The next major supermarket war in metropolitan Washington will be won with computers, and Giant Food Inc. believes it will be armed the best.
Much of the technology probably won't be as visible to consumers as the familiar computer-assisted scanners at checkout counters, but the sophistication of various applications being considered is almost certain to revolutionize the supermarket industry.
Beyond its use of computer-assisted scanning equipment, the supermarket industry hasn't moved very aggressively until recently toward expanding computer technology from central headquarters and warehouses to stores. In fact, most of the industry was surprisingly slow in installing scanners.
But it has become clear to more operators that computer technology can help facilitate time management, control vendor deliveries, reduce shortages, produce information faster and, in general, enable them to make more-informed decisions about competing in their markets.
As a result, considerable resources are being pumped into projects that could lead to the prototype supermarket, almost totally controlled by computers, as early as 1984.
Supermarket operators will be able to track an item from the time it's delivered at the back door until a customer takes it through the front door. Computers will be used, for example, to ensure greater efficiency in meat-cutting operations, to conduct inventory, operate deli counters, and to increase productivity at the checkout counter.
Giant, already an industry leader in the use of computers at the store level, has seized the initiative by mobilizing its resources toward becoming a total computer company.
At the same time, Safeway Stores Inc., Giant's chief competitor in this market, has begun testing a number of computer applications at its Oakland, Calif., headquarters and plans to expand those tests some time this year to the Washington division, among others.
"I think one of the interesting areas of merchandising is that the computer allows greater control and, with that control, it gives you more flexibility," said Mark Foster, electronic systems manager for Safeway Stores' Washington division.
Giant, of course, became the first food chain in the world to convert all of its stores to scanners two years ago after successfully testing the technology in 1975.
In the interim, only a few major chains have decided to go the same route. On the other hand, many are studying possible further uses of computer technology at the store level. At the same time, technical advances in computer operations at the warehouse level have set the stage for a revolutionary system linking retailers and manufacturers.
Several chains, including Giant, and a group of manufacturers have just completed a test of a computer network called the Uniform Communications System (UCS). The system allows a supermarket's computer to transmit a purchase order directly to a food manufacturer's computer.
The Food Marketing Institute will release results of the pilot program at a seminar here next month. Earlier, a feasibility study indicated a potential savings of $300 million annually for the food distribution industry if half of the industry's message volume is handled through UCS.
Clearly, the motivating factors in the supermarket industry's quest for more computer technology are increased productivity and higher profit margins.
Although officials at Giant are reluctant to admit it, the chain's decision to gamble on a total commitment to scanning was calculated to increase market share. While that hasn't been the only factor responsible for Giant's lead in market share in metropolitan Washington, it has been a key one.
Now that it is firmly established as the industry leader in scanning, Giant is preparing to enter a new era. Scanning, though critical to its operations, is ancient history, says Donald R. Buchanan, senior vice president for data processing.
"We're going to spend some money and we're going to take a year to pilot about 10 different applications, which is a very ambitious program," says Buchanan.
Giant's plans for expanding computer applications to virtually all in-store operations are admittedly ambitious but Buchanan says he has the full support of chairman Israel Cohen and Giant's management council to develop at least 11 pilot programs.
To fully appreciate the scope of Giant's plans, consider the fact that the Cincinnati-based Kroger Co., for example, will test only four in what is considered an aggressive approach for most in the industry.
"I don't like to be second, so we're hoping to do this with the same kind of leadership role as we did with scanning," Buchanan remarked during a recent interview.
"It's this kind of company which can do it and do it better than anybody else because we've got all the horses here and the right kind of aggressive leader in Izzy Cohen," Buchanan boasted.
Besides scanning, Giant's most effective use of computer technology until now has been at its semi-automated, 700,000-square-foot grocery distribution center in Jessup, Md. The center utilizes a computer-driven machine (S.I. Ordermatic) in storage and retrieval operations there.
Early this year, Giant inaugurated its new frozen-food distribution center and ice cream plant at Jessup. The 74-foot-high frozen-food facility also has Ordermatic retrieval and storage machinery but that has been combined with a stacker-crane system.
Four stacker cranes, each 67 feet high, are directed by a computer to insert pallets loaded with merchandise in their proper storage slots or to retrieve loaded pallets for distribution. About 90 percent of the merchandise handled at the warehouse is selected through the Ordermatic.
Safeway uses a similar system in its 80-foot-high dry grocery warehouse at Landover, Md., and others in the industry use the S.I. Ordermatic in subzero environments, "but nobody has married the two," Buchanan emphasizes.
The warehouse innovations are described by Giant officials as the "leading edge" of a new era in distribution.
Meanwhile, Giant is pioneering a new technology described as a computer-assisted dispatching system that it hopes to tie into the distribution cycle.
The aim is to schedule drivers' time better by installing in the cab of every tractor-trailer a two-way radio that will enable drivers to maintain communication with headquarters regardless of their location.
