Freed from the shackles of chip and pin implementations, retailers have spent their budgets on a broad variety of technologies over the past 12 months. Many have invested in staff scheduling, online recruitment, IP-based security surveillance and e-learning systems, in an effort to improve operating efficiencies, increase sales and reduce costs.

It is hardly a stampede but others have tapped into more innovative technology, such as thermal imaging software to reduce queuing times.

Hot topic

Last autumn, Tesco chief executive, Sir Terry Leahy, said that a quarter of a million more customers a week do not have to queue thanks to its ‘one in front’ campaign, which uses thermal imaging cameras. Previously, the supermarket chain had to poll checkouts every 15 minutes but the Irisys cameras tie in with point-of-sale information to automatically detect the number and behaviour of queuing customers at its checkouts. Subsequently, Tesco has extended the use of the cameras at store entrances so that managers can better predict traffic through the tills.

Saucy lingerie and sex toy specialist Ann Summers has also deployed thermal imaging software, which shows customers as a hot blob counted once they cross a line, from a different IT supplier. Other innovation has seen Argos, Woolworths and JJB Sports continue to invest in kiosk technology. Argos is rolling out additional kiosks in stores after fine-tuning their usage over several years. Last year, Woolworths said it was extending its number of kiosks from 20 to about 100 units, although it is still evaluating their return on investment.

However, such innovative projects only account for a small proportion of retailers’ investment in IT. With one eye on improving operating margins, most retailers place a greater emphasis on using technology to trim costs. Certainly, supermarket chain Somerfield had cost savings in mind, when it signed a seven-year deal with Indian services provider Tata Consultancy Services (TCS) to outsource the management of its entire IT infrastructure late last year. Owned by a private equity consortium, Somerfield expects to cut costs by a third over the duration of the contract, which extended its existing agreements with TCS.

Indian takeaway

Under the deal, TCS will take responsibility for managing Somerfield’s mainframes, Unix and NT platforms, and delivering IT services to 900 retail outlets and eight distribution depots. The supplier plans to exploit developments in technology to manage user accounts, deploy software upgrades and manage capacity remotely from India. About 115 of the 141 IT jobs at the retailer’s Bristol IT headquarters were transferred to TCS but Somerfield retained a team of 25 senior executives to manage the strategic direction of the contract.

While such large outsourcing deals are rare in retail, most outsource a large chunk of their IT services, of which India swallows a growing proportion. According to analyst firm IDC, western European retailers expect to allocate at least 60 per cent of their IT budget to external providers this year, up from 50 per cent in the latter part of 2005. Transactional websites are also an increasingly essential part of a retailer’s technology armoury. This is hardly surprising given that UK consumers spent £7.66 billion online in the 10-week run-up to last Christmas – nearly 50 per cent more than the £4.98bn sales for same period in 2005, according to industry network body, Interactive Media in Retail Group.

Over the past year, Body Shop, Ikea, jewellery chain Ernest Jones and Superdrug have launched e-commerce sites, although many retailers have already progressed beyond their first generation sites. As John Clare, group chief executive of electricals group DSGi, says: “If any major retailer is not in the process of making the transition to e-tail, they’re probably too late.”

J Sainsbury

Headquarters: London

Turnover: £16.06 billion
Head of IT: Angela Morrison, director of European strategy CIO 100 2006: Ranked 18

J Sainsbury has rarely been out of the news in the last few years and its latest headline involves the possible takeover by private equity investors of the supermarket chain. US-based private equity consortium CCVC Capital Partners, Blackstone and TPG Capital pulled out in early April after it became clear the Sainsbury’s board would not back their proposed offer. The consortium had offered a bid of £5.82 per share but the Sainsbury family – which still dominates the board –wanted more.

Recovery position

The company is just coming to the end of a three-year turnaround plan devised by chief executive Justin King to revive its fortunes after a disastrous couple of years. This included the UK’s largest ever IT insourcing project, which was completed last year. IT assets, 470 staff, and third-party contracts from Accenture were brought back inhouse at a cost of £65 million.

