Executive Briefings

Store of the Future, Open for Business for Years Now, Has More Work to Do

Germany's Metro Group says RFID, smart shelves, intelligent scales and other technologies bring efficiencies to the retail industry. But to hone those innovations, the initiative, launched in 2003, must go on.

In retailing, the future is now. In fact, officials at Metro Group in Germany, particularly those in supply chain management, have been peering into the future since April 28, 2003. That's when the conglomerate turned one of its Extra supermarkets into the so-called Store of the Future to test RFID and a number of other technologies in real time and in real-life conditions. Simply put, Metro wanted to cut costs in its grocery operations, always an industry with paper-thin margins.

Its outlet in Rheinberg, not far from Metro's Düsseldorf headquarters, became the hothouse testing environment for smart shelves, RFID self-checkout systems, kiosks, smart scales and other leading-edge tech.
It hasn't been alone in the project. Supplier partners active in the experiment include Gillette, Kraft, Procter & Gamble, and almost 40 others. Technology partners are a stellar lineup as well: Microsoft, SAP, Intel, Cisco Systems, IBM, Philips Semiconductors and Intermec are just a few.

Results are not quite the trade secret that one might have expected. Metro hasn't been shy about sharing information on the project, even with competitors. And certain technologies and processes have been incorporated into other stores in the Metro pantheon.

Reportedly the world's fourth-largest retailer, Metro operates in almost 30 countries. Its brands include the Kaufhof Galleria department stores; a wholesale chain called Metro Cash & Carry, which is set to enter Pakistan early next year; the Extra and Real food stores; the Media Markt consumer electronics outlets; and Praktiker, its brand in home improvement. Group operations are said to generate 50bn euros (about $61.4bn) a year in revenue.

So what are the results? "Since the Metro Group Future Store initiative has several goals, a variety of metrics are needed to evaluate the success," says Juergen Homeyer, Metro corporate communications officer. The group "formulated a RFID business case" in 2003 with P&G and IBM. "The assumptions on which this study was based were checked in an extensive validation process in September 2005. Eleven Real stores, two Metro Cash & Carry stores and 3 [Metro Distribution Logistics] warehouses took part. Our expectations were confirmed, indeed, in some cases even exceeded: RFID and EDI result in significantly more efficient processes and lower costs, although only two of 11 steps in the process chain were taken into consideration. Projected for the whole of Germany, Metro Cash & Carry, Real and the distribution warehouses of the Metro Group could save 8.5m euros [$10.4m] annually."

Self-checkout systems, which allow customers to scan their own barcoded selections, have been incorporated into 50-plus Extra and Real stores. Info-Terminals, which provide detailed information on products, are in broad roll-out to other group stores. Says Homeyer: "Probably the next technology to make its way to other stores of the Metro Group is the 'intelligent scale.' It recognizes automatically what fruit or vegetable is weighed using a digital camera."

"RFID increases efficiency significantly. However, it is not possible yet to quantify reductions in out-of-stocks."
- Juergen Homeyer of Metro Group

RFID may be the most important technology tested at the store; certainly, its use in tracking goods from suppliers to distribution centers to the store and then on the shelves has garnered the greatest attention. The goal has been-and continues to be-to optimize the supply chain and to reduce out-of-stocks.

"Since November 2004, the Metro Group has been introducing RFID technology throughout the entire supply chain on a step-by-step basis," Homeyer says. "The first results are very positive: RFID helps to increase the efficiency significantly. However, at this early stage of the adoption, it is not possible to quantify the reduction of out-of-stock situations."

In a nutshell, the RFID program works like this: At the DC, Intermec RFID readers scan tags on cases as pallets are loaded. Tags can be programmed at the manufacturer with a Global Trade Identification Number (GTIN) and a serial number, and most manufacturers in fact are tagging their product. Only a slim minority don't, or can't, leaving that work to Extra employees.

The data is read as tagged items pass through dock doors and at transshipment points. Scans of pallets and cases send shipment and inventory data to the SAP backbone used in the Store of the Future initiative.

Homeyer says that about 40 suppliers are working with RFID on the pallet level, and tag pallets themselves. "By contrast, a few items, including Gillette razor blades, Pantene Shampoo, Philadelphia cream cheese, CDs, DVDs, videos, tapes and computer games are tagged by the Extra employees."

