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JERSEY CITY, N.J. -- Who are the authorities on the future of the convenience store industry, and what can you learn from them? In this series of exclusive one-on-one interviews with c-store industry leaders, Convenience Store News Editor-in-Chief Don Longo explores the most important trends and issues facing the convenience store industry.
This month, Longo interviews Greg Gilkerson, president of Professional Datasolutions Inc. (PDI), a leading-edge software developer and enterprise solution provider for the convenience store industry. Elected into the supplier wing of the CSNews Hall of Fame in 2009, Gilkerson has been helping c-stores automate their systems for more than 25 years. Indeed, many c-stores today wouldn't be scanning and using data to make sound business decisions without the systems Gilkerson pioneered for the industry.
Gilkerson has served on the NACS Technology Committee, the founding board of PCATS and the NACStech Technology Council.
Longo: What do you consider to be the most important trends influencing retailing today?
Gilkerson: Retailers today must be focused on increasing sales, maximizing margins and decreasing costs. These are the same priorities they have always had, but the competition for customers and their business has never been greater.
It is obvious that technology has a key role in retailing. Today, technology is rapidly expanding to include the customer. The networked computing power carried by most consumers today makes many new services and programs possible. These new resources are evolving into a very interactive, real-time retail world with electronic wallets, couponing and loyalty becoming commonplace.
While the customer is vitally important, it is also important to keep refining business processes. Connecting the external world (stores, vendors and service providers) to the corporate office allows for the business information to be more timely and accurate. It also reduces cost by automating functions that were traditionally manual efforts. There is also the tremendous challenge to build, enhance and support the networked technologies required to deliver these services. Just the issue of security alone is a daunting task for most.
One big question for retailers is whether to add a layer of technology and expense to support a loyalty program. Retailers must make the choice of competing on loyalty vs. the Walmart strategy of everyday low pricing. We think loyalty will be greatly facilitated by the growth of smart mobile technology. The electronic wallet will be commonplace in the future. ISIS, Google, PayPal, Square and others are all scrambling for mind and market share. The control and understanding of the wallet technology is crucial to offer lower-cost payment alternatives, electronic coupons and loyalty programs.
In the grocery channel and maybe even in fuel, we are going to see a shift in control from the retailer to the consumer. Before too long, consumers will be able to put in a grocery order or fuel request via their smartphone inviting retailers to make real-time offers to gain the customer transaction. Consumers will end up with the leverage and drive the transaction.
On the subject of lowering costs, we're going to see the idea of doing business electronically become the norm and even essential to maximize profits. Retailers are getting rid of spreadsheets and automating all business processes. We've been helping retailers do business electronically for nine years with our PDI/Enterprise software. Automating things that were previously done manually will continue to be a big focus of reducing costs.
Technology planning and adoption is an ongoing challenge for everyone. There are an infinite number of things to do and they require execution levels that some organizations just cannot achieve. It is very hard work that requires a great deal of discipline. Technology adoption is no different than implementing a new foodservice program. The retailers that execute well will continue to separate themselves from the rest.
Longo: Please comment on the most significant technology developments relating to the convenience industry.
Gilkerson: The list is not that different than for any other retailer: wide-area networks, security, payment alternatives, customer-centric marketing, doing business electronically. For the convenience retailer, it is imperative to intelligently acquire and master the most effective new technologies to compete with other channels of trade that will be pursuing our customers.
One great opportunity is a new technology from LIFT Retail. LIFT has developed an intelligent upselling system that provides scripted interactions between store clerks and consumers. The LIFT system provides cues for suggestive selling and proper presentation of promotional offers to consumers. The software takes scan data and uses real-time affinity analysis to determine items that sell well together. It presents the affinity items or relevant promotions to the customer on a large display. It's designed to be very efficient. The customer can quickly accept the item offered, pay for it and then pick it up as they exit the store. It also allows for presentation of promotions like "two-for" deals.
Another item that will see a significant increase is scan-based trading, especially in categories that historically have been poorly managed, such as newspapers and magazines. Scan-based trading could be a trend that becomes commonplace for many product categories and more prevalent in convenience stores.
Earlier, we mentioned security. Data security and PCI compliance will continue to be a major concern for convenience retailers. PCI compliance costs will have retailers looking for payment alternatives, as the associated cost is very high and the financial and brand impact of a security breach can be significant. If the hackers can take down an organization as large as Sony, everyone is vulnerable. Our industry has spent and continues to spend millions to upgrade and enhance security at the fuel dispensers. It's a big deal when you have to spend $20 million to upgrade your technology with no financial return on the investment. A very big deal.
