Magazine Article | July 18, 2007

POS Renovation Sparks Vast Growth

Source: Innovative Retail Technologies

A chocolatier streamlines operations and triples the number of franchises launched each year after deploying a new POS system.

Integrated Solutions For Retailers, August 2007
Rocky Mountain Chocolate Factory

A new franchised business is opened every 8 minutes of every business day, as noted by Franchise Consultants, Inc. That's a lot of revenue to manage, considering the average royalty fees (paid by franchisees to franchisors) range from 3% to 6% of monthly gross sales. Like retailers running several store locations that are managed by different store managers, franchisors have the right to control which processes and systems (e.g. POS hardware/software, merchandising software, inventory software) that franchisees use. Consider McDonald's. Every location employs the same equipment, processes, and products. Rocky Mountain Chocolate Factory (RMCF), a franchisor, recently made the decision to standardize POS hardware and software at all of its franchise locations. 

With 314 franchised stores and five company-owned locations, RMCF's CIO Key Jobson felt he lacked visibility into POS transactional details from his franchisees. The retailer is always looking for operational efficiencies, and approximately six years ago, that focus was on its POS. RMCF executives sought individual store POS transaction data, so the retailer could determine which marketing techniques worked best in different retail environments. Additionally, the retailer wanted the ability to view POS data across the entire chain and analyze merchandise data to help initiate new marketing campaigns.

Embark On A Software Search
Previously, all RMCF franchisees had the freedom to use any POS system for their stores. Additionally, most franchisees used Excel spreadsheets to track sales and report sales data to RMCF. "In the past, we received monthly royalty reports containing gross sales from each franchise," says Jobson. "We relied on our franchisees to provide us with the information — we didn't poll registers, track revenue, or monitor the products sold at our franchises. As a result, our processes limited our understanding of the retail portion of our business. Furthermore, regarding inventory, we knew what was sold from our factory, but we didn't really know what volumes our stores sold."

Feeling ignorant with respect to current POS functionality, Jobson needed a benchmark to understand what software capabilities existed in the marketplace. He searched the Web for software that could gather sales details and help forecast the effectiveness of product promotions. Concurrently, he hired someone who had experience with a POS implementation at Target. Together, they identified (via Web research) 25 to 30 potential POS vendors — an exercise that provided the insight required to define the retailer's system requirements. After reviewing Web demos and comparing software features with RMCF's needs, Jobson and his staff narrowed the selection to three. He then gathered a small group of franchisees (i.e. a steering committee) that reviewed the system requirements and offered feedback concerning what was important to them in a POS system.

Pragmatically identifying a solution that fit RMCF's current size, expected growth, and unique requirements (e.g. wanting to store and retrieve recipes for internal cooking use), the retailer chose Retail Anywhere's POS software solution. "The Retail Anywhere application could adjust to our POS needs, as well as our food service adaptation," says Jobson. "We also felt comfortable with Retail Anywhere's size and business philosophy. We didn't want to get lost in the midst of a large vendor's high-profile customers, so culturally, Retail Anywhere was a good fit for us." Following the software selection process, the implementation moved rapidly. From the contract signing to the first store implementation, approximately two to three months passed. However, several steps were taken in a short period.

Pilot Test Commences Multistep Implementation
Each month, RMCF brings new franchisees to its headquarters in Durango, CO to teach them about budgeting, cooking confections, and running their stores. Training occurs in a simulated store that is located at the RMCF headquarters. The first step to the POS system deployment was the installation of POS terminals in the training store to conduct a lab pilot. In this setting, corporate and company store employees tested the system.

Following a successful POS pilot in the lab, Jobson deployed the hardware and software in company-owned store locations. RMCF's company-owned stores previously ran very basic functionality on polled Casio terminals. Therefore, during deployment Jobson had the opportunity to test the POS training process, as well. Following installation of the POS system at all company-owned facilities, RMCF and Retail Anywhere began installation in all new franchise locations.

RMCF trained new franchisees as an integral component of its franchise-training program. Training was also available on-site from Retail Anywhere as part of the initial system deployment. With 190 locations currently using the new POS system, many existing RMCF franchisees who opened additional RMCF locations sought consistency in their stores by deploying the new POS system in their existing locations as well.

Hosted Solution Offers Enterprise-Wide Data
Not only did RMCF require its new franchisees to have the new POS hardware and software, it wanted back end software (for analysis purposes) in its corporate offices. RMCF uses Retail Anywhere Enterprise software, which Retail Anywhere hosts for the retailer. "Enterprise enables us to view and analyze current sales information across all stores that use Retail Anywhere's POS software," says Jobson. "It helps us compare retail environments and profitability in different locations. Enterprise also allows our franchisees to view their own sales data, which is a big benefit, especially to franchisees who own several store locations."