Homeyer says the number of suppliers tagging their products will grow this year as the newest generation of chips, the so-called Gen 2, become more available.

CDs, DVDs and videos, among other products, use RFID tags with I-Code microchips from Philips, which are designed to incorporate theft protection. The tags operate at 13.56MHz and have a read range of up to 5 feet. Cosmetics and food products are also being tagged to provide real-time inventory data and to track expiration dates.

Ideally, optimized inventory management will reduce the number of wrong deliveries and eat into the risk of theft since each carton is registered.

When goods are received at the Rheinberg store, employees move pallets from trucks through an RFID gate at the back-store entrance. Data in chips on each pallet and crate is read and all products are registered "received." Supermarket employees then compare the received goods with the order.

Delivered goods are placed in a back room where each storage position is equipped with a "smart chip" that is scanned into the store's merchandise management system.

This way, Metro officials say, it is transparent at what place and in which amount which merchandise can be found.

Information Gateways
Employees taking goods to replenish shelves in the store pass an RFID reader as they exit the storeroom. Again, the smart chips on the cartons are read. Data that essentially says "taken to the store shelf" is transmitted to the merchandise management system (MMS).

Cartons returned to the storage area are read at the gate to the back room again so goods on the store shelf are not simultaneously registered in the back room.

Metro says that the process also enables staff to quickly realize if shelves need replenishing.

Clearly, the initiative is designed to gather and capitalize on real-time information, with the benefits shared both externally and inside the store. Tighter collaboration up and down the supply chain is one goal. Internally, information transfer has its own benefits. Experiments include the intelligent scales that use IBM-enabled cameras to automatically recognize produce, weigh it, then transmit the data to the cash register; "smart shelves" that count shelf inventory and note product mix-ups; and point-of-sale information that should enable better supermarket management and fraud detection.

Other technology includes the Store Manager's Workbench, which is among Microsoft's contributions to the project. It generates graphs with data from customers, sales and suppliers. A similar Microsoft tool, the Cashier Manager's Workbench, is designed to help store managers track customer volume and monitor checkout lines.

Many stores today have electronic displays overhead advertising specials and promotions, and the Extra store in Rheinberg is no different. But what other store features electronic labels displaying current prices of goods on the shelf? With this system, managers can change prices on products in seconds, and reportedly on as many as 40,000 SKUs in under an hour.

These smart shelves not only notify the storeroom when product needs restocking, but they support quality assurance, Metro officials says. They automatically notify staff when a product's expiration date has been exceeded.

Nevertheless, smart shelving is not used throughout the store yet, Homeyer says. "As soon as a defined minimum of goods on the shelf is reached an alert goes out to the employees of the store and the shelf is replenished. At present, only a few shelves of the Future Store work with RFID to achieve this goal."

Shopping carts are an integral part of the RFID testing-and of the customer's journey up and down aisles. Readers at the store entrance tell managers how many carts have wheeled into and out of the store. Metro officials say the gate reads are a prime indicator of the need to open more checkout aisles.

The shopping cart experience hardly ends there. Touch-screen computers on the carts, so-called Personal Shopping Assistants, provide directions to products-down the appropriate aisles and to the exact shelf.

As shoppers enter the store, they are handed their PSA, which is activated by a store employee and personalized with a run-through of the customer's loyalty card. The PSA can even display the customer's shopping list, downloaded from home before leaving for the store. Shoppers then can use the PSA cards to scan barcodes on products that they put in their baskets. The computer sends the prices to checkout via a wireless local area network network. At checkout, the cash register system displays the total.

Since the Personal Shopping Assistant has recorded what goes into the basket, customers don't have to line up their purchases on the conveyor any more. They simply hand the PSA to the cashier and pay up.

While Metro clearly is intent on investigating the benefits of these technologies in retailing, the Extra store involved caters to all customers, including those who want no part of the experiments.

Customers can choose conventional carts if they like, pilot aisles without the aid of the PSA, ignore self-checkout, plop groceries on the checkout conveyor belt, and pay with cash rather than by credit/debit cards.

Loyal Customers
It seems few technology experiments can be without their detractors, and the Future Store project has had its share. Privacy activists have loudly protested the use of RFID, and in 2004 Metro decided to drop the use of a customer card designed to protect children looking at video trailers.

