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Grocery industry operations are facing a real paradigm shift

Item-level RFID is finally on the way into the grocery sector. High shrinkage rates, manual labor errors and poor product availability are all in the past. From now on, there is nothing but smooth sailing.

It takes a few big leaders to show the way, a few costs to drop and a bit of prepping of customers, but we are getting there, slowly but surely. Item-level RFID is standing at the grocery industry's door step.

In the previous article about this subject we discussed when item-level RFID might reach the grocery industry and what is still standing in the way; "Item-level tagging in the grocery industry - are we there yet?". We do recommend that you read it before you continue reading here. But if you don't have time, here comes a quick dictionary, so that you'll keep up with the terminology.

Item-level RFID - A system, where all items (not only cartons and other transport items) are individually tagged with RFID tags.

RTI - returnable transport item (such as a pallet, trolley or keg)

RFID on carton/RTI-level - A system, in which RFID has been adopted to track returnable transport items or cartons, as they travel in the supply chain. The individual items inside the cartons/RTIs are not tagged with RFID.


Item-level RFID in grocery retail supermarket


But now, let's get to the point; the content of this article. How would grocery store owners and employees use RFID and how would it affect operation costs and sales figures?


ITEM-LEVEL RFID IN THE GROCERY STORE


In this section we will take a look at the item-level RFID applications that take place at the retail store. We will leave the item-level RFID applications used in production and the supply chain to a later article.


1. SHRINKAGE PREVENTIVE APPLICATIONS


According to the NRSS Final Report, the average shrinkage rate in the supermarket and grocery sector was 2.54 % of total annual sales in 2011. That is a lot for an industry that has an average sales margin of only 3%. It is in fact the highest, or let us rather say the worst, score of all retail sectors.

In the supermarket and grocery sector the causes of shrinkage are estimated to be: internal theft 44%, shoplifting 33.3%, administration and paperwork errors 9.9% and vendor fraud 6.3%. The rest is believed to come from credit card, internet, refund frauds etc.

As you can see the biggest losses are due to shoplifting and internal theft. How can RFID help here? Well, one way to approach this question is to look at the results in other retail sectors, such as apparel retail, where item-level RFID is more common. American Apparel implemented item-level RFID and reduced their shrinkage rates by 55%. Other apparel retailers that have reported reduced shrinkage rates are for instance Gerry Weber, Grupo Éxito and Gant (Liwa Group). So, we know that RFID systems are reducing shrinkage in apparel retail. Will it do the same in grocery retail? The answer is yes and this is how:

By tagging all products with item-level passive UHF RFID tags and equipping all exits with RFID readers, all items attempted to be removed from the premises will be detected, if not sooner, then by the exit. RFID tags can also be programmed to alert if somebody tries to remove or destroy them. A huge benefit with RFID tags is that they can be very small and hard to detect. Actually, the mere knowledge that a particular grocery store is equipped with RFID, might scare off a big portion of the potential offenders, especially the less technically skilled ones.

The biggest advantage of item-level RFID opposed to using traditional methods is that RFID possibly will be able to pinpoint where the theft/loss happened and at what time. Then the security cameras will help you with the rest. So far, it has only been a matter of guessing how much shrinkage is due to internal theft or shoplifting and so on. After implementing RFID we'll see the actual numbers. When you know where, when and by whom the items are stolen, it's a lot easier to pinpoint problems and prevent theft or errors in the future.

Although item-level tagging of low-value items is still under debate, most agree that the tagging of high-value items and items prone to shoplifting would be sensible. David Lyon, EPCglobal business manager for standards body GS1 UK, puts it like this: "there is still not a case for item-level tagging in the UK grocery supply chain at the moment". He adds; "High-value items would warrant tagging from a "shrinkage" point of view".

By tagging the items and thereby reducing shrinkage, the stock numbers will be more accurate. When the numbers are accurate the ordering process is more likely to be effective and out-of-stocks can be reduced. Less out-of-stocks, means increased sales.


2. ENSURE YOUR ITEMS ARE FRESH AND ON THE RADAR


No other retail sector is so dependent on keeping their merchandise fresh and storing them in the right conditions as the grocery industry. It encounters a large rate of spillage and waste of which most could have been avoided by implementing item-level RFID or even carton/RTI-level RFID.

When goods arrive to the store they are automatically scanned at the loading dock by fixed or mobile RFID readers to ensure that the right products have arrived. The process is quick and the goods can be transferred to the backroom and then onwards to the shop floor without further delays. The RFID readers at the door between the backroom and the shop floor will register when the products are moved to the shop floor, ensuring that they are brought out in the right order according to expiration date. Employees can also use mobile RFID readers to check which products should be brought out first. This is called the FIFO principle (first in, first out).