"I guess you can think of it as a very elaborate CB," said Buchanan. "We can schedule (deliveries) around accidents or we can schedule around problem areas.
"One of the next stages will be to generate management reporting from all of this so that we'll know exactly what kind of utilization we're getting out of each tractor and each trailer and we'll know what kind of utilization we're getting out of the driver himself."
With profiles developed from that information, said Buchanan, Giant could schedule a driver's departure from a given point within five minutes and track his movement through an entire day.
"There are some trucking companies who do it but to the best of our knowledge, there is nobody in the food business who is doing this as elaborately and is orienting it to management reporting as we are," Buchanan said.
Indeed, the supermarket industry has been slower than others in embracing technology as a management tool.
It's worth noting, however, that the supermarket is barely 50 years old, observes Timothy M. Hammonds, senior vice president at FMI.
"In most of that time, the supermarket operator's prime requirement was being a good merchandiser," said Hammonds.
Now however, the environment is changing and the supermarket industry finds technology and data processing catching up with it, he added.
"Ten years ago, data processing wasn't even a concern of senior management" in the supermarket industry, recalled Doyle A. Eiler, director of FMI's research division.
That has changed, however, and companies such as Giant have moved data processing experts from boilerplate backroom operations to senior management positions.
In the changed environment, said Eiler, "Most of the companies in our industry have a big list of projects they'd like to do but they have limited resources."
For one thing, he added, there is a shortage of resources and, "it's just taken time for these applications to come up."
Besides, new technology and productivity advances in the supermarket industry depend a great deal on the availability of investment capital, say FMI officials.
That doesn't appear to be a problem for Giant. Working capital at the end of fiscal 1982 was around $39 million. Moreover, it projects a cash position of $45 million to $50 million at the end of February 1983.
Because they lack trained personnel, many companies have become increasingly interested in buying computer software rather than developing their own in-house capability to write computer programs.
"A lot of people will be selling software programs," Buchanan predicted. "There's going to be some kind of tendency to buy software packages from other people instead of spending all of the money that we used to do to develop software ourselves. And those software packages may or may not be exactly what we want and we may have to get into them and tear 'em apart and restructure them. But the feeling is that it's going to save programming time." ne of the first tests that Giant will be conducting over the next year involves the use of a programmable, hand-held computer, not much bigger than a large pocket calculator. The hand-held computer, which is already being tested in all Safeway stores here, will speed up store inventory and reordering.
Using an electronic wand attached to the mini-computer, an operator can reduce significantly the time it takes to complete inventory. What's more, an operator can pass the wand over a warehouse code on a shelf and punch in a reorder command that is fed into a host computer.
Another minicomputer likely will be installed at the receiving dock at each store to monitor deliveries by vendors. Again, with a wand attached to the computer, a store employe can make a rapid count of items delivered and check the invoice against the original order on file in the computer.
One of Buchanan's more ambitious proposals is designed to produce greater efficiency in the meat department. "One of the problems we have in our industry is that you take a side of beef and you really don't know how to cut it to maximize your profits," said Buchanan. "It's an individual judgment kind of thing."
With the computer as a tool, said Buchanan, Giant can eliminate a good deal of waste and formulate its prices for various cuts of meat based on more reliable cutting tests.
"That's not all the meat story," says Buchanan. "We will eventually have case codes on a box of beef when it comes to the back of the store. We'll scan that case code which says 'a box of beef, so many pounds,' and we'll follow that damn thing through the whole factory operation."
Giant plans similar pilots in the produce and deli departments by using computers to achieve greater efficiency in the measurement, mixing, weighing and packaging of items. But those operations will prove more difficult to get a handle on, Buchanan believes, because of the absence of uniform packaging, and because of odd sizes and shapes as well as individual orders.
Those areas and the meat department have been hard to manage because of a lack of uniformity in cutting and packaging and, as a result, said Buchanan, "It's been done a lot by the seat of the pants."
But with software packages it is developing, Giant will be able to predict, for example, customer traffic patterns and the amount of labor required for food preparation and customer service in the deli departments.
Ultimately, Giant plans to develop a computer program that will measure cashier performance. The aim, Buchanan explained, is to measure productivity and tighten security.
With that kind of capability, Giant could compare a cashier's performance with a standard as well as with the performance of her peers. The computer would tell the company how many times a cashier scans an item, how much money her register rings up in an hour, how many items she scans in an hour.
Further use of the computer will also alert Giant officials to the possibility of cashier theft or sweetheart arrangements at the checkout counter.
"You can prepare reports which will show the average dollars-worth of sales per hour," said Buchanan. "Hell, if everybody is getting $10 or $11 per hour (in customer purchases) and somebody down there is getting $5, you've got a problem."
Buchanan concedes that Giant's master plan for the computer-age supermarket is highly ambitious, but he remains confident the chain can deliver.
"This is a leading-edge kind of thing," he remarked. "But I see some real significant opportunities to bring net dollars to bottom line as a result of installing some of these applications, paying for them and having something left over and I see getting better control of the company as part of this offset."