Capstone Identifies Future Cornerstores: Part 2

Winning presentations at USC conference dealt with data-driven personalization, automatic stock replenishment

April 14, 2016, 10:44 am

The following outlines the second of two winning presentations of the Food Industry Management (FIM) Program, which is part of USC’s Marshall School of Business and sponsored by the Western Association of Food Chains.

The program is a sort of continuing education boot camp for mid-level managers, who may or may not have college degrees. The highlight is a series of presentations by teams of six FIM students. The teams are tasked with identifying a trend or area of interest to the food/grocery industry and putting together a presentation, describing its relevance and offering advice, to an audience of executives. The audience then votes for the two winning teams. Details of the first winning presentation, titled "Age of You," is available here. 

'Invisible Hands'

When Natural Markets Food Group opened a new store in a new market a few years ago, its opening day was a great success—but that success carried the seeds of future failure, said Victor Farr, the retailer’s project manager/business analyst.

Sales and customer traffic were great, Farr said: “Two fantastic problems to have. But the issue was that as our associates tried to keep product on the shelf, they were getting in the way of our customers and clogging up the aisles.” This hurt future sales: “I’d be willing to bet that a significant number of customers who shopped with us on that grand opening haven’t returned since because of their poor experience.”

Team Invisible Hands touted an innovation that it said will virtually do away with that problem, as well as help cut the labor costs, out-of-stocks and shrink that cost grocery stores $100 billion a year. Automated stock replenishment, the team told Capstone, has the potential to be the most significant innovation since bar codes were introduced in 1972.

Automated stock replenishment has two components, which can be implemented in phases. The first is backroom automation. This involves putting a pallet of product through a sorting machine, which breaks down the load and checks it against inventory. It then determines which items should be stored in the backroom and which ones need to go out on the floor; the latter get loaded into a shopping cart in the order that they will be stocked.

“This technology is already being utilized in a lot of our warehouses,” said Shawn Wolek, a manager with Fry’s Food Stores, a Kroger banner. “We just have to utilize it at store level.” Doing so will allow retailers to use more of the cubic footage in their backrooms, especially the area above human reach.

The second phase is automated shelf replenishment, which takes the automatically sorted product and pushes it onto the shelves. Every facing on the shelf has its own mini-conveyor belt; items get shuttled across ceiling tracks and loaded onto the back. When not loading items, the system will keep the shelves properly faced and conditioned.

Benefits of automatic replenishment include fewer out-of-stocks; fewer facings, which allows more SKUs to be sold in less space; and less opportunity for employee theft. These benefits are intensified for direct-store-delivery items like beer, soft drinks and bread.

Automated stock replenishment should be seen as a way to enhance employees, not replace them, said Jeanie Goodrich, pharmacy coordinator with Smith’s Food & Drug.

“We’re not suggesting that jobs be eliminated,” Goodrich said. “Rather, we’re advocating that jobs be realigned to better serve the needs of our customers. Employees will now be able to focus on our customers instead of getting in their way.” This will increase job satisfaction and reduce turnover, she said.

Retrofitting a store for both phases, backroom and shelves, would cost about $2 million, Team Invisible Hands estimated. Estimated gains include a sales and margin increase of 6 percent, a 50 percent decrease in shrink of non-perishable goods, and a 15 percent decrease in labor costs. The average estimated payback period is 3.2 years.