Rather than abandon innovation altogether during the current budget squeeze, tech-sav­vy grocers are upholding their reputations as IT leaders by augmenting existing solutions with smart upgrades that boost functionality while keeping a cap on operating costs.

As the economy puts more pressure on an already fragile retail industry, all segments, including supermarket chains, continue to re-evaluate IT spending plans and curb investments. In fact, Cambridge, Mass.-based Forrester Research forecasts a 10.6% decline in global purchases of IT goods and services for the year.

“The tight economy is forcing all companies to hunker down and sweat out whatever benefits are possible from existing technology,” says John Saccomanno, director of retail industry marketing for Atlanta-based NCR Corp. “As a result, more than ever before, we are seeing more retailers upgrading, or adding capabilities to existing software and hardware.”

This new paradigm is pushing some supermarket chains to better leverage analytics solutions, especially as the economy forces chains to better understand new shopping patterns of their consumers.

“Whether they are personally effected by unemployment or fear the economy’s future, shoppers are spending less, As a result, many are trading down purchases,” says Marc Drasin, vice president of real estate for Berkeley, Calif.-based Grocery Outlet. “Shoppers are moving away from brands to private label merchandise and even replacing traditional grocers with discounters. Both of these practices are further squeezing grocers’ already-thin margins.”

Interestingly, the recession has fueled business for Grocery Outlet, a discounter that stocks national consumer packaged goods brands at prices that are often 40% lower than traditional supermarket chains. Like its counterparts Aldi and Save-A-Lot, Grocery Outlet is catering to the “new frugality” of shoppers. This business model is also helping the chain do something very few retail segments are currently in a position to do—expand.

The 135-store chain, which has a presence in California, Washington, Idaho, Nevada and Arizona, is growing at a rate of 10 units per year. The chain has five locations set to open next year and another five in the works. Also, it is currently creating an expansion plan for 2011 that includes penetrating the Pacific Northwest and Northern California. Rather than leave its future to chance, Grocery Outlet is leveraging the power of business intelligence to ensure it is making the best decisions in its growth plan.

Four years ago, officials at Grocery Outlet approached Stamford, Conn.-based Pitney Bowes Business Insight (PBBI) to learn more about performance variations between markets and determine the best places to open future stores. While this task could be an easier undertaking for some chains that support loyalty programs, Grocery Outlet does not collect customer-specific information. Instead, it collects ZIP codes during each transaction, which it compiles along with sales data on a store-by-store basis.

PBBI combines this information with its proprietary macro-economic trend data. This information is based on approximately 100 variables, including bankruptcies, foreclosures, building permit trends, changes in demographic income, unemployment rates, retail sales and population—all factors that help the grocer understand the difference between existing and potential markets.

“They use this information to create trade maps for each potential store, as well as sales volume for each ZIP code, based on customer volume, sales per household,” Drasin says. “The data shows where we are not getting sales and should evaluate a location, or where we are already grabbing sales and shouldn’t put a store.”
The solution has helped the chain “sharply reduce” its cannibalization rate and contributed to a 40% sales increase over the past four years, he says.

Grocery Outlet is evaluating a new opportunity with PBBI. Using the company’s Macro-sales Forecasting/Market Optimization Sys­tem, Drasin and his team will electronically pinpoint the ideal real estate space available for potential stores.

LOCALIZING SERVICE
Choosing the best retail space is important, but the rubber really hits the road when grocers can fill stores with a targeted merchandise assortment. This becomes increasingly difficult as a global recession wreaks havoc on thin margins. Worse, grocers must work within a finite amount of square footage to provide the ideal assortment to satisfy fickle, budget-conscious shoppers who constantly change their preferences.

“Retailers globally are striving to preserve cash while simultaneously preserve their market share growth and revenue,” says Cyndy Renfrew, senior director of business development, global retail practice, for Cary, N.C.-based SAS. “To preserve cash, retailers are cutting inventory levels to free up capital, but too many chains sacrifice the depth or width of assortments in the process.”

Retailers that are able to understand consumer-shopping patterns to deliver localized assortments are in a better position to maximize revenue. At the heart of this process is business analytics.

“BI has become an industry buzzword and encompasses a bevy of solutions dedicated to reporting on historical information,” Renfrew says. “Business analytics applies statistical forecasts and predictive analysis to help companies appropriate their budgets in these tough times.”

That is clearly the case for S-group, a Helsinki, Finland-based company that operates approximately 800 supermarkets and hypermarkets. The chain, which originally used manual CAD and plano­gramming technologies to create assortments for store clusters, was eager to create store-specific plano­grams to better serve its shoppers and increase turns.

The chain opted for SAS Space Planning software, which allocates store square footage for each merchandise category at an individual store level. The software calculates sales of each product, divided by space, to determine which products to offer and optimize the space dedicated to each category.

The solution accounts for individual floor plans, including shelving and fixtures, as well as dimensions of merchandise packages. It then creates store-specific planograms that are updated as assortments or sales forecasts change.

Since adding the solution last year, the chain has reduced out-of-stocks and fills every store’s shelves with targeted assortments, Renfrew says.

FRONT AND CENTER
Many chains are also focusing their attention on front-end enhancements. Fresh & Easy Neighborhood Market, El Segundo, Calif., is a prime example of a grocer investing in front end innovation to improve efficiency and customer service.

The chain, operated by Chesthunt, U.K.-based Tesco, set up shop on domestic soil in November 2007 and has been on a growth curve ever since. The chain, which caters to a “nutrition-forward-thinking shopper,” features fresh, localized fare through private label merchandise, pre-packaged produce, meat, frozen foods and baked goods. Fresh & Easy also caters to shoppers-on-the-go and it knew early on it needed more than a simple POS system.

Rather than focus on what the chain’s CIO Doug Rutledge describes as the “old school” traditional checkout experience, Fresh & Easy deployed an “assisted checkout” model that consists of a convertible POS system, from NCR. Cashiers stand in front of the system, available to greet and service the customer.

“Our cashiers are trained to check out customers, but the POS system also allows shoppers to check themselves out if that provides them with the best shopping experience,” he says.

Efforts seem to be working as 87% of shoppers reported they prefer an “assisted” checkout option at the front end, according to an informal study conducted by Tesco.

Meanwhile, Ahold USA is proving more than one self-checkout solution can augment the front end. The company, which is owned by Royal Ahold, is in the midst of a large-scale rollout of handheld self-scanning technology. The solution, called Scan It!, was initially launched in the chain’s Stop & Shop banner in October 2007, is being used across 250 stores.

The Scan It! device is comprised of wireless handheld scanners from Holtsville, N.Y.-based Motorola Enterprise Mobility Solutions and software from Quincy, Mass.-based Modiv Media. Shoppers pick merchandise from shelves, scan the barcodes and put the items in their shopping cart. All orders are electronically totaled and transactions can be tendered at a dedicated stationary self-checkout lane. The units also deliver targeted electronic coupons and promotions.

The units are also being used in 60 of Ahold’s Giant Food stores and new stores continue to come online, according to Faith Weiner, director of public affairs for Quincy, Mass.-based Stop & Shop.

“All retailers are demanding that any IT project they embark on must provide a return on investment of 12 months or less,” says Frank Riso, senior director of retail solutions for Motorola’s Enterprise Mobility Solutions division.