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    CIOs Talk Tech

    From PCI to a focus on disaster recovery and BI, c-store tech executives outline what is top-of-mind today.

    By Don Longo, Tammy Mastroberte, Barb Francella and Linda Lisanti

    Will the PCI deadline of July 2010 stand for PIN Pads at the pump, and if it does, will retailers realistically be ready? Are loyalty programs working to keep customers loyal? How are Business Intelligence solutions -- one of the technologies seeing a huge surge in adoption according to Convenience Store News' 2009 Technology Study -- improving the bottom line?

    These are just a few of the pressing topics discussed at the NACS/CSNews CIO Technology Roundtable in New York during February of this year. With tech spending expected to decline in 2009 due to the economy, retailers report allocating money only to technology deemed "necessary," with PCI compliance falling into this category. Also, many plan to focus on loss prevention and business intelligence, according to roundtable attendees.

    In a lively discussion at CSNews' headquarters, retailers, along with representatives from this year's sponsor, NCR, and Michael Davis, vice president of member services at NACS -- the Association for Convenience and Petroleum Retailing, shared ideas, challenges and plans for the upcoming year.

    The Plight of PCI
    With the July 2010 compliance deadline looming for PCI compliance of PIN Pads at the pump, many retailers at the roundtable reported a majority of their budget would need to go to these upgrades. However, few were confident they'd meet the deadline, and all were unsure if the millions of dollars spent complying would be worth the investment.

    "If things don't change, we think most companies will spend their 2009 and 2010 technology budgets on PCI-related mandates," said Bob Sleeper, director of Information Technology (IT) for Rutter's Farm Stores.

    To meet the July 2010 deadline, CHS Inc. (Cenex) would require seven installers upgrading two stores per week, starting now, Roger Tripp, product and development manager, said during the roundtable. But without enough equipment that meets the standards available, the chain hasn't been able to launch an aggressive upgrade program, which will depend on fast action by its branded jobbers, dealers and retailers.

    "If[enough] PCI solutions become available from manufacturers, then the issue becomes the people in the field having the time to make the equipment changes," said Tripp, adding just 2 percent of Cenex's sites are currently PCI compliant.

    Even faced with these issues, Cenex had to take a tough stand to avoid hefty penalties: If a merchant is not compliant by the deadline, he will be unable to use Cenex's credit card network, and effectively, any other network, since no alternative network will accept a noncompliant merchant after the deadline.

    "That, of course, would affect our brand and our gallons sold. Which is not good news," Tripp said.

    Faced with the same challenges, Kwik Trip requested a deadline extension from its processors, though its director of IT, Tom Colbert, has seen little encouraging feedback about the chances of obtaining one. "We wanted to be on record about the equipment challenges and our ongoing efforts to comply," he said.

    Love's Country Stores chose to stop offering PIN-based debit as a payment option at the pump three years ago, making PCI compliance much easier. "We saw no drop in sales," said CIO Jim Xenos, noting the chain is now changing out PIN Pads inside the stores.

    Dropping PIN-based debit at the pump is an option for Valero if the chain is unable to meet the July 2010 deadline. "The resources to deploy the solutions are limited and the capital investment to install new PIN Pads in all of our sites is significant," noted Cheryl Thomas, vice president of retail systems at Valero. "We are reviewing debit usage by site and prioritizing them for investment. We may cherry-pick the sites with the most PIN-based debit transactions and make sure they are compliant. Many of the debit cards can continue to be used at dispensers as a signature debit transaction, mitigating the number of consumers who will be impacted at the sites we don't upgrade."

    The subject of secure PIN-debit transactions is a bit more complicated at Thorntons Inc., because the retailer has promoted a 3-cent per-gallon discount to customers who use PIN-based debit. "But the gap between the interchange fees associated with PIN-based debit and signature-based debit is closing, so the return-on-investment for compliant PIN-based debit devices is even tougher to justify," said David Caudill, senior director of IT at the company.

    Exacerbating the situation is the retailers' lack of confidence the PCI standards set now won't change.

