banner have no conventional checkouts, but three self-checkouts per store, to reduce costs and lower prices. The instruction panel tells customers how to handle it.
features some of the aspects of the expanding role of technology in the customer experience as mentioned by Retail Forward in its April 2003 report 'Twenty Trends for 2010: Retailing in an Age of Uncertainty':
• Web-enabled in-store kiosks, which give consumers access to a retailer's full inventory and information about products, prices, and availability.
• Wireless technological advances will provide shoppers with detailed information about product features and benefits from hand-held mobile devices.
• Smart carts will interact with consumers during the shopping process, drawing on a customer's current or past shopping behaviour to alert him to products or promotions that may be of interest.
• RFID-enabled checkout - where all the RFID-tagged items in the cart can be scanned at once - will eventually replace wireless portable scanning devices that now let shoppers scan their own purchases, and dramatically reduce checkout lines and time.
• New contactless payment solutions using RFID-enabled smart cards or transponders to speed up the checkout process will become commonplace by 2010.
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RFID applied at item level will clearly revolutionise the whole supply chain. Before this happens, however, quality and accuracy should be increased, while the price of RFID tags should be lowered dramatically from the current average price level of US$0.60 to US$0.05 or less. "Pricing, but also technology should be taken into account," says Ted de Haan, marketing director of NCR's Retail Solutions division for Europe, Middle East & Africa. "Even a price level between US$0.20 and US$0.10 per item tag could make the investment worthwhile for certain higher valued assortments, but then quality should be guaranteed. Currently, however, there is still a huge difference in quality between the more expensive RFID tags used for transport packaging and the cheap tags that may be used for product items. The cheap tags have high rates of read-out mistakes and they cannot be read quickly and in larger quantities because of their limited reach. The more expensive ones are far more reliable and are quickly registered via the RFID portals."
Customer pricing
Jeremy Spencer, business development manager Retail of Lawson Software, foresees a renaissance of category management with the onset of RFID, especially at item level. "RFID will help to revolutionise the execution of category management in store, before the customer's eyes," he says. "Recognition of movement of a product within the store, via the intelligent tags and readers, will afford mass market retailers the chance to be more precise in knowing where stock is and, more importantly perhaps, where it is not! Furthermore, dual or multi-siting of products, a more-and-more prevalent technique deployed by retailers using theme-based promotions, will be better supported once RFID is working well, giving retailers confidence that stock holdings of all items in store can be maintained more accurately, regardless of siting."
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Spencer thinks that customer pricing may well become a reality in the future when (inter) national legislation adapts to the industry's technological capabilities. "Frequent, valuable customers may get offered 'special' prices, highlighted to them as they scan and put the products into their shopping trolleys via trolley readouts, the trolleys having first been personalised as customers scan their loyalty card on picking up the trolley," he says. "Promotional activity will become less and less evident in grocery stores over the next ten years. FMCG manufacturers are starting to question the effectiveness of their promotional trade budgets, whereas retailers are increasingly adopting EDLP as a marketing strategy, with deep cut promotions an exception rather than a norm. The Store of the Future will need to have fewer 'bells and whistles' to support promotional techniques and will have to devote more of its attention to having the right product at the right price, all of the time."
Shopper collaboration
A joint 'Extended Retail Solutions' research by Cap Gemini Ernst & Young, Intel, Cisco Systems and Microsoft shows that European consumers are very open to using devices such as customer service terminals, smart screens and dynamic, interactive signage.
Such shopper collaboration is a prerequisite for retailers that invest in technology not only to add customer value and differentiate themselves, but also to cut labour costs in less favourable economic conditions. The survey shows the benefits: increased traffic, reduced labour costs, better margins from up-selling and cross-selling capabilities, reduced deployment and operating costs, and greater store flexibility. Shoppers also collaborate by identifying themselves in large numbers via their loyalty cards. They add invaluable information as it makes category management truly consumer focused. "Grocery retailers have long been achieving accuracy rates of 99 per cent or higher in recognition of retail items in scanned baskets," says Spencer. "Improved data quality relates mainly to the identification of the shopper: who is actually standing at the till with plastic in hands," he says. "This becomes more important to category managers as specific responses of key target or valuable customers can be monitored to changes effected by category teams in their day-to-day activities. Grocery retailers in developed markets face the constant challenge of having to sell more to a fairly static customer base, and to increase revenues, especially in the face of price stagnation or even deflation. The future grocery store, as is already the case with leading Japanese convenience stores, will need to be able to offer different ranges, or even entire categories, depending on the day of the week or even the time of day. Customer behaviour groups, or states, can vary by time - hence ultimate flexibility in changing the products to match the needs of the customers will be something a future store will need to support. This will partly be based on increased use of customer basket data at the centre and heightened flexibility at the store and across the supply chain. Suppliers will cross-dock deliver 'shelf-ready' components, which will be shipped quickly to stores and taken on to the floor immediately. This may happen a number of times each day."
Research sources:
'Twenty Trends for 2010: Retailing in an Age of Uncertainty', Retail Forward (www.retailforward.comJ, April 2003
'Store of the Future Survey', IBM/National Retail Federation (www.ibm.com). December 2002 'Transforming the Shopping Experience Through Technology', Extended Retail Solutions (www.extendedretailsolutions.com). May 2003 'IT in Food Retailing', KPMG/CIES - The Food Business Forum (www.), April 2003
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