"The loyalty cards used within the scope of the Metro Group have never been RFID-enabled," Homeyer says. "Only a special customer card of the Future Store, the so-called Extra Future Card, carried a RFID chip for the release of the multimedia articles under the law for protection of children and young people. The RFID chip in the Future Store's customer card had no other function."

No other areas where RFID is being tested are reported to have been affected by pressure group action. Deactivators at the store exit enable shoppers to erase the product code stored in RFID tags if they choose to.

Almost three years after the Store of the Future opened, the project continues. "Several innovations still need to be improved, which will be easy in some cases and will take time in others," Homeyer says. "Overall the Future Store initiative employs a rather long-term strategy regarding the implementation of new technologies."

The key to greater supply chain efficiency is real-time information sharing, and Metro's partners, both suppliers and IT providers, seem to be on board and committed for the long haul. Metro helps suppliers working with RFID several ways, including through its RFID Innovation Center.

Says Homeyer: "The partners understood early on that an improvement of the supply chain as well as a higher customer satisfaction can only be achieved by tight cooperation."

A Baker's Dozen of Benefits to Retailers
Metro officials say RFID and other technologies in the "future workshop" make retailing processes faster, more transparent and more effective. Ordering, delivery and warehousing are simplified, and merchandise can be tracked from one end of the supply chain to the other.

Technology in the Store of the Future improves retailing processes in the following 13 ways:
• Warehouse inventories can be monitored more accurately and replenishment orders passed faster.
• Time losses due to mistaken supplies are excluded.
• Deliveries to the Future Store will be faster, appreciably improving availability of the merchandise in the store.
• Employees will recognize faster when shelves are about to run empty-hence "out-of-stock" will be a thing of the past.
• By means of specific devices, the whereabouts of the merchandise can be accurately located at any time.
• Inventories in warehouses and shop shelves are becoming more transparent.
• In the Merchandise Management System, it is easier to determine at what time intervals and under what conditions goods are sold.
• Quantities ordered can be controlled more accurately as a function of demand.
• Manufacturers are in a better position to plan their production.
• Less storage space is required, which will save warehousing and handling costs.
• New types of service will increase customer loyalty to the supermarket and promote sales.
• New electronic systems make price labeling better understood and more reliable.
• The store can be better protected from theft.

In retailing, the future is now. In fact, officials at Metro Group in Germany, particularly those in supply chain management, have been peering into the future since April 28, 2003. That's when the conglomerate turned one of its Extra supermarkets into the so-called Store of the Future to test RFID and a number of other technologies in real time and in real-life conditions. Simply put, Metro wanted to cut costs in its grocery operations, always an industry with paper-thin margins.

Its outlet in Rheinberg, not far from Metro's Düsseldorf headquarters, became the hothouse testing environment for smart shelves, RFID self-checkout systems, kiosks, smart scales and other leading-edge tech.
It hasn't been alone in the project. Supplier partners active in the experiment include Gillette, Kraft, Procter & Gamble, and almost 40 others. Technology partners are a stellar lineup as well: Microsoft, SAP, Intel, Cisco Systems, IBM, Philips Semiconductors and Intermec are just a few.

Results are not quite the trade secret that one might have expected. Metro hasn't been shy about sharing information on the project, even with competitors. And certain technologies and processes have been incorporated into other stores in the Metro pantheon.

Reportedly the world's fourth-largest retailer, Metro operates in almost 30 countries. Its brands include the Kaufhof Galleria department stores; a wholesale chain called Metro Cash & Carry, which is set to enter Pakistan early next year; the Extra and Real food stores; the Media Markt consumer electronics outlets; and Praktiker, its brand in home improvement. Group operations are said to generate 50bn euros (about $61.4bn) a year in revenue.

So what are the results? "Since the Metro Group Future Store initiative has several goals, a variety of metrics are needed to evaluate the success," says Juergen Homeyer, Metro corporate communications officer. The group "formulated a RFID business case" in 2003 with P&G and IBM. "The assumptions on which this study was based were checked in an extensive validation process in September 2005. Eleven Real stores, two Metro Cash & Carry stores and 3 [Metro Distribution Logistics] warehouses took part. Our expectations were confirmed, indeed, in some cases even exceeded: RFID and EDI result in significantly more efficient processes and lower costs, although only two of 11 steps in the process chain were taken into consideration. Projected for the whole of Germany, Metro Cash & Carry, Real and the distribution warehouses of the Metro Group could save 8.5m euros [$10.4m] annually."

Self-checkout systems, which allow customers to scan their own barcoded selections, have been incorporated into 50-plus Extra and Real stores. Info-Terminals, which provide detailed information on products, are in broad roll-out to other group stores. Says Homeyer: "Probably the next technology to make its way to other stores of the Metro Group is the 'intelligent scale.' It recognizes automatically what fruit or vegetable is weighed using a digital camera."

"RFID increases efficiency significantly. However, it is not possible yet to quantify reductions in out-of-stocks."
- Juergen Homeyer of Metro Group

RFID may be the most important technology tested at the store; certainly, its use in tracking goods from suppliers to distribution centers to the store and then on the shelves has garnered the greatest attention. The goal has been-and continues to be-to optimize the supply chain and to reduce out-of-stocks.

"Since November 2004, the Metro Group has been introducing RFID technology throughout the entire supply chain on a step-by-step basis," Homeyer says. "The first results are very positive: RFID helps to increase the efficiency significantly. However, at this early stage of the adoption, it is not possible to quantify the reduction of out-of-stock situations."

In a nutshell, the RFID program works like this: At the DC, Intermec RFID readers scan tags on cases as pallets are loaded. Tags can be programmed at the manufacturer with a Global Trade Identification Number (GTIN) and a serial number, and most manufacturers in fact are tagging their product. Only a slim minority don't, or can't, leaving that work to Extra employees.

The data is read as tagged items pass through dock doors and at transshipment points. Scans of pallets and cases send shipment and inventory data to the SAP backbone used in the Store of the Future initiative.

Homeyer says that about 40 suppliers are working with RFID on the pallet level, and tag pallets themselves. "By contrast, a few items, including Gillette razor blades, Pantene Shampoo, Philadelphia cream cheese, CDs, DVDs, videos, tapes and computer games are tagged by the Extra employees."

Homeyer says the number of suppliers tagging their products will grow this year as the newest generation of chips, the so-called Gen 2, become more available.

CDs, DVDs and videos, among other products, use RFID tags with I-Code microchips from Philips, which are designed to incorporate theft protection. The tags operate at 13.56MHz and have a read range of up to 5 feet. Cosmetics and food products are also being tagged to provide real-time inventory data and to track expiration dates.

Ideally, optimized inventory management will reduce the number of wrong deliveries and eat into the risk of theft since each carton is registered.

When goods are received at the Rheinberg store, employees move pallets from trucks through an RFID gate at the back-store entrance. Data in chips on each pallet and crate is read and all products are registered "received." Supermarket employees then compare the received goods with the order.

Delivered goods are placed in a back room where each storage position is equipped with a "smart chip" that is scanned into the store's merchandise management system.

This way, Metro officials say, it is transparent at what place and in which amount which merchandise can be found.

Information Gateways
Employees taking goods to replenish shelves in the store pass an RFID reader as they exit the storeroom. Again, the smart chips on the cartons are read. Data that essentially says "taken to the store shelf" is transmitted to the merchandise management system (MMS).

Cartons returned to the storage area are read at the gate to the back room again so goods on the store shelf are not simultaneously registered in the back room.

Metro says that the process also enables staff to quickly realize if shelves need replenishing.

Clearly, the initiative is designed to gather and capitalize on real-time information, with the benefits shared both externally and inside the store. Tighter collaboration up and down the supply chain is one goal. Internally, information transfer has its own benefits. Experiments include the intelligent scales that use IBM-enabled cameras to automatically recognize produce, weigh it, then transmit the data to the cash register; "smart shelves" that count shelf inventory and note product mix-ups; and point-of-sale information that should enable better supermarket management and fraud detection.

Other technology includes the Store Manager's Workbench, which is among Microsoft's contributions to the project. It generates graphs with data from customers, sales and suppliers. A similar Microsoft tool, the Cashier Manager's Workbench, is designed to help store managers track customer volume and monitor checkout lines.

Many stores today have electronic displays overhead advertising specials and promotions, and the Extra store in Rheinberg is no different. But what other store features electronic labels displaying current prices of goods on the shelf? With this system, managers can change prices on products in seconds, and reportedly on as many as 40,000 SKUs in under an hour.

