Card employee gift mart wal

Wal-Mart only began selling groceries in 1988. Now it sells $56 billion of foodstuffs and household goods in its supermarkets every year. That makes Larry Johnston an underdog. The alumnus of the fabled Jack Welch era of General Electric management aims to make Albertson's, with "just" $36 billion in revenue, the nation's greatest grocer. He's assembled an all-star team in Idaho that combines top talent from Dell, Safeway and, yes, Wal-Mart to fulfill his quest. The moral of this story: if the boys in Boise, armed with technology and smart marketing, can't beat back the behemoth from Bentonville, it's quite possible that no one can.

Cathy Bishop is a power shopper. Cruising the aisles of the Jewel supermarket in Barrington, Ill., she knows exactly what she wants and how much she's willing to pay for it. She also has no problem using technology, if she thinks it's going to make her trip faster, or save her money.

As Bishop rounds the corner to the laundry-detergent aisle, she pulls a wireless handheld computer from a holster on her shopping cart and points it like a gun at a bottle of Tide with bleach. The Symbol 6553 device scans the bar code, displays the $12.49 price, then shows her total bill at this point, $28.13.

The computer beeps to alert her to a special on a nearby shelf for Bounty paper towels, but she ignores the promotion and moves on to her next destination, a newly installed section of toys co-branded with the Toys 'R' Us chain. Bishop is thinking about presents for her grandchildren. The toy area could save her a trip to the mall. For now, she just uses the section for gift ideas.

After the final item is placed into a shopping bag already in her cart, Bishop proceeds to a self-service checkout register. She slides the Symbol handheld into a dock. Her total—$43.18 now—flashes on a touch-sensitive screen. The system asks her if she has any coupons. She scans a coupon for Dole frozen fruit-juice bars past a bar-code reader, deposits the coupon in a slot and, when done, sees the savings applied to her bill. Bishop completes her purchase by swiping a credit card through a magnetic reader; barely 30 seconds after arriving at the register, she is heading out the door.

A cashier nearby could perform a random check to make sure Bishop isn't sneaking out with any unscanned products, but doesn't. Bishop's entire trip is conducted without any interaction with an Albertson's employee.

Want the story latest news in mobile computing? Check out eWEEK.com's Mobile Devices Center at http://mobiledevices.eweek.com

"I love the system," says Bishop, who has shopped at this remodeled outlet in a northwest Chicago bedroom community for close to 30 years. "My fruits and vegetables have only been handled once, I know exactly how much I've spent, and I can skip right by any lineups. I'd be disappointed if they took it away."

Ring one up for Larry Johnston, chief executive of Albertson's, which owns Jewel. Bishop's response is exactly what Johnston wants: he hopes information technology will save the company's bacon. The third-largest grocer in the U.S. is locked in a fierce battle with traditional competitors, particularly Kroger and Safeway.

But Johnston's biggest worry is Wal-Mart Stores, which only began selling groceries in 1988. Already, the Bentonville, Ark., behemoth is the biggest food merchant in the U.S., selling more than $56 billion of groceries a year. Annual sales at Albertson's, by contrast, are $35.6 billion and its earnings of $485 million represent a profit of 1.4 cents on each dollar of sales. Wal-Mart, renowned for low prices, makes 3.3 cents on each dollar.

Now playing catch-up, Albertson's is betting big—$500 million this year alone—that technology can help keep its pricing competitive with the low-cost leader and make shopping at its stores more interesting and "vital" to both current and prospective customers.

Next Page: Initiative impact.

Initiative Impact

The technology initiatives will impact every corner of its stores, distribution centers and offices:

Speeding Up Checkout: Albertson's is installing 4,500 NCR self-checkout terminals in its 2,300 stores at an estimated cost of $16 million to $20 million. The machines normally cost about $20,000 each, but the company snagged the first 4,000 "for pennies on the dollar" from lessor GE Capital, which had picked them up from bankrupted retailer Kmart. The terminals will not only help customers with small numbers of items get out of stores faster, they'll help reduce Albertson's staffing costs. An Albertson's worker makes an average of about $13 an hour, compared to $8.50 an hour for a Wal-Mart employee. In some regions, such as California, additional health-care and pension benefits push the average Albertson's employee's total pay package to about $24 an hour—a point of contention in a four-month-old strike by California grocery workers at Albertson's and two other chains. While the company says the goal is to improve customer service and not eliminate jobs, analysts say the company's not fooling anyone. "That's just nonsense. There's no other reason to do it other than save salaries," says George Whalen, president of Retail Management Consultants. In fact, the technology could help Albertson's generate as much as $137 million in annual labor savings, based on the elimination of two clerks per store.

Boosting the Average Sale: Albertson's wants to fill a bigger portion of every shopping basket and to do that it's going to get to know customers a whole lot better. It has installed a $50-million NCR Teradata warehouse at its Boise headquarters to analyze a wide range of corporate and customer information, such as which customers buy the most from Albertson's and what products are typically in their baskets.

Using data from customer-loyalty cards, Albertson's can match individual buying preferences against store inventories. Data is available for analysis minutes after a customer leaves a store. The goal is to ensure "the right product is on the right shelf at the right time," Johnston says. If a new Wal-Mart is about to open in an Albertson's market, Albertson's will also be able to launch preemptive strikes by rewarding its best and most-loyal customers with special promotions and pricing.

Narrowing the Pricing Gap: Wal-Mart's biggest advantage is that it can negotiate better prices with suppliers and get those products to stores faster and more cheaply. Wal-Mart's grocery prices are 20% to 25% lower than Albertson's on average, according to UBS Warburg. Johnston is targeting costs throughout the supply chain by consolidating distribution centers and deploying supplier Web portals to better coordinate shipments and to reduce billing and invoicing costs. Where it used to take days to analyze the results of sales or promotions, the new data warehouse will provide answers within hours and pass those results on to suppliers.

Maximizing Profits: Software from privately held KhiMetrics of Scottsdale, Ariz., is being deployed system-wide to keep prices competitive with Wal-Mart, while maximizing profits. The software will enable Albertson's to determine, for example, whether lowering the price of Quaker Oats oatmeal by 10 cents will bring in more profits by increasing sales than would, say, increasing the price by 10 cents. It will also tell Albertson's which products, such as milk or bread, it needs to lower prices on to keep shoppers from jumping ship to Wal-Mart, and which aren't as critical.

Modernizing the Head Office: Prior to Johnston's arrival in 2001, Albertson's lagged most retailers in core technology. Now, it wants to be at the front of the checkout line. Financial operations have been consolidated onto Oracle applications. PeopleSoft software has been deployed for human resources and the company plans to replace 75% of its information systems by 2007. More than 1,400 out of 7,000 employees above the store level have been laid off since 2001. Overall, Johnston aims to cut $750 million in costs by the end of 2004; he's cut $567 million so far.

Technology is only one-half of the game plan. The key to beating Wal-Mart is, you might say, mental. Johnston has hired logistics, marketing, finance and technology experts away from competitors or from companies widely viewed as best-in-class in other industries. If these brains can't beat the boys from Bentonville, it may well be that no one can.

Chief technology officer Bob Dunst came from Safeway, where he was vice president of applications development and advanced technology. With more than 25 years at grocery companies, analysts say, Dunst was prized for his experience as well as his knowledge of loyalty-card and analytical programs. When he was hired in November 2001, Albertson's had only begun testing a loyalty-card program in the Dallas area, while Safeway was running one of the most extensive programs in North America.