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Metro Future Store

Gerd Wolfram, Director of IT Strategy, IT Buying and Development Services, Metro MGI Information Technology
By Bob Violino
Apr 18, 2004 from the pronunciation of my name that I’m German and I represent the German-based retailer, the Metro Group. I will show you today in this 45 minutes a little bit about our Future Store and what we are doing there, our experiences and, the first customer reactions. But before I start, I will ask you, as the audience, who has heard about that Future Store. Oh, a lot of people.
Gerd Wolfram

Good. Let’s start first with the presentation. As I said before, I will present the initiative behind the Future Store, give you then some details on the Extra Future Store and I will tell you what "Extra" means. The Boston Consulting Group is helping us with some customer surveys. Here are some results of that and then next steps: What is Metro Group doing in terms of RFID and the Future Store and in the innovative technology area. Let me start first with some words on Metro. (Download presentation.)

We are not very well known here in the United States, but we are number five in the retail area in the world. Number five in the world, number three in Europe, number one in Germany. Here is a picture of the Metro Group. We have different sales lines or areas where we do business—cash and carry, the wholesale businesses, like Sam’s Club here in the U.S. Then we have food retailing stores and two brands—Real is one and Extra is the other one. Then we have non-food consumer outlets, a consumer electronics company, selling CD’s, DVD’s and so on, and Praktiker, which is a company selling do-it-yourself things. And last but not least, department stores under the brand of Galleria.

I’m personally from what we call the cross-divisional service companies. I’m from the IT company, so we out-source or in-source all these IT services in a special company, and we are servicing our sales lines with IT services here. In total we earned last year $54 billion Euro. We have 240,000 people working for us and we are in 28 countries, but we’re not in the U.S. or Canada.

We started with a vision of the future of our retail area, and we started this from the IT perspective. We invited different companies, the big IT companies that we already worked with—SAP, IBM, Intel and others—to build up with us a so called Future Store Initiative. The idea behind that was to test new technology in a real life environment, to develop out of these tests and experiences vision how technology can support our business, not as a supply chain, but also the business in the stores. We wanted to try technology in the hands of the shoppers.

This effort began two years ago as the Metro Group Future Store Initiative and, we are now together with more than 40 partners. I think it’s now 44 partners. And you see on this list the big IT companies, but you also see the big brands here like Henka, which is a German brand, Gillette, Coco Cola, Johnson & Johnson, Kraft Foods, Nestle and also Procter & Gamble. So they also are in this futures initiative to test with us technologies in the marketing area, but also technologies in the supply chain area, RFID technologies, and get the experiences. If you see or read this very carefully, you’ll see some of the companies are also downstairs in the sponsor area. They are working with us RFID, like, Avery Dennison, Intermec, Checkpoint and others.

The first object, or the first result, was the so-called Future Store. And the word Extra is because this is an Extra-branded store. This is a food retailing or supermarket, a small supermarket sales line. Extra has in Germany 500 stores and the Extra Future Store is one of these stores. So we took an existing store, which is 30 years old. We remodeled the store. The store got a new concept, which is called ‘fresh and easy’. It offers more freshness and more convenient shopping. Into this concept we brought in our technology, or different technologies. More than 20 different technologies are used in this store, working together under one roof. We are testing these under real life conditions.
The existing customer base came back after the reopening of the store. That was a good for us. They came back and they are now testing the technologies and shopping as before, but they are now able to use technologies if they want. We have to convince them. We have to show them the benefits, and if they know the benefits and then they like the technology and use it. We think that this is a very unique experiment.

The store is now open. The anniversary is on the 28th of April, so this is the one-year anniversary. We still have the customers there. We still have the technology there and we have also a lot of visitors there from all over the world just going through this Future Store and seeing what's going on there. I want to share with you some of the technologies we have in the store. We group these technologies in four areas more or less.

One area is comfort shopping. Another one is smart checkout. These are two areas where we try to get rid, or to reduce the customer problems that the customer normally has if he goes to a store. You stand at the checkout and wait there in line. You’re looking for products. You don’t find the products. The products are out of stock. These kinds of things we try to overcome with these kinds of technologies in this comfort shopping and smart checkout.

Then we have in-store information. This is technology to help the customer shop, but also for looking in the merchandise system and so on. This is in-store information. And last but not least, on the left side, you’ll see RFID inventory management. These are RFID tests we are doing in the store, and I will come to that later in the presentation.

