The self-service industry movement that brought us ATMs (automated teller machines) and pay-at-the-pump gas stations is now appearing in retail stores. Is the concept right for you?
The idea that says, "If you want something done right, you have to do it yourself," has gone from an old adage spoken in frustration, to a motto for life. Self-service has become a survival concept that is required if the human race is to travel through its fast-paced lives at full speed, and technology has enabled it to happen.
Consumer influence is not the only factor that prompts retailers to provide more self-service options. With fierce competition from discount superstores, grocers are looking to improve the customer experience while lowering inventory control and labor costs. At last year's Marketechnics Conference, PSC Inc., a manufacturer of self-checkout systems, conducted a survey which indicated a strong movement toward the installation of the machines in the grocery sector. In 2001, 25% of survey participants planned to install a system in the next year and another 43% planned to begin evaluating the system. Retailers perceived the benefits of self-checkout as improved customer service, reduced front-end labor costs, and an easing of labor shortage problems. As much as retailers thought installing self-checkout would benefit the stores, they were unsure of how customers would react to the unmanned checkout lanes.
Henry Karp, president and COO of Optimal Robotics, the manufacturer of U-Scan self-checkout systems, and Eric Dorne, VP of store systems at A&P, worked together to install the first round of U-Scan self-checkout systems in A&P's stores four years ago. Today the grocery store chain has installed the self-service technology in 105 of its 735 stores with much success.
1. How has self-service technology changed over the years?
Henry Karp: Since 1995, the price of computer hardware has come down while performance and power has increased. Today, we have over 8,000 terminals in over 2,000 stores - 1,000 of which have been installed in the last year. As technology became less expensive and processing power became greater we have upgraded the machines. When we started, the machines were of vending machine quality. Over the years, we have upgraded to what we call ATM (automatic teller machine) quality. The difference has to do with the caliber and longevity of the components. ATMs are designed to pump out high volumes of money all day. We have incorporated components into the checkouts that are attuned to the large-scale nature of grocery stores. We also have incorporated retail feedback into the design upgrades and the latest technology as it has become available, such as electronic signature capture and debit acceptance.
2. A&P was an early adopter of self-checkout. Is the technology stable enough now for other retailers to jump on the bandwagon?
Eric Dorne: The major players in self-checkout (Optimal Robotics, Productivity Solutions, Inc., PSC, Inc., and NCR Corp.) have developed their products through a lot of customer interaction, and I think the technology is now mature and ready for mass distribution. We have upgraded our systems many times as the applications matured. I think they are peaking and are at a level where retailers can go with a mass rollout without worrying about adding new features a year from now.
3. Is it a problem to integrate the self-checkout with current retail POS systems?
Henry Karp: We can do an interface to almost any POS (point of sale) system. There are a few old ones that pose problems, but in most cases we can do an interface in as fast as a couple weeks. The worst case would take as long as two to three months.
Eric Dorne: The machines went through A&P's normal development and quality assurance cycles. The reliability of the system is very high. Our IBM 4690 operating system software is totally integrated with the self-checkout. I wouldn't recommend installing this kind of system unless it is integrated. It is not efficient from an information systems point of view to have two POS systems.
4. What was customer reaction to the machines at first?
Eric Dorne: There was some skepticism, but there was also eagerness to try the new technology. I think through banking, gas stations, and the Internet, self-service is a prevalent concept, which has helped the acceptance of the machines in retail. It has allowed the trust and the reliability of partnering with your customers to really take hold.
5. Does it take time for a customer to become "trained" on the machines?
Eric Dorne: About four weeks after an installation the customer base is comfortable with it. We have a 90% acceptance rate among our customers, which is outstanding for a new technology. There is a learning curve with your customers, but it is amazing how quickly they pick it up. They don't want someone standing over their shoulder because it defeats the purpose. People of all ages and backgrounds have become comfortable with the technology.
6. Does self-checkout serve as a customer loyalty tool?
Eric Dorne: Depending on the store, anywhere from 25% to 40% of our customers use it. Through surveys, they have voiced that it is a point of differentiation for them, and therefore a competitive advantage for us. We view self-checkout as a customer service tool first, as well as a differentiator in the marketplace.
7. Is self-checkout faster, or are there customer benefits other than speed?
Henry Karp: I don't think there is a dramatic difference in time. If you go to the regular lane and the cashier checks you out in 3 minutes and you do it in 4 minutes, we would be hard-pressed to say the time is significant. But if customers start using self-checkout once a week, they become familiar and adept with it - sometimes they become more proficient than cashiers.
Eric Dorne: It isn't a matter of time; it is an opportunity for them to do it themselves. Self-checkout gives customers a choice. Once a store matures with the technology, there is often a benefit in labor, but that takes time. Eventually, the traffic to the traditional lanes will decrease as customers use the self-checkout option causing the efficiency rate to increase.
8. How does self-checkout deter theft?
Henry Karp: There are four levels of security built into the system. The first is that the self-checkout lanes are 10 feet away from a human cashier, so they are constantly monitored. Secondly, there is a video camera on each machine sending the image back to the cashier stand. Thirdly, the bag stand doubles as a scale. It is programmed to recognize the average weight of most products. If there is more or less than that amount placed in the bag, the system knows that it's not balanced and doesn't allow the customer to continue. The cashier is notified and can override an alert if your daughter put licorice in the bag before it was scanned. In some cases, it's theft, but in most cases, it is a mistake. Lastly, many self-checkout machines have Sensormatic devices that go off if something wasn't demagnetized. This combination of deterrents and security is enough to make it unattractive to perform shoplifting.
9. How long does it take a retailer to realize a payback from this technology and how it is measured?
Henry Karp: It is dependent on price, usage, and differences in labor rates. It should be visible in 9 months to 18 months. Retailers can measure payback in terms of the labor hours saved, but it is important to be statistically accurate before self-checkouts are installed to have something to compare. Typically, retailers are saving between 120 hours to 180 hours a week in front-end labor. These numbers are dependent on how efficient the retailer was in the first place, but retailers will also see a decrease in training and employee turnover due to the decrease in necessary manpower.
10. What other verticals could successfully install the self-checkout stations?
Henry Karp: There need to be stores with significant square footage and 10 to 30 lanes across the front of the store. We started in grocery, but as we have developed the system we have branched out to discount stores and home centers. We are now looking into drug and convenience stores.