"Farm connections will enable beef farmers to exchange information with their supply chain partners, drive down costs and improve the competitiveness of British beef"

Justin King, chief executive, J Sainsbury

The supermarket expects this to be paid back in less than two years, through future cost savings from bringing IT back under its own control. At its last trading statement Sainsbury’s unveiled its eighth consecutive quarter of like-for-like sales growth, strong Christmas trading – serving over 20m customers in Christmas week – and growth of around 60 per cent for its online business across the quarter. King claimed this online growth has been driven by customer demand, as the company does not do significant marketing of its online offering. This channel is likely to become critical for all the leading retailers over the next two years and Sainsbury’s is one of a number of retailers currently working on multi-million pound upgrades and changes to online offerings, as this part of the business continues to experience spectacular growth.

Although no one will comment publicly on the project, it is thought likely to include a far more interactive web offering, incorporating Web 2.0 technologies aimed at capitalising on internet social networking. Sainsbury’s has continued to invest in new stores, with eight small new supermarkets opening in the last quarter alone and it has carried out significant refurbishments giving it more room for non food lines like clothing, where sales are now up around 50 per cent on the year. Investment analysts have pointed to Sainsbury’s property assets as a major reason for the interest from private equity investors. Profits forecasts for its full year figures are now at £360m.

Trying something new

The Jaime Oliver catchphrase for the store, ‘Try something new today’ reflects the push by the company to move its focus to different specific markets, such as organic food, small local produced goods and environmentally sound shopping. The company recently pledged to grow Fairtrade sales 145 per cent to £130m in 2007 and to increase it to £200m by 2008. It already claims to sell more Fairtrade food than any other UK retailer.

Sainsbury’s is also using IT-based projects to support some suppliers. One project being undertaken is to provide IT to key farming producers in the UK. Only 20 per cent of UK farmers are thought to use IT to manage their business and an even smaller number of beef producers, according to The Red Meat Industry Forum. Sainsbury’s has launched a project called Farm Connections, that offers training, computers and software to beef producers, which the supermarket says will allow them to compete better in the market.
“Farm connections will enable beef farmers to exchange information with their supply chain partners, drive down costs and improve the competitiveness of British beef,” said King at its launch.

“I am convinced the project will make a positive difference to our producers including providing information relating to customer habits and trends, and significantly helping them in their businesses.”

Tesco


Headquarters: Cheshunt, Hertfordshire
Turnover: £38.3 billion Head of IT: Philip Clarke, global IT director CIO 100 2006: Ranked 11

The big Tesco story throughout the last year has been its ongoing growth and consolidation as a market leader to rival Wal-Mart in the US through increased global expansion. Most recently, that expansion saw it announce it will enter the US market in 2007 with a new ‘fresh and easy neighbourhood market’ brand based on its local ‘express’ format. The retailer’s own research found an annual US market worth £310 billion that is also estimated to outstrip UK market turnover growth of around five per cent, at 40 per cent over the next five years.

Heading out west

Colin Cobain, group IT director, says the move to the US would consolidate and build on the company’s success in Europe and Asia.

The IT strategy that underpins such aggressive expansion is based on a common operating model across all countries where business processes and IT are standardised as much as possible.

Notable within this strategy was the deal struck with IT outsourcer Wipro late in 2006 to rollout a ‘Tesco-in-a-box’ suite of systems, consisting of a mix of standard ERP packages and custom Tesco applications for cost-effective and efficient store rollouts, while still maintaining some sensitivity to local conditions. Its preferred application mix consists of Oracle Retek ERP, Teradata data warehousing, Business Objects reporting, Oracle/PeopleSoft human resources and Oracle financials. More recently, it added a major investment to extend and renew the life of its legacy mainframe store inventory system.

"Elements of our common operating model are already in place and benefiting some of our businesses but this investment will help us meet our goal of opening our first Asian store in 2007"

Colin Cobain, group IT director, Tesco

In March 2007, the company invested in mainframe integration software from Micro Focus to extend the use of the retailer’s bespoke merchandising system used for the UK and Ireland to other territories. Cobain at the time said extending the life and scope of the system was essential to expand Tesco’s global supply chain fulfillment footprint in other markets. “In other countries, like Korea and Japan, we have established the bedrock – including tills system, back-office, core communications and financials. Now we need to go on and build on that with store ordering, space planning and merchandising to make sure what we’re delivering is constantly innovating to improve the customer offering,” he says. “Elements of our common operating model are already in place and benefiting some of our businesses but this investment will help us meet our goal of opening our first Asian store in 2007.”

