Magazine

Online Extra: Test-Flying Tomorrow's Supermarket


It's a busy Friday afternoon in a control room in the back of an Extra supermarket in the town of Rheinberg in northern Germany. Gerd Wolfram, a project manager for Extra parent Metro, watches a big-screen display with satisfaction. A graphic shows that the number of shopping carts in circulation has hit the red zone -- time to open up more checkout lines. Meanwhile, tiny lights on an adjacent map of the store indicate which shelves need restocking. Green means the shelf is still full, yellow means it's getting low, and red means restock the Philadelphia cream cheese, on the double.

Welcome to the Future Store. Dusseldorf-based Metro and partners such as chipmaker Intel (INTC) and German software maker SAP (SAP) have converted the existing store to a test platform for the latest supermarket technology. Someday the gizmos perfected here, from digital price displays to electronic special-offer signs, will bombard shoppers with information while giving Metro nearly perfect control over inventory and supply chain.

FOLLOW THE LEADER. Much of the technology is still too expensive or too new and unreliable to make business sense yet. But self-scanning checkout lines, first tested in Rheinberg, have already been introduced at 50 other Metro-owned stores. And even in prototype form, the Future Store has improved customer loyalty and stolen business from a nearby Lidl store, according to Metro.

That's big news. So-called hard discounters, such as Lidl and Aldi, the largest of the breed, have doubled their European market share in the last decade, to nearly 10%. They have put major pressure on traditional German retailers like Metro and are one reason the Extra chain has been losing money.

If technology can help traditional retailers cut costs while improving customer satisfaction, they could regain ground lost to the hard discounters. Those rivals typically have trouble squaring their no-frills business model with the investment necessary to roll out new technology. "I suspect people like Aldi are going to be followers," says Richard Hull, head of the retail team at consultant Cap Gemini Ernst & Young Group in London.

RED OR WHITE? You know something is different about the Future Store as soon as you walk through the front door. Staffers hand you a touch screen, a "personal shopping assistant" about the size of a laptop that clips to the handle of your shopping cart. It includes a bar-code reader so you can scan your own purchases and zoom through checkout. Can't find something? Type in the first few letters on the touch keyboard, and the screen will show you the location. Eventually the screens will connect to the Internet, allowing you to download a shopping list e-mailed by your spouse, for instance.

True, only a few shoppers are using the optional personal shopping assistant at present. But some other Future Store innovations are already popular, such as a scale in the produce section that automatically recognizes a banana or cucumber and prints out a label with the correct price. Customers also like strategically placed info screens that, by reading bar codes, can print out a recipe for beef goulash or tell you the ingredients of a jar of baby food.

By far, though, the most popular info screen is in the wine section. "There are more wine drinkers" than parents, notes Wolfram, project manager for the Future Store.

REAL-TIME INFO. The big efficiencies will come from widespread use of radio frequency identification (RFID) chips, which will give stores precise data on the location of products and keep track of expiration dates. The chips still cost around 50 cents each, way too expensive to put on a container of yogurt.

But the Future Store is already using RFID chips on some products. They prevent theft at a display of Gillette razors, and they signal when stock is running low in the Kraft Foods section. Pick up a bottle of Pantene shampoo on another rack, and an adjacent video screen rolls a Pantene commercial. (At least that's what's supposed to happen. The day I visited the store, Wolfram has to wave the shampoo bottle around to get the commercial running.)

It will take 5 to 10 more years for the price of RFID chips to drop to 1 cent or so, low enough for them to replace bar codes on many products. But Metro plans to begin using them widely on pallets -- already being tested in Rheinberg -- in November. The chips will provide real-time information on the location of products as they move from supplier to store. The technology is expected to help manage inventory and reduce the incidence of lost sales by making sure stores don't run out of popular products.

Heino Meerkatt, a partner at Boston Consulting Group in Munich who's working out a business case for the Future Store, figures the savings could equal 2% of sales once RFID chips are ubiquitous -- a significant improvement in the low-margin world of supermarket retailing. As every retailer knows: no profits, no future. By Jack Ewing in Frankfurt


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus