Information technology in the retail food industry

The food and agricultural industry is a giant in our national economy. It m akes up 9% of the gross domestic product; 60% of that comes from wholesale/ retail activity. The industry employs over 14% of all workers; 71% of them are in wholesale and retail activities. Retail food stores, restaurants and bars sell over $890 billion of food and drink each year. About half of the se sales are in grocery stores. The competition within the industry for a s hare of consumers' food dollar is fierce. In seven of the last twelve years real sales in grocery stores have fallen between 2 and 0.2% [1]. Consumers can obtain food from many sources these days, including vending machines, fast food drive through places and the Internet. The retail food industry, defined for purposes of this article as the supply chain for the grocery bu siness, has been forced to adopt new technology and increase efficiency, bu t more importantly, they are developing new business practices and relation ships with their suppliers. Food retailers have been holding, but underutil izing, the key to efficiency in this supply chain-data collected by their c heck-out scanners every day. This article reviews a short history of innova tions in this industry as a lead into the pivotal adoption of information t echnologies, the opportunities they present, and the fundamental changes it is driving in the industry. Innovation in the retail food industry has been an evolution with small bli ps of invention and a few giant leaps. Perhaps, because there is always a s teady demand for food, and a retail outlet is required in virtually every t own and neighborhood, those who supply food have not felt a great need to i nnovate or compete. Perhaps because much of the final preparation of food h as taken place in the household, there was no urgency to design and display food in new and creative ways. There is a long cycle starting with indepen dent, small town or neighborhood grocery stores that carried customers' cre dit accounts and delivered food to their homes, to cash and carry, suburban supermarkets, to supermarket chains and supercenters where customers bag a nd haul their own groceries, to the Internet, where once again, customers c an purchase on credit and have food delivered to their homes. Innovation in the food supply chain happens at every level and in auxiliary industries. This supply chain starts with seeds that ore planted to produc e the basic foodstuffs for human and animal consumption. It proceeds throug h the farmers and ranchers to first line processors who produce ingredients for food manufacturers. Food manufacturers develop, package and sell food to wholesalers and/or retailers who deal directly with final consumers. At the front end of this supply chain the recent introduction of genetically m odified seeds stands to revolutionize the basic properties of food making i t more like medicine, more predictable, and more controversial. New ways to formulate food, package food. and preserve food keep pouring out of labora tories at universities and food manufacturers' research departments. Some e xamples since 1939 are food irradiation, aseptic packaging. freeze-drying. ultra high temperature processing for shelf-stable milk, and controlled atm osphere packaging for fresh produce [2]. In 1930, Wonder Bread, the first p ackaged, sliced bread was horn along with frozen foods by Clarence Birdseye [3]. Most food innovations are designed to increase the safety and quality of food, to give it longer shelf, life or to decrease the labor and time t hat consumers need to spend to make the food edible. New household applianc es like refrigerators and freezers, and microwave ovens pulled new forms of product out of the food system. For example, in 1915 refrigerator science, developed by Willis Carrier at the Carrier Engineering Corp., lead to the first refrigerated storage cases in grocery stores by 1922 and by 1931 Sear s Roebuck was selling the first affordable electric refrigerators for home use [3]. Innovation at the retail store level has been very recent and has focused m ostly on ways to save labor costs, speed up shopping, and move product thro ugh the store as fast as possible. The latest innovations have occurred bec ause of new electronic technology, information management systems, and new competition. The hypothesis explored in this article is that the competitio n for share of consumers' stomach has forced food stores and their supplier s (wholesalers and manufactures) to learn how to exploit the power of infor mation available from point-of-sale scanner data and reorganize the way the y do business. They are behind other industries in adopting continuous repl enishment of inventory. The automobile industry adopted just-in-lime delive ry channels two decades ago and general merchandise and clothing retailers adopted a "quick response" system in the 1980s. Even though they were early leaders in the development and design of universal product codes (bar code s) they are among the last to realize the payoff from their universal adopt ion and use [3]. In a 1996 issue of this journal Whaling [4] discusses how the retail bankin g industry gained great efficiencies in operation and management by reengin eering their information systems to merge customer-centric data with accoun t data. By matching what customers do at a bank with the value of their acc ounts, they were able to predict future customer needs, identify the most l ucrative customers, and the most profitable products and services. It allow ed them to unbundle services and charge customers for those they used. This lead to structural changes in retail banking and eventually, to new compet ition from other financial institutions. The retail food industry is just s tarting down that path. They are beginning to share customer-centric inform ation as it comes off the scanner at every check-out stand with their suppl iers and build a new culture-a new way to do business-that is just beginnin g to payoff in lower costs of distributing food from manufacturers to consu mers. The motivation for these changes lies in trends in consumer preferences and lifestyles, competition for consumers food dollar from fast food places an d food-away-from-home outlets, and the 1962 arrival of Wal-Mart, the mighty competitor who is fully capable of realizing all the supply chain efficien cies of a well managed, customer-centric information system.