 

Item-level RFID in grocery retail supermarket3


The FIFO principle is especially important when it comes to fast expiring consumable goods, such as vegetables, meat and fruit. The key is visibility and transparency. When you know where your assets are and have the expiring information associated to your assets in the backend system and on mobile devices, the amount of shrinkage due to waste and spoiled products will be minimal. The replenishment system will be close to flawless and empty shelves are but a memory.

Some grocery stores that have RFID on carton/RTI-level might already have a solution for ensuring FIFO, at least for the products that are stored in their RTIs on the shop floor. But products that are removed from the RTIs, as they are stacked on shelves, cannot be traced further without item-level RFID, leaving a blind spot in the system.


3. AUTOMATED CHECK-OUTS


Automated check-outs refer to a system where RFID scanners will scan all grocery items in seconds as the customer walks through an RFID gate. The system is unmanned and completely automated. The customer can choose to pay anonymously or by automatic charging through a customer loyalty card. The store can of course still choose to have staff at the check-outs to help customers with their payment and packing of goods, but their purpose is rather to provide additional customer service instead of doing manual repetitive tasks.

Future Store, has installed an automated check-out system in their item-level RFID pilot store. The system scans all items and weighs them. By matching the total weight of the items and comparing it to the listed weight of the items in the backend database, the system will know if the scanning was 100% correct or not. The system is truly smart, but it demands thorough weighing of all items beforehand.


4. AUTOMATIC REPLENISHMENT AND MISPLACED PRODUCT ALERTS


The use of "smart shelves" will completely modify the replenishment operations of grocery stores. Instead of having employees cruising around looking for empty places on the shelves, the shelves can be equipped with RFID readers that notifies when a product need replenishment. The same system also warns when a product is misplaced on the wrong shelf. A pack of meat that has been placed on the room temperature shelf for napkins can immediately be removed and put back in the meat counter, before it's ruined and unsellable.


5. VISIBILITY FROM PRODUCTION TO CHECK-OUT


If a product is out-of-stock both employees and customers will be able to obtain information about the estimated time of arrival. But even better, thanks to product availability and movement information that is up-to-date, out-of-stocks will be reduced significantly assuring that the customers get what they came for. Just like web shops, grocery stores can offer their customers access to their product availability information online. A customer planning to serve guacamole at a "texmex party" might wonder whether a grocery store has ready-to-eat avocados for sale or not today. This can be verified by checking it out online before bothering to go to the store.


6. SMART GADGETS FOR CUSTOMER COMFORT


Let's get crazy with the word `smart´ and make a list of tools that customers could use to make their grocery shopping fast and stress-free in the future:

SMART SHOPPING CARTS - Carts equipped with an RFID reader (perhaps an additional barcode reader) and a display. The RFID reader automatically scans everything that is put in or taken out of the cart keeping an up-to-date list of the items. The customer can see this list in the display and is constantly aware of the total value of the content. Customers can also use the display for requesting: discount offer information, additional product information, help from personnel, estimated arrival dates of products that are out-of-stock… et cetera et cetera. The list is endless.

If the customer logs in by flashing a VIP/customer loyalty card, a number of additional applications will be available for use. The electronic shopping list application lets the customer write a shopping list directly on the display or make one on a PC or smart phone that can be downloaded to the customer profile in the cloud server… perhaps by a wife who is used to her husband forgetting a few things while shopping for groceries. No problem, just create the list on the family customer profile and he will see it on the screen as he scans his VIP/customer loyalty card.

The application will then advice the customer about the most optimal route for fetching the products, much like a navigator and check off the items from the list as they enter the shopping cart. When a customer applies for a VIP/customer loyalty card and creates a customer profile, the customer profile allows the customer to choose preselected preferences. One example could be a customer allergic to gluten requesting information about gluten free product news and offers.

SMART VIP CARDS - This one is really simple: a VIP/customer loyalty card that is equipped with an RFID tag containing a customer identification number. The backend system can use this number for retrieving the customer profile, preselected settings and payment information. The RFID tag should have a very short reading range (only a few centimeters) to ensure that the card is scanned only when it is supposed to.

SMART SCREENS - Sometimes customers might not use a shopping cart or basket as they enter the store. Smart screens (attached to shelves or walls around the shop) allow customers to approach them and request further product information or assistance.

Price tags and some product packages are really small. Sometimes it's impossible to get all information of interest to the customer on there. Employees and customers can easily find out more about a product such as country of origin of each raw material, production methods, recommended recipes etc. with the help of smart screens.

SMART PRICE TAGS - Missing or misinforming price tags that haven't been updated are but a memory as shops start using electronic price tags that will be updated immediately as the change happens in the backed system. They could change background color whenever a product is on sale to gain attention.


CUSTOMER INFORMATION DATABASES


It's worth mentioning that using the smart gadgets in point 6 in the previous section must always be optional. Everybody has a right to protect their privacy and choose to shop anonymously. The smart gadgets should always ask for permission to help as well as offer a way to help without identifying the customer in question. The key to this is "logging in", which as mentioned before can be done by scanning a VIP/customer loyalty card and thereby loading preselected applications, shopping lists, promotion information etc. But it should also be possible to select these preferences each time you go shopping anonymously. It's only the prefix `pre´ in pre-selected that is unavailable, unless you are logged in.  And, of course, automated payment by flashing your VIP/customer loyalty card is out of the question if you choose to be anonymous.