So let’s now move into the comfort shopping area. The idea is to make shopping more convenient for the customer. These are some of the gadgets and devices we have introduce: A personal shopping assistant, information terminals, and intelligent scale. We’ll show you some of these things here. This is the most famous one. We call it the personal shopping assistant. It is a tablet PC the customer can use during his shopping tour. It can be mounted on the top of the trolley [shopping cart].

It works with a wireless LAN in the store system, and the customer can use it for different purposes. First, the customer can look for products. It has a search and find function. So the customer can key in on the touch screen the product name. He gets a list, and then he chooses the product and gets a store map on the screen. The store map indicates where the shelf is with the product he is looking for. So customers who are do not know the store very well can use it for looking for products.

The second function involves scanning the product. The customer has a product and he wants to buy it. He can scan the product and put in the trolley. It’s not RFID scanning. It’s barcode scanning. After the scanning, he sees on his display the products he has already scanned, plus a total sum. If he's buying products that are on sale, he sees the actual savings.

The third function involves getting product information. So, after scanning a product, the PSA shows more than just the price. There’s a product description and a picture of the product. And we also show on the right side of the display, we show the actual promotions. There’s also a list of weekly promotions displayed directly on the personal shopping assistant. So the customer can always see what’s on promotions. This is good for the brand manufacturers. If they can put their promotions here on the PSA and can influence the customers, then they will increase the sales directly, if the customer’s buying these products.

There’s another function that I will come to that later—you can also easily use that for checkout.

Here are the other devices. Information terminals. This is not a new technology, but it’s working in the store with other technologies. The customer can take the products off the shelf, scan the products again using the bar code, and then he gets information. Here, for example, you see a wine terminal. We also have a meat terminal and a food and vegetables terminal. So there is information about the kinds of products here, and the customer can see more information about the wine than he has on the product. Where’s the wine from, how to drink it, at what temperature and even he can get a recipe to go with that kind of wine. He even can print it out and take it home.

Then we have a very funny thing, which is called Intelligent Scale. It’s called the Intelligent Scale because it automatically recognizes the food and vegetables you put on the scale. So you take out bananas—bananas are always easy, because they have a unique form—put them on the scale and then the scale says these are bananas, tells you the weight and then the label is printed out and you put the label on the bananas. It’s not so easy with red tomatoes and red apples, but it works.

The technology behind the scale—there’s a digital camera taking pictures of what’s on the table there, and then it’s comparing these pictures with pictures the scale has in the memory. It’s like pattern recognition software. If it’s not quite sure what it is, the scale offers a selection for the customer for different kinds of products and says: Is it an apple or is a red tomato? So it’s very easy for the customer. This is the most prominent device we have in the store. The customers like it because they don’t have to do anything then.

Then we have in-store promotions, very big displays. We display promotions from Procter & Gamble, for example. We are trying to figure out whether these promotions increase the sales of the products we promote there. The first experience we made there, we played the advertisements or the promotions, which are normally on the TV the evening before. And our experience was that the customers don’t care about them, because (audience laughter) they don’t look at these promotions that they know already. The promotions are long; they are 30 seconds normally. Therefore Procter & Gamble came to us and said, Okay, we must create special promotions with a key visual there, with a key message in 10 seconds. It’s now getting better. So we are testing together with the brands, looking at what is the right kind of thing to play there on the displays.

We have shelf labels in the store. This is technology from NCR—small, smart shelf labels. They have a battery inside and are connected, through the wireless LAN in the store, to our point of sale [POS] system. If you change a price in the POS system, it’s automatically transferred to the label here. We have 37,000 labels in the store. If you do a price change in the morning for 1,000 items or so, it’s done in half an hour. All the manual work we had before, printing out labels, going to the shelf, sticking these labels on the shelf, is now gone.

Staff also have a normal PDA that is wirelessly connected to the network, so they can quickly check for a customer whether an item is in stock or not. They also have access to email. Not every person on staff, but the store manager has e-mail access, and he can also use it for reading a bar code on a product and then looking into the management merchandise system to find out where the product is. Is it on delivery or where?

We are also using it for changing the advertising displays, very easily. So you don’t have to print anything out. You just stand in front of the advertising display and change the content via the wireless network, with the PDA.

Let’s move to the smart checkout. I guess you are familiar with self-checkout here in the US. We installed a self-checkout system from NCR last year at this Future Store. It was the first time we had this kind of devices in Germany. We now have four of these systems there. This is also one of the success stories we had at the Future Store. The idea is to look at the technologies and then move the technologies to other stores we have. So this is a test lab, and if you say, Okay, this is a proven technology, customers like it, then we move it out to the other stores.

