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AFTERNOON SESSION–TUESDAY, JULY 24, 1973

(RAYMOND A. THARALSON, Vice Chairman, Presiding)

UNIVERSAL PRODUCT CODE IN THE GROCERY

INDUSTRY

Effect of UPC on Supermarket Operations and Equipment

by ROBERT H. SLOAT, Vice President, Operations, Foodarama Supermarkets, Inc., Freehold, New Jersey

My part of the program is extremely easy. I am going to be talking to you about the need. The only way I can identify the need is that if over the next fifteen or twenty minutes I could make most of you into grocery clerks, think like grocerymen, and understand what some of the problems are.

The problem is caused by a conflict-a conflict that exists between a shopper and a store manager. A shopper spends thirty to forty-five

minutes in the supermarket, and selects many items. She now has one desire and one ambition, and that is to get out of the store as rapidly as she can for the least amount of money. On the other hand, we have a store manager who has some 12,000 items in his store and that customer has bought only a portion of them. He would like to know what the shopper has in the baskcart and what the relationship is to her selection of product versus his merchandising of those products in the store.

Another problem is he would like to receive just an accurate payment for everything that is in that baskcart. With that basic under-tanding and with that conflict being representative of the problems that we are facing in the industry today, I would like to have you think not about revolutionary change, but think about some of the evolutionary changes that you are more familiar with.

Let us start with the automobile. The automobile has evolved from early models on a year-by-year basis on through the modern General Motors prototype of a small Cadillac, made to compete with the Jíercedes. Now that is an evolutionary trend-one that we accept. The telephone has gone through an evolutionary change from the early crank models on through the modern pushbutton telephone. The coffee mill has gone through an evolutionary growth to a point that has brought it to extinction, replaced by new technology and processing of food.

Merchandising standards have changed from the early behind-thecounter clerk service to the first modern A&P central checkout system,

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where customers could select products and take them to a centru checkout, on through the modern supermarket of today with som 35,000 to 40,000 square feet of space and modern equipment. That again, is an evolutionary growth that we have come to live with a accept as a standard way of life.

But let us get back to that customer, and let us get to the point o; dissatisfaction. That has to do with equipment—equipment at the front end of the supermarket.

Now let us look at the evolutionary growth of the cash register field. From the early models we evolved into the bronze caste models that allowed the clerk to register the total amount of the sale and also tell the customer what it did.

Now, because we are all grocery clerks, we have to understand that we have to maintain our competitive advantage and have a drawing card for our customers. As operators, we have forced the cash register people to make some changes. One case we added automatically, bu we had to handcrank to do it. Others decided that as long as we were recording sales, the customer no longer had the brown paper bag to take home with all the figures on it and we should give the customer : tape.

Again, with any company, if something is being given to the customer, the auditors want to know what. We ended up going to one for the customer and one for the auditor.

We also have what we call cashier accountability—one cash drawer is good, maybe two would be better. In this way we could keep track of who does what. As we all know, if two are good, how about having ten? These are evolutionary growth patterns.

Somebody decided that he did not like the bronze caste so we went to mahogany. The mahogany models also underwent an evolutionary change, on through some of them that may be familiar. Again, somebody decided that we should have communications between the front end of the store and the back of the store. At that time the only way to do it was over the telephone.

During World War I we learned how to bend metal very effectively and very efficiently. We went from the bronze caste and the mahogany models on into the steel models. These, too, have undergone changes to the modern workhorse of the industry--Class õ made by NCR.

So, you can see that we have gone from bronze caste to mahogany to steel. There is something very common to all three. I would like to say that it is the key to the problem because every one of the reigsters we have discussed has required the depression of a key, and it is truly the "key" to the problem.

Some of the problems that exist in the supermarket today are, indeed. satisfactory customer service. There are high labor costs. Some 10 percent of the total store labor is represented at the front end of the

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store, believe it or not. Ring-up errors are not in favor of the store, is public opinion surveys would tell you, but in favor of the customer. There is high employee turnover, averaging some 173 percent a year, ind difficult work scheduling. When I say difficult work scheduling, we do some 55 percent to 60 percent of our total weekly volume during two days—Friday and Saturday. If we could only get people to shop the way they do in Europe—three times a day, six days a weekWe would not have the problems that we have today.

Let us take a look at the supermarket that has tried to evolve with front end equipment. What has happened to that supermarket itself? In 1960 the average supermarket was doing a business of $1,208,000; in 1970 it was doing approximately $2,000,000. That is a 61 percent or 62 percent increase in sales. The net operating profit as a percent of sales for that individual store and its contribution back towards corporate profits has decreased from 1.47 percent down to .45 percent. In hard dollars it means that the supermarket was contributing some $18,000 a year toward corporate profits in 1960 and less than $9,000 in 1970. That.45 percent in 1971 dropped down to .19 percent. We made less money than what we gave away on under-rings and misrings.