Because RMCF's newer franchisees use Retail Anywhere's POS software, but its older stores use any POS configuration they want, RMCF needed to combine the small amount of revenue data from its older franchise locations with its new stores' sales data provided through the new software. Therefore, the retailer maintains a consolidated database with POS sales data from spreadsheets submitted from franchisees, as well as data exported from the Enterprise software used by newer franchisees. Whenever a franchisee closes out its registers each day, POS data is automatically transferred to RMCF and accessible through the Enterprise software. RMCF also created an interface for GL (general ledger) data between Retail Anywhere Enterprise and the retailer's ERP (enterprise resource planning) software, Macola.

In addition to gaining visibility into POS details, RMCF gained access to current employee time reporting through the use of the Enterprise software. Prior to Retail Anywhere, store managers staffed to the best of their abilities, maintaining and adjusting schedules from week to week. Before the software change, stores often maintained too much staff to support sales over the holiday season, which reduced profit. Having a direct interest in franchisee revenue, RMCF developed a staffing model for franchisees to follow based on several factors (e.g. historical data of foot traffic in a range of hours each day, ongoing promotions, in-store cooking times). "For example, in mall stores, we typically want to cook during high-traffic times to attract people into the stores with the activity," says Jobson. "So, the staffing model helps stores maintain high staffing levels during peak times." As a result, when RMCF initially implemented its staffing model, its company stores reduced total salary and wage expenses by an average of 8.5% by monitoring sales per hour, adjusting scheduling needs, and more accurately capturing employee time.

POS Software Becomes Sales, Promotions Tool
Due to the extensive data gathered from the POS throughout the chain, RMCF's executives formed a Retail Impact Group to gain a better understanding of the retail business and use that knowledge to grow the corporation. The group's efforts focused on promotions to increase sales and ways to reduce expenses via labor studies. The retailer also now employs two analysts who propagate the data collected to make it actionable for franchisees. "Initially, we put the software out there and expected our franchisees to just use it," says Jobson. "Some experimented and adapted quite well; however, others didn't have the technical skills or interest to analyze the data and use it. Therefore, we began using it to create programs to benefit the franchisees."

In a sense, with deployment of the POS software, RMCF implemented a sales tool for its franchisees. For example, many stores ran specials such as 'buy three caramel apples and get one free.' Yet, many franchisees didn't really know how many people took advantage of the promotion or what effect it had on their profit margin. So, RMCF created 'cookie-cutter' promotion programs that include a packet that walks franchisees through creating promotions. "The steps determine which promotion to run based on historical data, code the promotion on the register, train staff on how to ring the promotion, and create incentives for staff to sell it," says Jobson. "As the promotion progresses, the packet offers direction on determining its success. If it somehow cannibalizes other sales, managers can back it off." Programs like this give RMCF the ability to enhance future promotions based on details gathered from promotions employed across the enterprise. Stores essentially learn from one another via direction provided by RMCF.

New POS Spurs Corporate Growth
At the same time that RMCF deployed new POS hardware and software, the retailer introduced a new retail store design concept — changing from a Victorian look to a modern look. With the Retail Anywhere software, RMCF compared store sales in similar locations with the old design versus the new design to determine if the design affected store performance. The retailer saw increased sales in its new stores. 

"Over the last six years, we've gained visibility into store performance based on location and different retail settings, using the POS data," says Jobson. "For example, packaging might have a dramatic effect on sales if it's in a high gift-buying area. We now understand product mix, merchandising, and marketing much more. As a result, the software enabled us to move into other retail locations with greater confidence."

In 1998, RMCF opened only a handful of new franchise locations. That grew to an average of 12 in 2000. After deploying its new POS system, RMCF has averaged 36 store openings per year in the last six years. "That increase cannot be solely attributed to the POS system; however, retail information from the POS significantly contributed to our understanding of store performance," says Jobson. "Other contributing factors include our new store design and focus on the franchise sales process."

RMCF's next step is to provide franchisees with the ability to further analyze their own sales data. The retailer currently is working with Retail Anywhere on implementing enterprise-wide dashboards for its corporate staff as well as store-level dashboards for its franchisees. Retail Anywhere has recently signed an OEM partnership with Cognos to embed pieces of its BI (business intelligence) suite into the Retail Anywhere product. For more information, see the sidebar on this page.

RMCF has invested in growing its business and provided its franchisees with advanced tools to manage and grow their businesses. Store sales and royalties are money in RMCF's pocket, so providing its franchisees with tools to sell more effectively and reduce costs can only benefit the company overall. Furthermore, the same theory can apply to store managers — analysts at the corporate level determine which operations work best among all stores and then require store managers to implement new processes in all store locations.