As I said before, the customer can use the Personal Shopping Assistant for the checkout. You have the Personal Shopping Assistant on your trolley. You have everything scanned, 100 items. But normally there isn’t 100 items. You see the price and then you go to the cashier lane. Then you are able to go to a quick checkout lane. You push a button there on the PSA, which says go to the register. Then a number comes up on the PSA and this number you give to the cashier. You tell the number to cashier. The cashier keys this number into the POS system and then everything is transferred directly on the POS system for the customer. There’s no re-scanning. You leave everything in the trolley—just pay and then walk out. It’s very easy. It’s takes 10 to 20 seconds.

We are doing checks on a random basis. We check the customers to see whether they have scanned every item in the trolley. And the customers know that. We even have the customer’s name, because the customer must use a loyalty card to use this Personal Shopping Assistant. So it’s a very close relationship. Normally, these customers are loyal customers because they come often to the store.

So let’s now come to the RFID topic, which is the topic of this conference. What we are doing there in the Future Store is twofold. We are testing RFID in logistics, in the supply chain and we are testing RFID on the store shelf—smart shelves. Let’s start with the RFID in the supply chain. You see here, we have a Metro-owned warehouse in Essen. This is the name of the location that is delivering to the Future Store. We normally build mixed pallets in the warehouse and move them to the store. In this test, we’re taking the mixed pallets and putting RFID tags on the pallets and on the cases. We read them at the exit door of the DC. We read them also at the entrance or the back door of the store and then we match these two reads and see whether we have delivered to the store what went out of the DC.

Here are some pictures. You see we installed RFID portals or gate readers. You see on the right side the portal at the entrance door of the store. You see also the big RFID chips or transponder we are using there. They are Avery Dennison transponders. And we have to put on the data on the chip. So if we do it, we read the number that is on the carton and we write a UPC number on the RFID transponder and then read it at the different stations in the supply chain.

What you see on the top left side of the picture here is also a gate reader we have in the back room of the store. So we are also testing RFID in the store, not only on pallets and cases in the backroom, but also the movement from the backroom to the store floor. I said before we are reading these things at the different points in the supply chain. We have an entrance and exit portal and also an in-store portal. We will feed the data into an SAP application system and can view the data using an Internet browser interface.

We can see every event—where a case is or where a pallet is. We can even drill down and see this case is now at the exit door of the DC. It’s now in the store. It’s in the back room or it’s on the store itself. So this is what we call tracking and tracing of the whole supply chain. We can see where the problems are, find mismatches. You have a time stamp that lets you measure movement within the whole supply chain. It’s a lot of new information we didn’t have until now.

This gate reader between the backroom and the store floor tells us which cases have moved onto the floor. In the existing system, we know only that there is a case in the store. But we don’t know where it is in the store. We also have what we call a smart shelf. We have three smart shelves, so we put tags on razor blades from Gillette, on Kraft Food Philadelphia Cheese, and also on Pantene Shampoo from Procter & Gamble.

We have also tags on CD’s, DVD’s and other software, which is not a smart shelf, but we put it on because for theft protection. So we have RFID readers at information terminals, especially in the CD/DVD area, and the customer can then use the tag to listen to a preview of a CD or see a preview of a DVD. And we have also exit readers. If the tag is not deactivated on the CD/DVD, then the exit readers will give an alarm that the customer is stealing that product.

You see here these smart shelves. They indicate when the shelf should be replenished. And you see it on the next slide here. This is, for example, the interface of a Procter & Gamble smart shelf. You see the different kind of Pantene shampoo categories there, and the boxes indicating how many pieces are on the shelf. We have the same information for Kraft and Gillette razor blades. This information gives us the ability to measure out of stocks.

We see exactly how long the product is out of stock. We see when it is out of stock. We can push the replenishment process. That is what we are now testing, early warning systems. If you say, Okay, there are only two bottles of shampoo left, then you must send an alert via an e-mail or another kind of push system. The store manager or the department manager must now refill the system. So this is giving us indication when to refill. By just pushing a button we can see what’s on the shelf, and we can do better replenishment.

Imagine the vision that the shelf itself is giving an order to the warehouse and saying, "I must be refilled or deliver the next box to the store." This vision is now possible with RFID, and these are the kinds of things we are testing. So let me share with you some of the tests results and our experiences.

First I must say the technology works, but it's not an easy. This is not a new message. It's not off-the-shelf technology. You need a very individual setting and that’s what we experienced in our tests. Individual setting means we have a special environment in the store, a special environment in the DCs, which is not an RFID-friendly environment. You have different interference issues. You have heat, you have cold. You have all these things that are not very good for RFID, for tags and labels. Therefore, we are going on with pilots and tests.