These smart shelves not only notify the storeroom when product needs restocking, but they support quality assurance, Metro officials says. They automatically notify staff when a product's expiration date has been exceeded.

Nevertheless, smart shelving is not used throughout the store yet, Homeyer says. "As soon as a defined minimum of goods on the shelf is reached an alert goes out to the employees of the store and the shelf is replenished. At present, only a few shelves of the Future Store work with RFID to achieve this goal."

Shopping carts are an integral part of the RFID testing-and of the customer's journey up and down aisles. Readers at the store entrance tell managers how many carts have wheeled into and out of the store. Metro officials say the gate reads are a prime indicator of the need to open more checkout aisles.

The shopping cart experience hardly ends there. Touch-screen computers on the carts, so-called Personal Shopping Assistants, provide directions to products-down the appropriate aisles and to the exact shelf.

As shoppers enter the store, they are handed their PSA, which is activated by a store employee and personalized with a run-through of the customer's loyalty card. The PSA can even display the customer's shopping list, downloaded from home before leaving for the store. Shoppers then can use the PSA cards to scan barcodes on products that they put in their baskets. The computer sends the prices to checkout via a wireless local area network network. At checkout, the cash register system displays the total.

Since the Personal Shopping Assistant has recorded what goes into the basket, customers don't have to line up their purchases on the conveyor any more. They simply hand the PSA to the cashier and pay up.

While Metro clearly is intent on investigating the benefits of these technologies in retailing, the Extra store involved caters to all customers, including those who want no part of the experiments.

Customers can choose conventional carts if they like, pilot aisles without the aid of the PSA, ignore self-checkout, plop groceries on the checkout conveyor belt, and pay with cash rather than by credit/debit cards.

Loyal Customers
It seems few technology experiments can be without their detractors, and the Future Store project has had its share. Privacy activists have loudly protested the use of RFID, and in 2004 Metro decided to drop the use of a customer card designed to protect children looking at video trailers.

"The loyalty cards used within the scope of the Metro Group have never been RFID-enabled," Homeyer says. "Only a special customer card of the Future Store, the so-called Extra Future Card, carried a RFID chip for the release of the multimedia articles under the law for protection of children and young people. The RFID chip in the Future Store's customer card had no other function."

No other areas where RFID is being tested are reported to have been affected by pressure group action. Deactivators at the store exit enable shoppers to erase the product code stored in RFID tags if they choose to.

Almost three years after the Store of the Future opened, the project continues. "Several innovations still need to be improved, which will be easy in some cases and will take time in others," Homeyer says. "Overall the Future Store initiative employs a rather long-term strategy regarding the implementation of new technologies."

The key to greater supply chain efficiency is real-time information sharing, and Metro's partners, both suppliers and IT providers, seem to be on board and committed for the long haul. Metro helps suppliers working with RFID several ways, including through its RFID Innovation Center.

Says Homeyer: "The partners understood early on that an improvement of the supply chain as well as a higher customer satisfaction can only be achieved by tight cooperation."

A Baker's Dozen of Benefits to Retailers
Metro officials say RFID and other technologies in the "future workshop" make retailing processes faster, more transparent and more effective. Ordering, delivery and warehousing are simplified, and merchandise can be tracked from one end of the supply chain to the other.

Technology in the Store of the Future improves retailing processes in the following 13 ways:
• Warehouse inventories can be monitored more accurately and replenishment orders passed faster.
• Time losses due to mistaken supplies are excluded.
• Deliveries to the Future Store will be faster, appreciably improving availability of the merchandise in the store.
• Employees will recognize faster when shelves are about to run empty-hence "out-of-stock" will be a thing of the past.
• By means of specific devices, the whereabouts of the merchandise can be accurately located at any time.
• Inventories in warehouses and shop shelves are becoming more transparent.
• In the Merchandise Management System, it is easier to determine at what time intervals and under what conditions goods are sold.
• Quantities ordered can be controlled more accurately as a function of demand.
• Manufacturers are in a better position to plan their production.
• Less storage space is required, which will save warehousing and handling costs.
• New types of service will increase customer loyalty to the supermarket and promote sales.
• New electronic systems make price labeling better understood and more reliable.
• The store can be better protected from theft.