Turning two closely watched supermarket industry experiments into fullfledged corporate strategies, Giant Food wiless a new method of building and financing its expansion.
For consumers, the news is at the checkout. Giant has signed a contract with IBM to provide optical scanners and electronic point-sale terminals for 750 checkouts, Donald R. Buchanan, vice president for data processing, said yesterday.
Optical scanners eliminate punching the price of most items into the cash registry by using a reader to decode the zebra-stripped Universal Product Code label on packages. With scanners in 29 of its stores, Giant is already considered the industry leader and will spend another $4 million this year on computer checkouts.
The new IBM contract means all new Giant stores - seven by next February - will get computerized cash registers, two dozen existing stores will be converted next year and within four years, 80 stores will have them.
For the financial community, Giant's stress on building, selling and leasing back stores or even whole shopping centers will draw more attention.
Giant this year will build three shopping centers, three stores, and a 300,000-square-foot warehouse expansion, with virtually no capital expenditure.
The company's construction division will design, develop and build the projects, sell them to private investors and then lease them back, explained David B. Sykes, senior vice president for finance. Most supermarkets chaine lase stores that are built to their specifications by developers.
Giant's innovations are at both ends of the build-sell-lenseback arrangement, said E. Tilden Kelbaugh, senior vice president for real estate and construction. (KEY OFF)(KEYWORD)t the front end, Giant is picking sites, buying property and actually building the stores as its own general contractor, activities that most other supermarket chains leave to the developer.
At the other end of the deal, Giant will move into shopping center management, "leasing an entire project from a passive investor, then finding tenants for all the stores. That too, is virtually unheard of in the supermarket business.
Like the move to computer checkouts, the build-buy-lease back arrangement is expected to be widely followed by other food chains. Skyes said yesterday during interviews in which Giant executives outlined the chain's game plan.
Giant's decision to pursue both tactics was made public only two weeks after long-time Giant president Joseph B. Danzansky moved up to become chairman of the board and Israel Cohen became president.
Cohen, who shys away from the spotlight as much as Danzansky savored it, is the man behind both decisions, Giant executives hinted. Long known as the man behind the scenes at Giant, Cohen as president continues to let other executives talk about.
When Giant put its first optical scanning checkouts into its Severna Park store two and a half years ago, consumer activists picketed the stores claiming the system wouldn't work and computer specialists hovered over the system hoping it would.
Today, both problems have been solved, Bauchannan said. Consumers complained that depending on the coded price made it impossible for shoppers to know how much an item cost without looking at the price back on all items in its computerized stores and will leave them there so long as consumers demand them, officials said.
Sykes likens the situation to consumer reluctance to dial their own telephone calls and predicts that within a few years the demand for a price on every can will sems as archiac as an operator to place every phone call.
With an in-house data processing department that goes back 20 years and an automated warehouse that is 17 years old, Giant apparently has solved some of the problems that have slowed computerization of the supermarket industry.
Most food chains have adopted computers in two steps, putting electronic cash registers at the checkouts, but delaying use of scanners to read labels.
"Their idea has been that first you learn to crawl and then you learn to walk," said Sykes, "we didn't see any need for crawling."
Giant's computerization will cost about $250,000 a store, $150,000 in IBM equipment and another $100,000 for electronic scales, label printers and other gear. All the equipment will be purchased except for the small mini-computer that controls the system at store level: it is being leased because of the rapidly-changing technology in small computers, Buchanan said.
Sykes said Giant will finance the purchases as a cash expenditure, because the equipment will pay for itself within two years in some stores and no more than four in others.
When the automated checkouts go in. Giant reduces the numbers of checklines. Instead of the usual 10 or 11, the computerized stores have seven to nine, Bauchanan said.
Lower labor costs are one goal of the system, though Giant officials noted that labor contracts forbid layoffs because of automation.
The most important advantage, they said, is that at the end of the day there is a record of the sales of every item in every computerized store.