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Roger Clarke **
Version of 20 March 1994
© Xamax Consultancy Pty Ltd, 1997
Available under an AEShareNet licence or a Creative Commons licence.
This document is at http://www.rogerclarke.com/EC/PriceChopper.html
Price Chopper is a chain of 80 24-hour supermarkets in New England. The stores vary considerably in size, but average about 12 checkout counters. It is headquartered in Shenectady, in upper New York State.
During the last few years, Price Chopper has applied information technology (IT) very aggressively, particularly to its Point of Sale (POS) operations. It is worthy of a case study both because of the comprehensiveness of its IT strategy, and because several elements of the system are at the leading edge.
This document comprises a brief summary of the applications, supported by documents prepared by Larry Friedman, Vice-President Financial Services of the Price Chopper holding company, Golub Corporation. It is based on a presentation by Larry at an IIR Conference on Plastic Cards, in Sydney, on 18 March 1994. The details have not yet been checked with him.
In 1976, a local bank network installed clerk-assisted Point-of-Banking (POB) terminals at the service desk in each Price Chopper store. In 1983, it installed ATMs at selected high-volume locations. Watching the progressive growth in popularity of the financial services available on its premises, Price Chopper resolved to offer a more extensive set of services. The attractions were to increase sales volume in its shops, to ensure control over decision-making about what was installed where, and to profit directly from these lines of business.
In the mid-1980s, Price Chopper installed its own ATMs and POBs at customer service desks throughout the chain. These complement the other services offered at those locations, including photocopying, fax and Fedex courier despatch. In 1989, the company installed its own network, and a Stratus-based fault-tolerant switch and transaction-processing node. This captures a variety of financial transaction-types and passes them on to the relevant financial institutions.
Additional aspects of the services, discussed below, are EFT/POS terminals at every checkout counter, supporting a variety of payment mechanisms; and a 'do-it-yourself' checkout system on trial at the Clifton Park store. In addition, EDI is being extended beyond purchase ordering to encompass advance shipping notices, invoicing and payment.
The majority of transactions at U.S. checkout counters are still cash (roughly 55% of transactions and 40% of value). Cash is the cheapest form of payment transaction for the company (about 7 cents per transaction). It has no desire to wean customers away from cash, and its cashless alternatives have not had that effect.
Although cash transactions are to be preferred, consumer demand and competitive pressures dictate that alternative payment methods must be made available. About 5% of sales involve welfare-related payment means (especially food stamps). About 40% of transactions and about 55% of value are therefore presented by other cashless payment forms. These are highly variable in terms of the cost per transaction.
About 32% of transactions and 50% of the value at U.S. checkout counters involves cheques. These are much more expensive than cash, at about 43 cents per transaction. Credit-card transactions are a further 3% of transactions and 5% of value, and cost a massive 81 cents each. On-line debit-card transactions, on the other hand, cost about 30 cents each, but only represent 1.5% of transactions and 2.5% of value. An off-line debit scheme ('ACH electronic cheque') is available for small value-transactions, subject to the use of a loyalty card (to reduce the risk of fraud). Transactions take two days to clear, and each transaction costs 28 cents. It represents a further 1.7% of transactions at U.S. checkout counters, but only 0.4% of value. It is desirable from the perspective of U.S. supermarket chains that non-cash transactions be nudged towards one or other of the debit schemes. [I have no statistics on the percentages by transaction volume and value at Price Chopper stores, but they presumably now enjoy a lower percentage of expensive transactions than the national average].
Price Chopper issues its own frequent shopper card, which performs multiple functions. Payment may be performed using the magnetic stripe on the card to effect an ACH electronic cheque transaction (which involves in-house checking against a stop-list, and is otherwise a bank-guaranteed payment). In addition, the bar-code on the front of the card may be scanned at the cash register to support various frequent buyer programs. The cumulative frequent buyer points are printed at the end of the receipt. [I have no statistics on the extent of usage of these functions].
Another interesting feature of POS operation at Price Chopper stores is that the cashback option is restricted to $30 more than the amount of the purchase. The company prefers to attract customers to the centrally-located ATM, even though that means moving the excess cash a greater distance than would be necessary if balancing of the supply and demand for cash were to be achieved among nearby cash registers.