Productivity is the name of the game. In the food industry we use sales per man hour as a guide. In 1960 we were averaging $25 per man hour; in 1970 some $35. A lot of people tell you that is not bad, that is a 40 percent increase. Is it really? Wages during the same period of time rose from $1.74 to $2.77, or a 59 percent increase. A lot of people will tell you that a 50–40 or 60–40 ratio is not all that bad. But, if you would look at the consumer food price index during the same period of time, you would see that it increased some 31 percent. My contention is that productivity has increased in the neighborhood of 8 percent over a ten-year period, while wages have gone up 60 percent.

In 1971 that $2.77 went to $3.97 an hour. That is a $1.20 increase in one year-greater than the total increase we have experienced over the preceding ten years. Figures right now show that this year we will average $5.05 an hour; next year $5.55; and in 1975, $6.11. If any of you gentlemen are thinking of sending your wives to work, do not send her to work in a steel mill. Send her to work in a supermarket; she can make more money.

Some of the problems are expected to get worse. As I indicated, wages and fringe benefits continue to rise to the $6.11 figure. Part-time help is being fought; proliferation of new products continues to strain the store space. What products should I stock? Where should I put them? Will the customers buy them, and how am I going to know? The high employee turnover is expected to continue. Ask any supermarket operator; he will confide that one of his biggest problems is finding people who are willing to work in our industry.

The evolutionary growth of the register has only led us through changes in styling, not in functions. We as operators have tried many

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different things. We have tried mounting stamp and coin-dispensa.

. equipment over the checkstand, at a cost of $800 per lane. Why? To sa 6 seconds per customer transaction. That is what it is worth to usmiserable seconds—We have tried recessing cash registers to develop better touch, a touch comparable to what you have in an office machio We have tried going to nested plastic bags where some of the function can be combined at the front end-ringing and bagging directly irt the bag. We have tried eliminating the checkstand. None of the things have been truly effective for us, but we have tried.

Millions of dollars have been spent over the past ten or fifteen year: in aerospace, developing recreational facilities, and medicine. Not 0:1 penny has really been spent on the retailing industry and, more specin cally, in retail food. What we need is some control. Only research car

; tell us where we can get it.

In 1960 we said that what the grocer expects of the checkstand of the future is increased productivity, better accuracy, and better cus tomer service. Now comes the mystic age of the computer. The computer hit the retail food industry in about 1967—now we have th answer to all of our problems, but what is the computer? Computer ti most retail food operators at that time was half human, half machine. something that was constantly telling us what we did wrong. But, wi have harnessed it.

i A computer or a controller, if the terminology fits, is the memory and the driving unit for many registers up at the front end, calle electronic cash registers or terminals. Any one of these terminals can have added to it a coin dispenser, a stamp dispenser and an electroni: scale. That is all the system is.

There are many of these systems that are installed, such as the Pitney-Bowes System; Singer: Esis, made by Nuclear Data ; Data Checker. But these systems, too, have something in common. We have talked about the evolutionary growth, but what are we doing now with the electronic cash registers? We are still keying in. Every item has to be manually entered through the keyboard.

You might ask what the difference is. The difference is that we are i adding much more information through the register than we have ever done before. This information is automatically accumulated by the controller, or that computer in the back room, and allows us to operate much more efficiently by getting the information out on a more timely basis to the merchandisers, to warehousing, to the people who are responsible for scheduling the stores so that we can do a better job.

Our problem is how to take the store manager of today, the food chain president of today, and match him with the computer technology of today. Ilow do we involve you and store people through the computer technology? It is a very diflicult problem.

Quite frankly, I can tell you that most of the retail food people are looking at the electronic cash registers and trying to decide which way

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to go and what to do. Should they continue along the evolutionary ,ath that really does not solve their problems; should they go to electronic cash registers that will allow them to get more information without any real sacrifice in productivity; or should they cross over into the new, greener fields of tomorrow, the revolutionary area?

What does that mean? It means that with that same basic system you ad of electronic cash registers, all you do is add a new type of checkout unter at the front end, one with the light source reading device. You rould also have handreaders that could be worked in conjunction with it. The beauty of it is that the checkers can now scan as fast as they like. They can scan the standard product that is on the shelf today, but it has a standard symbol—no price—a standard symbol that is read by that machine as fast as the checker can pass it across. Three things are needed: a Universal Product Code, a Standard Symbol, and Automated Checkouts. Gentlemen, I can tell you that all three are here.

In summary, I would like to say that you accept the evolutionary growth of the automobile and the telephone, with the year-by-year anges. You accept what we do in the store to improve the shopping patterns and the product mix for you. Our mission here today is to make you aware of the Universal Product Code (UPC) revolutionary change that is coming not five years from now, not seven years from now, but within the next three years. I sincerely hope that you are fully prepared for it.

(Mr. Sloat's talk was liberally illustrated with slides.)

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