In Finland we have an unusual requirement on supermarkets that most European countries, e.g. UK, don't have. Retailers are forbidden to associate purchased item lists with a credit card, only the total value of the purchase can be visible in the backend system and on the credit card slip. But, there are of course ways to circumvent this. If the customer chooses to use a VIP/customer loyalty card, the purchased item list can be associated with the VIP/customer loyalty card, as the customer has "agreed" to this by applying for and showing the card. Web shops also keep records of sold items, wanted items, viewed items etc. in their customer profiles, otherwise if would be hard to offer good customer service and keep track of returned items. But they, as all other retailers, are obliged to only save information that is of relevance for providing customer service for that particular customer. As soon as the information is not in use for that purpose, it should be deleted from the database, according to EU legislations.

If we are going to shop with credit cards, we simply have to trust the system and that the local laws are complied with. We cannot check whether the information about our purchases has been associated with our credit card or not, but we have come to accept this fact, although the credit card system awoke similar privacy issues as RFID when it was first introduced. The only way to shop without risking privacy invasion, with or without RFID, is to use cash and leave your mobile phone at home. In fact, it would be preferable to also leave your navigator at home and not to even arrive in your own car. Use gloves and do not look into any cameras in or outside the store. This all seems exaggerated, but that's mainly because we have come to accept these risks as we have gradually gotten used to the different technologies. This will also happen with RFID.


ITEM-LEVEL RFID IMPROVES CUSTOMER SERVICE


It is true that item-level RFID is beneficial for the retailer. But that doesn't mean it is beneficial on the expense of the customer. Efficiency and improved processes help both retailer and customers get what they are after. Everybody wins. The customers will certainly enjoy a system that offers them:

  • Faster shopping with less stress and no queues
  • Electronic shopping list with check off possibility
  • Better product availability
  • Possibility to see online if a certain product is available before entering the store
  • Easier to gain information of interest and filter out the rest by selecting product groups of interest and ordering personalized product promotions
  • Easier to compare products to each other
  • Store navigation according to shopping list
  • Continuous monitoring of the shopping cart's total value
  • Additional product information
  • The "fun" element and time saving of using smart gadgets and smart check-outs


WHAT WILL ITEM-LEVEL TAGGING DO FOR RETAILERS


Just to be fair we'll list the most crucial benefits for the store retailer as well:

  • Inventory accuracy, visibility and insight in operations and stock situation
  • Faster processes
    • The time spent taking inventory can be reduced from days to hours
    • Less paper work and more actionable reports for store managers
    • Personnel allocation- automated processes such as check-out gives more time for customer service
  • Increased sales
  • Less shrinkage and a reliable anti-theft system
  • Efficient channels for direct marketing
  • Automatic price and product information updates


ENJOY SHOPPING IN THE FUTURE


Since item-level RFID has not entered the grocery arena quite yet, this text is merely speculating what the future customer shopping experience and working day of the grocery staff could look like. And you have to admit it is looking pretty sweet. We are truly eager to see what other applications the future will bring us that we have not even thought of yet. One thing is for sure, the grocery sector, as all other retail sectors, is facing a paradigm shift. Shopping as you know it, will not disappear, but be enhanced tenfold... or perhaps even a hundredfold.


RELATED ARTICLES:


Spurring business transformation in fashion retail

Not to perish so fast

Managing RTIs - Returnable Transport Items - with RFID

The need for intelligent reusable transport items

RFID gates - Where are they and why


SOURCES AND RECOMMENDED READING:


http://www.rfidjournal.com/articles/view?5183
http://www.foodmanufacture.co.uk/Business-News/Still-no-business-case-for-RFID-at-item-level-in-grocery
https://www.rfidjournal.com/purchase-access?type=Article&id=9153&r=%2Farticles%2Fview%3F9153
http://www.rfid24-7.com/2013/01/28/update-russian-future-store-tagging-1-5-million-items-a-month/
http://www.its-networks.com/pdfs/Case_Studies/SMB/Reducing_Shrink_to_Improve_Retailer_Profitability.pdf
http://www.nrf.com/modules.php?name=News&op=viewlive&sp_id=1136

http://soccrim.clas.ufl.edu/files/nrssfinalreport2011.pdf
http://www.dcs.bbk.ac.uk/~gr/pdf/roussos_v1.4.pdf

1 comment on “Grocery industry operations are facing a real paradigm shift”

  1. Gravatar of SHIVAKUMAR PSHIVAKUMAR P
    Posted 05 May 2015 at 17:13:59

    WE WANT RFID USEING FOSR SUPER MARKET
    CALL ME 9945278154

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