A pilot test of a customer self-service checkout system is now being conducted in the Clifton Park store. It is claimed to be the first supermarket in the world to offer such a service. The procedure involves a series of stations at which customers:
Currently, a single checkout supervisor is placed beside the outlet path for the two active systems. The checkout lane is a great deal narrower than conventional counters, and it is intended that four self-service checkouts will be installed in the place of two conventional checkouts, and that all four will be supervised by a single employee. Each installation costs about $15,000, compared with about $10,000 for a normal POS.
There are several quite sophisticated elements of the design:
The customer interaction is undertaken using an 80486-driven display, and is sufficiently flexible that it may be modified to support additional services in future, such as the payment of bills from other companies and from utilities, airline reservations, etc. In this way, Price Chopper would be able to extend the already very substantial financial services it offers to its supermarket customers.
In Australia, government pensions and allowances are generally paid directly into beneficiaries' accounts with financial institutions. In the United States, however, most benefits are still paid in the form of special-purpose documents, and some of the funds are ear-marked for specific purposes, in particular food stamps for the puchase of food. The Clinton Administration is committed to implementation of electronically based benefits transfer. Price Chopper is committed to participation in this scheme, with a view to significantly reducing its costs in handling these remaining paper-based transactions.
Price Chopper also intends using its well-established infrastructure to support micro or target marketing. For example, they will be able to detect the presence of an occasional customer at their checkout counter and make a special offer (a 'delayed purchase incentive') designed to turn the person into a frequent shopper.
Price Chopper is participating in the emergence of efficient customer response (ECR), a generalised form of quick response (QR). This involves partnering along the industry value-chain, and cooperation among the partners' data processing systems. It opens up a variety of new opportunities, such as the conversion of coupons from paper to electronic form, and the customisation of coupon offers.
Price Chopper has, like most supermarkets in the United States, long ago implemented EDI for purchase orders. About 30% of deliveries to Price Chopper stores are now received by direct store delivery (DSD) from suppliers, rather than passing through the company' own warehouses. To exploit this development, Price Chopper has recently implemented EDI for goods receipt and invoicing. The purposes in doing so were to ensure capture of all relevant data at the point of origin, and hence reduce both the overheads and disruption arising from errors, and the treble-handling of deliveries as goods receipts, as invoice-receipts, and as invoice-payments.
Suppliers have the option of sending an EDI Advance Shipping Notice to Price Choppers, such that the necessary details are available to the receiving warehouse when the delivery vehicle arrives at the dock. Price Choppers prefers, however, that delivery drivers carry the transactions with them, stored in a hand-held unit. By plugging the hand-held unit into the appropriate sockets in Price Chopper's delivery areas, the drivers provide the data into Price Chopper's system [I am not clear as to why Price Choppers prefers it that way]. Price Chopper is also supporting smartcard-based transmission of delivery data, by installing smart-card readers at receiving bays.
The receiving warehouseman keys the quantity received on his or her own hand-held unit (without first seeing the quantity the driver intended to deliver). If the quantities match, the line-item is agreed and approved for payment. If not, a second count is undertaken, involving the driver as well. The second count is treated as conclusive, and that amount approved for payment. The driver plugs his or her hand-held device back into a Price Choppers' socket, and receives a copy of the approved invoice, for provision back to the supplier.
The document standards scheme supporting these arrangements is DEX-UCS. This is possible because UCS [uniform communications standard? a version of ANSI X12 specialised to the grocery industry?] now supports DSD (direct store delivery), and in particular DEX (direct exchange). The software to handle the processing is provided by Retail Management Systems (RMS).
Price Chopper considers that it is fulfilling the objectives of its aggressive and ambitious application of IT to the point of sale. As a result of internal cost-savings, increased custom, and the fees it gains from the sale of transaction data to financial institutions, its network operations are contributing a million dollars per annum to corporate profits.
For further details, contact:Larry Friedman
Roger Clarke is Principal of Xamax Consultancy Pty Ltd, Canberra. He is also a Visiting Professor in the Cyberspace Law & Policy Centre at the University of N.S.W., a Visiting Professor in the E-Commerce Programme at the University of Hong Kong, and a Visiting Professor in the Department of Computer Science at the Australian National University.
The content and infrastructure for these community service pages are provided by Roger Clarke through his consultancy company, Xamax.
From the site's beginnings in August 1994 until February 2009, the infrastructure was provided by the Australian National University. During that time, the site accumulated close to 30 million hits. It passed 50 million in early 2015.
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Created: 21 November 1997 - Last Amended: 21 November 1997 by Roger Clarke - Site Last Verified: 15 February 2009
This document is at www.rogerclarke.com/EC/PriceChopper.html