    "To meet the PIN Pad standards, the [c-store/petroleum] industry will have to spend $1 billion," said Mike Davis of NACS, who jokingly added PCI stands for "Payback for Challenging Interchange" fees, referring to the industry's efforts to reduce the fees credit card companies charge c-store operators. "Then you are looking at another billion to meet standards for unmanned payment terminals and another billion for EMV." (EMV is a standard for interoperation of smart chip cards, POS terminals and ATMs that authenticate the credit and debit payments. The name EMV comes from the initial letters Europay, MasterCard and Visa.)

    In the areas of payment systems and electronic marketing, Kwik Trip is offering its Kwik Card holders rebates of 5 percent off every gallon of gasoline purchased for the first 120 days (if they also sign up for electronic funds transfer and e-statements), 3 cents ongoing and 10 percent off in-store merchandise purchases. Kwik Card can be used as an ACH card or credit card.

    The chain is also exploring ways to e-mail coupons to customers' cell phones. This would allow a customer to show the convenience store clerk the image of the coupon on his or her phone to receive the discount.

    Thanks to funding from MasterCard, Kum & Go LC offers customers contactless payment at every store. However, Kym Howe, vice president of IT, noted it isn't used very often. "We aren't sure if consumers know if their card is contactless-capable or not."

    Most of the roundtable attendees offer their customers a cash-back option. Valero limits the cash back to $40, charging $2 per ATM transaction. Kum & Go, which has many no-fee ATMs, sets a $20 cash-back limit. "It's a popular service," Howe noted.

    Thorntons, which does not offer cash back, stopped charging its $1.75 fee for ATM transactions in one competitive market, and has seen ATM usage skyrocket in those stores. "We've found a high percentage of no-fee ATM transactions result in a store purchase," Caudill said.

    Loyalty Programs
    The problem with loyalty programs for c-store retailers, according to many roundtable attendees, is inside transactions at convenience stores are usually so low it takes consumers a long time to earn a significant reward.

    "With the price point of the products in our stores and the small margins, it is difficult to earn a significant reward," noted Thomas. "It can take weeks of purchases to earn anything a customer might see as valuable."

    How about the retailers who print the loyalty club member savings right on the sales receipt? "That might work for retailers with big ticket rings, but in our industry, printing savings of 15 to 25 cents might make the customer feel like they are not getting a deal," said Caudill. "People today want instant gratification and would rather buy four and get one free."

    The Kentucky-based c-store chain is planning to roll out a key-fob based frequency purchase program called Thorntons Rewards this year. The program already was tested in a key market, and the retailer is using what it's learned from that test to refine and rollout the program.

    "First, we started giving two to three cents off a gallon of gas on purchases of specially marked items. The customer could accumulate their cents off and potentially get a free tank of gas," Caudill said. "Customers didn't seem to catch onto the program and just preferred to get an item for free. For example, the new program offers a person who buys four fountain drinks, a fifth drink."

    Love's Travel Stops also tried offering discounts on gasoline as part of its loyalty offering, "but it was not a successful program," said Xenos, who noted Love's is much more successful with its commercial fuel loyalty program, allowing drivers to earn one point per gallon of diesel fuel purchased. The drivers accumulate points to be redeemed for merchandise or food.

    At Valero, the company is planning to test audio and perhaps video monitors at the pumps to pull shoppers into the store from the fuel island. "We haven't given up on loyalty, but we aren't committed to it either. We keep trying to find a program we think can be successful," said Thomas.

    Additionally, the company tried testing couponing through monitors at the dispensers to pull shoppers into the store from the fuel island. "We have had very limited success. The next step is to add audio and perhaps video to our test sites and see if we get better results."

    Davis of NACS pointed out BP/ampm and Shell are both using video on top of their pumps in many California stations. The videos broadcast news, weather and traffic, as well as vendor-supported advertising. "Nice N Easy [of upstate New York] also has a pretty comprehensive test of using video at the pump to attract customers into its stores," added Davis.

    "We've got three co-op sites using video, but we're not seeing much of an increase inside the stores," countered Tripp of CHS Inc./Cenex, adding video is costly as well, at approximately $25,000 to $30,000 per site.

    Business Intelligence
    Business Intelligence (BI) is used to analyze collected data to gain a better understanding of what is going on in the store and make better business decisions. Companies use BI software to do a variety of things including market basket analysis, gauging the effectiveness of promotions and other business tactics.

