Dealing with a Data Landslide

There was a time not so long ago when a vendor would roll boxes of product into a convenience store, plant them on the floor, flash an invoice for the cashier’s signature and then leave with the expectation that the store would sell the product–at least, some of it–by the next delivery date. Thanks to scanning technology, that scenario has changed.

Before barcode scanning, convenience store operators "were used to wholesalers telling us what we sold, but really they were telling us what we bought," said Mike Fugett, IT project manager for Dallas-based 7-Eleven Inc. "Today, scanning tells you what sells and what doesn’t."

Scanning technology speeds up the shopping experience for customers, a bonus in the convenience business, and makes life a little easier for store employees. It helps retailers keep track of the numerous items in a single store and reduces instances of pilfering, because price tags can no loner be switched from a lower-cost product to a more expensive item. But most importantly, scanning collects data that tells operators what products they are selling and when.

 

Very Little Effort
While scanning is relatively new, the concept is not. The patent for the first bar code was issued in 1952, and the earliest bar codes were used to identify railroad cars. In 1974, the original bar code scanner was installed in a retail environment, launching a new world of convenient check out and sales data gathering.

7-Eleven saw scanning’s possibilities in the ‘80s, conducting the company’s first scanning test in a store near its Dallas headquarters. The retailer developed a proprietary scanning system, and after a 300-store pilot, rolled it out to all North American stores in 1997. The system, which has received frequent updates since its launch, gives store operators daily, weekly and monthly sales reports that help them plan future orders. Some of the results have been surprising.

"The handy thing about scanning–the real payoff–is that you get a lot of valuable information for very little effort," Fugett said. "Put together your sales and your orders and look at what you’re not selling. Is it because the store isn’t ordering it or because the customers aren’t buying it?

"For example, we found that if things weren’t selling, it might be because the store didn’t think it would sell and so they didn’t try to sell it, such as hot dogs late at night. We found customers weren’t buying hot dogs at night because there weren’t any on the grill."

NOCO Express, a 30-store chain based in Tonawanda, N.Y., has been scanning merchandise for the past five years and was immediately impressed with return on its investment.

"It gives a good snapshot of what is happening in the store," said Terry Messmer, merchandising manager for NOCO Express. "You can punch up the top selling items to see how they are doing in that store. "

Those reports also can provide a big picture of the type of customer that shops a particular store. By analyzing scanning data collected from a new location, Messmer recently determined that the store’s customers are extremely price conscious, information that will be used to plan future promotions for that store.

The NOCO Express scanning system started as a PDI back-office solution developed specifically for convenience stores, which was then adapted to meet the company’s specific needs.

"We had to set it up and make it work like we wanted," said Pat Zelechoski, NOCO’s pricebook manager. "They (PDI) have a good plan of attack, and they established deadlines and determined who would be responsible for what."

It took the company a year to implement the system in all stores.

"It was a lot of work but definitely worth it," Zelechoski said. "Once you get it up and running, you save a lot on labor, such as having employees make price changes (on products)."

Based in Temple, Texas, PDI focuses on serving the needs of convenience retailers and wholesale petroleum marketers that want to automate certain key processes.

"Our smallest customers have five to eight stores. Our average customer has 70 stores," said Greg Gilkerson, president of PDI. "There are (scanning) systems available for small operators with one to five stores, and they’re pretty good."

Most PDI customers are looking for applications that will help them scan, as well as do financial accounting and analysis or what Gilkerson describes as "the whole package."

For category managers working at mid- or large-sized chains, that means staying on top of item and transaction levels. For smaller operators with 10 stores or less, "they focus on the basics and keep it simple," Gilkerson said.

No matter what size the operation is, scanning produces a massive amount of information about what is happening on the sales floor.

"Anyone scanning is hoping to figure out what they can do with that information," Gilkerson said. "We have a number of customers moving to by-item inventory. They want to be able to manage and know their store by item at any time. You have to have really good tools to do that."

When analyzed correctly, the data derived from scanning can help drive replenishment, reduce out-of-stocks and, as a result, increase sales. But when data is not well-managed, retailers can find themselves drowning in a sea of meaningless numbers.

"Our industry has grappled with that issue," said Gilkerson. "Today, companies are looking to hire employees who are analytical in nature. Some pretty creative reporting is being done."

 

The PriceBook
If there is a downside to scanning, it is probably the time-consuming maintenance of the pricebook, the automated system that keeps track of all SKUs in the store and their up-to-the-minute prices.

With approximately 6,000 stores in the U.S. and Canada, the 7-Eleven pricebook, known internally as "the item master," is no doubt one of the most complex in the convenience store industry.

"We have 35,000 items in the item master," said Cathy Pecoraro, product information manager for 7-Eleven and supervisor of a 17-person staff dedicated to keeping the company’s price book updated through price changes and promotions. "Prices are changing daily," she said. "We add and delete a couple of hundred items each week."

Because the 7-Eleven pricebook is tied to the company’s ordering, scanning and billing systems, and because prices vary by locale, changing prices or eliminating items is more complicated than it would seem at first glance.

"A soft drink or a beer can have hundreds of distributors around the country," Pecoraro said.

Although 7-Eleven recommends suggested retail prices on every item, franchisees have the ability make changes in order to align individual prices with those of local competitors.

There are hidden rewards for keeping the pricebook up to date. For one, stores with a pricebook can’t scan in deliveries they didn’t order, because those items aren’t included in the book.

"We have the authorized items that we want in the store, and we don’t get things we don’t want," said Zelechoski of NOCO. "Our system won’t accept them."

For another, when employees ring up items by hand, there’s room for human error. "Eliminating hand-ringing of items has added a 2.5 to 3% margin to the bottom line," she added.

In addition, "time to train is reduced," said Gilkerson. "It’s a lot easier for a new employee to walk into the store and start serving customers than to walk in and start learning prices by looking at labels."

"When I started, you had to memorize the prices in the vault. Now the register looks them up for you," said Fuget, who joined 7-Eleven as a store management trainee 25 years ago. "It’s much better for the employee because they don’t have to deal with that, and it’s great for the store manager because it reduces shrink." CSD

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