Retailers are also ratcheting up their level of sophistication in item management and computer-assisted ordering. They are becoming much more granular in their understanding of what's going on in their stores. Transactional analysis is also gaining momentum. Historically, retailers looked at what was selling at the day or shift level. Now, sophisticated convenience retailers can review transactions by daypart, by cashier or by customer groups. In addition, affinity analysis allows a retailer to see what sells with what. Here's where loyalty programs will reap the real benefits. We are at the point where we can make targeted offers to specific consumers through transactional analysis.
Longo: As a major technology provider and industry leader, what are your thoughts on the current state of technology in the convenience store industry? Are c-store retailers ahead of, on par with or behind other retailers? In what areas are they lagging?
Gilkerson: We've been privileged to work with convenience retailers for 28 years. We've seen convenience stores go from a paper-based industry to being as sophisticated as any retail channel. The adoption and success of technology in this industry has been remarkable. Due to fuel and other financial services, c-stores are the most sophisticated retail environment in the world. Understanding that, we would say that our top-quartile companies are on par with any retail channel.
For our customers, this is due to several factors. The PDI/Enterprise software is unique in the retail world because we have a total enterprise solution. Other industries relied on internal development. These tend to evolve into islands of automation with some benefits and lots of drawbacks. Upgrades become major events when internal shops have to deal with a multitude of interfaces and versions. With an enterprise approach, our customers can move faster.
We've also seen NAXML standards play a big part in the development of technology in this channel. Standards have greatly shortened the cycle between idea and implementation of technology. PDI has maximized the opportunity afforded by standards. Few companies have developed enterprise solutions from the ground up to use every possible standard available. We can do this because of the work and investment put in by PCATS and NACS. We have had great leadership including Scott Hartman, Hank Armour, Teri Richman, Kerley LeBoeuf, John Hervey and others. Our industry is incredibly fortunate to have leaders such as these people.
Lastly, the convenience store industry has made significant investments in people. The leading companies have a culture of great execution, they have a strategic automation plan, they understand their priorities and they get it done. Lagging companies have trouble getting the right people on their team, don't modernize at the POS, have antiquated home office systems/processes and poor organizational discipline.
Longo: Having watched the c-store industry grow more sophisticated in its use of technology to make better business decisions, where do you think the future of retail tech investment is headed?
Gilkerson: We think future investment will be focused on gaining a better understanding of and interaction with the customer, and better visibility into all facets of the business.
Longo: What are your thoughts on RFID, social media and mobile shopping? How will these impact c-stores?
Gilkerson: RFID (radio frequency identification) technology is still plagued by physics. It's not practical for a retail item tracking system. It has more relevance in the distribution arena and customer identification. As a descendant of RFID, millions and even billions of dollars are being spent on Near-Field Communication (NFC) -- think high-tech customer number and updatable wallet. Every phone will have these NFC chips within two years (you can use stickers to put them on any phone). This will provide marketing opportunities to consumers and facilitate lower-cost payment for goods. It's fascinating and worth-watching.
Social media will struggle some. We are past the fascination/infatuation stage and we need to find new ways to be relevant, as people will get fatigued/bored/irritated by irrelevant messaging and promotion; some will figure it out! We see huge potential using social media technologies to connect our customer community.
Mobile shopping will be a way of life. In five years, no one will think twice about using mobile shopping, payment and promotion.
Longo: Please discuss the role suppliers play in today's convenience store industry and how the retailer-supplier relationship has evolved over the past five years? How is it likely to change in the next five years?
Gilkerson: We can't really speak to other suppliers, but this industry is fortunate to have a cast of suppliers that bring most of the needed technology function to the table, leaving retailers to concentrate on their business. Many other industries that adopted technology earlier than ours are burdened with lots of legacy systems and related development that is very expensive and hard to get rid of.
Over the next few years, the challenges will really remain the same. We need systems that provide data integrity and easy ways to integrate data from many sources. That means we will have to build systems that can do that, while remaining open and flexible to our customers' needs.
Longo: Switching gears, what are the foremost non-industry specific retailing issues that are on your mind?
Gilkerson: We are really interested to see how rapidly mobile payments take off, and we are interested in seeing how effective "cloud computing" will be and what applications makes sense. There have been some recent outages that create significant credibility issues for the concept. It has great potential to lower the cost and complexity of computing, but we need to see what happens over the next few years. Finally, all this technology stuff falls apart if you don't have great people. A positive, high performance and highly disciplined organizational culture is paramount. When you see organizations do this well, it's really fun.