    BI has the backing of senior executives of Kum & Go, noted Howe. The Iowa-based c-store chain actually set up a new department to help the organization analyze data.

    Kwik Trip is also starting a project on BI. "It's a big initiative," said Colbert. The chain will start using BI in its transportation department (Kwik Trip self-distributes it propriety foodservice offerings to its 353 c-stores). "We feel this will be a good area for Kwik Trip to begin with BI. We'll look at profit and loss by truck, etc.," said Colbert.

    Despite the many advantages to be gained using Business Intelligence, the downside is users have to be pretty tech-savvy to use it. That's why Thorntons implemented a BI tool called Sage roughly four years ago that rebuilds data every night and feeds it up to category managers in a Microsoft Excel format.

    "Marketers use it to do market basket analysis and to manage their day-to-day business," said Caudill. "It's robust, cost-effective and because it's in Excel, users like it. It's in their comfort zone."

    Howe noted Kum & Go's Cognos Business Intelligence system is "robust," but because it was built by IT (with consultants' help) it is a bit cumbersome and complex. So Kum & Go is currently working on building smaller cubes to make it more useful for users. The good news is the data warehouse is done so anything can be built on top of that to meet users' needs.

    "The key to BI is that the marketing side has to drive it," concurred Caudill at Thorntons. "It takes a little time, but once you have it right, it's sweet."

    Preparing for the Worst
    Nearly all retailers at this year's roundtable reported disaster recovery planning as a project high on their list of priorities.

    "With the storms we've had in our area over the past several months, disaster recovery has moved up on our list," said Caudill. The chain already has a second data center on its corporate campus with 90 percent of its services replicated, and plans to build an off-site data center in Louisville, Ky., where 100 percent of its systems will be replicated. The project is expected to take between 12 and 24 months to complete.

    Understanding the tolerance for system outages across its diverse business operations is a major issue for the Cumberland Farms/Gulf Oil group as well, according to Dave Banks, CIO at the company. The chain is evaluating outage scenarios for its office and data center move in May.

    The upside of going through this outage planning exercise is the company is getting a leg-up on disaster recovery planning, Banks said. "These systems do go down. Business users are gaining an understanding that they won't be up 100 percent of the time, and contingency plans and facilities must be in place," he explained.

    For Kwik Trip, which is working with an outside company to do disaster planning for its entire operation, the most important thing is to not only address the dangers facing the IT department, but all company risks. And it's not only disasters, but day-to-day things that go wrong and end up costing the retailer more money, Colbert said. The company planned to start the process of building an initial roadmap last month.

    Disaster planning does not follow a one-size-fits-all approach, attendees agreed.

    For instance, Rutter's Farm Stores' approach to disaster recovery is to break down its plan by scenarios such as: power outage for less than four hours; power outage for more than four hours; fire in the dairy; fire in the corporate building, etc. All procedures, policies, emergency contacts and more can be found in one manual, according to Sleeper.

    Love's Travel Stops, meanwhile, is pleased with its disaster recovery plans and is now focusing on business continuity. Xenos said he and his team recently went to each department in the company, from payroll to fuel, and asked them how long they could have their applications down before it completely affected the group.

    "More than likely, we'll lose one application, so that's the piece we're working through now," he said.

    It's often difficult to get everyone to accept that power outages and disasters can cause substantial system downtime, Caudill noted. "When you first bring department heads together and ask 'what's critical?' everyone says they can't be down for more than an hour. But the reality is they can with the right planning," he said. Getting departments to buy into the importance of the disaster recovery planning process and to actually research how they would accomplish tasks under duress is the biggest challenge.

    However, disaster planning should not stop once a plan is in place. CHS periodically tests its systems, and Tripp urged his fellow retailers to do the same. The company just completed a second test of its system, and is planning to conduct a third test this fall. The first test was scheduled and everyone was notified ahead of time, but the second time, the test was unannounced, according to Tripp.

    "We have picked people who have to report to the different sites. We tested the call tree, and had company personnel actually drive to the off-site locations. The first time, there were a few [hiccups]. The second time was much more successful," he said.

    "I encourage you to do the test. That's the proof."

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