Technology Promises Grocers New Efficiency
PITTSBURGH — BEHIND the shelves of America's food stores, grocers are turning to the computer in new ways. If the technology boosts sales and cuts waste as anticipated, the industry - and shoppers - could save billions of dollars.
How much? A study published last year by the Food Marketing Institute estimated better efficiency could save the industry $30 billion a year.
``We have to begin to synchronize the manufacturing and distribution with what consumers are consuming,'' says Rich Sherman, senior vice president of business development at LogiCNet, a division of Information Resources Inc. (IRI).
The new technology allows companies to collect the information routinely scanned into computers at check-out counters and apply high-end software to decide what to stock and at what price. If grocers succeed, consumers ``are going to get much better value, better selection, fresher products,'' Mr. Sherman says. No one believes the move toward this new technology will happen overnight, but grocers are keenly interested in it. Competitors are invading their turf.
``There's this huge battle between drug stores, ... club stores, K marts, Wal-Marts, and supermarkets for foot traffic,'' says Karl Gnau, a vice president of Nielsen Inc. ``Unless you're efficient ... it's difficult to attract those customers.''
Nielsen (the Northbrook, Ill., company that also provides television ratings) and Chicago-based IRI are battling to become the leader in re-engineering the grocery store.
The technology reduces waste in two ways. First, it gives everyone from the manufacturer to the retailer more timely information about what people are buying. Second, it gives the grocer sophisticated tools to decide which price promotions are profitable.
Say a manufacturer makes 10 kinds of soap in a 30-day cycle. If his information on sales is four weeks old, he has to guess buying patterns up to eight weeks in advance. Today, Nielsen and IRI are moving toward technology that will collect and analyze sales data in a day. That would give manufacturers much more time to adjust production and tell the retailer quickly what to restock.
Earlier this month, a joint venture between IRI and Catalina Marketing Corporation announced that food companies in its quick- response pilot program saved money. One ice-cream maker used electronic data of the previous day's sales to determine what to restock. That saved its drivers an average 20 minutes at every store they called on. Stouffer Foods cut out-of-stock problems in two store chains, hiking annual sales by a projected $200,000.
Speedy data also helps grocers, especially when it comes to sale-price promotions, says Bob Billings, general manager of the IRI-Catalina joint venture, called Catalina Information Resources.
Promotions are the bad boy of the supermarket industry. Food manufacturers continue to use them because they induce grocers to buy more of their products. Grocers have grown dependent on them, experts say, and inevitably buy too much of the product, tying up shelf space for too long.
``What we've done over time is that we've kind of trained the consumer to only shop the deals,'' says Mr. Gnau of Nielsen. ``Why buy it at $1.69?'' he says the consumer wonders, since ``it's going to be 99 cents'' next week. But at 99 cents, the manufacturer and retailer often don't make money.
The new technology will kill many loss-making promotions, Gnau predicts. Instead of jumping between 99 cents and $1.29, a two-liter soft drink will be priced at $1.09 in the supermarket of the future, still yielding a profit.
Even the most ardent supporters of efficient consumer response say it will take three to five years for supermarkets to change. Eventually, they say the principles will spread to other retailers. But skepticism persists.
For example: MTS Inc. of Pasadena, Calif., is installing computers in each of its Tower Records stores. Within a year, the new network should reduce out-of-stock problems and analyze financial data more quickly.
``At the end of the day it will save us a lot of money,'' says MTS president Russ Solomon. But ``I can't see it changing anything.''