We have to do a lot of quality assurance. But if you set it up right, it works. We had good read rates—up to 97.5%, 98% accuracy. The reason for that is we are using old technologies. When we installed it two years ago, more or less, we used old technology, which is now in transition to newer technology. Now we have new tags here, so the technology is moving. But even with this old technology, we had 97%, 98% read rate.

What we also saw is there’s a lack of technical know-how in the area. So we needed strong partners like IBM or others to install that, because as a retailer, we don’t have the technical people equipped with knowledge of RFID. And therefore you must be very careful which partner you work with. IBM helped us a lot there in setting the whole thing up.

Standardization is another thing. You know that, EPCglobal and GCI are the organizations, which are driving standardization. We are working there with Wal-Mart and others together toward technical standardization worldwide. But we have still differences between Europe and the U.S. in frequencies and standardization. It’s a long process, but we are convinced that there will be standards soon. The first standards will be there this year and we will build on that standards and work on with RFID and EPCglobal.

Another thing is, of course, benefits. Our businesspeople in Metro are always asking us what are the benefits of RFID? And then we come with more or less qualitative benefits. We say, Okay, we can reduce out of stocks. We can make the supply chain more visible. We can do this and that. But of course they are looking for hard numbers. They want the payoff, the ROI. Therefore, we have these results, because we did a benefits case with Proctor & Gamble and Metro. We have an internal promoter. The CIO is promoting the whole thing and he said this is an innovation and you have to invest in that kind of innovation. There are benefits, of course, but as a first mover you have to believe in that, and you have to invest in that and go on. Otherwise you will be the second mover or the third mover and then you don’t have the real benefits or the learnings and experiences.

We also learned that we had to change our business processes, because RFID-enabled processes are not the same as bar code processes. This needs training. You must tell them what’s RFID. You must change the processes, train them and say, okay, be careful. This is now an RFID-type pallet and this is not normal pallet. So, normally, they go with a forklift truck, they go very fast into the truck, and if there is an RFID-enabled pallet, they have to go more slowly. They have to look for the read.

But what we also learned from the whole project is there are new opportunities for RFID. We saw opportunities. And, of course, we had to deal with the privacy concerns. The customer can, after leaving the shop, deactivate the RFID tag if it’s still on the Pantene shampoo for example. Deactivating means he can override the EPC number with zeroes, so if you read it again, you have only zeroes. But that you can only do that today if you have a few items equipped with tags. If you have 100 items equipped with tags, the customer would not go to the deactivator and take every item and deactivate them one by one.

Now, coming back to the Future Store in general, let me show you what the customers are saying. They are very happy with the store. This is a survey we did last August. At that time, 77 percent of shoppers had used the Future store applications. The most prominent is the Intelligent Scale (62%), the self-checkout (28) and the PSA (24). The benefits have been evaluated very positively. We also had a strong sales increase in the store compared to the previous year. We acquired 30 more new customers in the store coming from other competitors to us. So we have a higher frequency. And what we can conclude after this one year is that the Future Store Initiative generated a competitive edge. The customer is not coming for the technology. He is coming to shop, of course. But if there’s technology in the store, the customer will find it more convenient, they like it, and this is one of the accelerators of using the kind of technology.

What are our next steps? The Future Store initiative is giving us positive feedback from the customer. We are getting a feeling for what information technology is good for using in the retail environment. So, up to now, we decided to roll out two technologies, the self-checkout in 50 of our other stores. We are also rolling out the Intelligent Scale, of course, because it’s very easy. We are testing additional technologies in the store. We have also another Future Store, which is near our headquarters in Düsseldorf. We are also doing more RFID pilots in the supply chain with a CPG supplier and we’re building up in Germany one of our DCs a big RFID innovation center, to test new technology.

At the NRF this year, we announced that we would have an RFID roll out this year beginning on the first of November. And we will invite hundreds of our suppliers. No, not, "We will invite." We mandate or we announce that they should (audience laughter) put tags on the pallets and cases they deliver to us. In Germany, we will include the 250 stores and 10 DCs. So this will apply to our DCs and to 250 stores—Cash and Carry, Real, Extra and also department stores. We will have a supplier briefing in May. So we will have then the opportunity to give information about our requirements to our suppliers.

If you are now more interested in the Future Store, come over to Germany, to Düsseldorf. Visit the Future Store. There’s the address. There are also Future Store websites where you can find more information. You can go to the website, FutureStore.org and download pictures and videos and other things. But it would be better if you go to Düsseldorf or into the store and see what we call "the future of retail." Thank you.
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