Tesco will modernise and extend its unique Continuous Replenishment (CR) application to run on the latest IBM System p servers running AIX, in addition to its System z mainframe running z/OS. Micro Focus software will create a port for the COBOL-based CR application to AIX. This will allow Tesco to maintain a single-source stream for both the mainframe and Unix versions of the application, ensuring future enhancements to the UK-based mainframe application can be rolled out to all international countries on the existing servers more cost-effectively.

IT backburner

It would seem that other major IT-led initiatives including its radio frequency identification tracking trials of goods in its supply chain have taken a backseat to the company’s plans to penetrate new markets. This also included the launch of the Tesco Direct home delivery service in the UK.

Tesco still occupies the dominant retail supermarket position in the UK, claiming 31.4 per cent of the key Christmas and New Year trading during 2006 to 2007, according to market researcher TNS.

Along with this success has come the inevitable criticism about monopolies and abusing its position of power.

That has led to an ongoing investigation of Tesco’s UK business practises by the government’s Competition Commission

Co-operative Group

Headquarters: Manchester Turnover: £7.8bn Head of IT: Gerry Pennell, CIO CIO 100 2006: Ranked 23

The UK’s top two co-operatives are in the midst of merger talks that could lead to the formation of the world’s largest consumer co-operative group. The merger of Rochdale-based United Co-operatives, which has 930,000 members and the Manchester-based Co-operative Group, which has 3.5 million members would become responsible for more than 80 per cent of the co-operative retail trade in the UK.

If the merger goes ahead, the integration of IT operations will be a major project for the combined IT functions. In 2005 the IT functions for the Co-operative Group and Co-operative Financial Services (CFS) were merged and the integration of the two organisation’s IT operations and infrastructure was successfully completed last year. The Co-operative Group includes food retail, which operates 1,713 stores, Co-operative Pharmacy with 372 outlets, Travel Care, the UK’s largest independent travel services provider with both 358 stores and online offerings, and Co-operative Funeral Care with over 600 funeral homes. The CFS includes the Co-operative Bank; Smile Online Bank and Co-operative Insurance (CIS).

Merged interests

Since the successful merger of the Co-operative Group and CFS operations the IT team has been supporting a card-based membership scheme, which now has 2m members, while in the financial services arena it has been getting its delivery channel architecture into a good place, according to CIO Gerry Pennell.
“It has been a very interesting year,” he says. “With the Group and CFS merger work completed and the card scheme in place we have been looking to get our financial services, Smile and General Insurance with identical supporting systems so that as and when the business wants to, it can move quickly to change things.” At the moment Pennell is going through the process of changing the sourcing model that the company uses and is looking to move its CIS co-operative insurance development function to partner Xansa. “This will free up inhouse IT management time, so we can be focused on the business rather than IT supply side issues,” says Pennell. This will have a big impact of the IT function itself, with a third of Pennell’s IT team moving to the outsourcer. Currently most of the group’s development is designed and managed inhouse with the coding handled by Xansa.

"There are around 70 different projects going on in the financial services part of the business alone"

Gerry Pennell, CIO, Co-operative Group

Ongoing projects include work on the Faster Payments systems in financial services, where organisations move from a three-day payment cycle to a single day one. These changes mean lots of interfaces with other organisations and the project is very important for CFS and the group as a whole. The Faster Payment initiative is a large change programme for the CFS, and has big IT implications in terms of product manufacture and distribution, according to Pennell. “We are working on a single view of the customer across the operations, so it is a very significant project for the CFS. There are around 70 different projects going on in the financial services part of the business alone.”

The IT function has also been working on a new website, unveiled in March, which uses dynamic packaging to offer a range of cheap flights and accommodation rather than just selling products individually.
The biggest challenge for the year ahead will be supporting the scale of change and continuing to enable the business through using technology, Pennell says.

If the merger with United Co-operatives does go ahead, a further integration programme will be on the agenda, as well as the planned initiatives the team are already working on.