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The giant retailer's introduction of RFID technology is forcing other supermarket chains to catch up. But fiddling with data may not be the best survival strategy in the Wal-Mart future.
Sep 20, 2004 | What do you call it when a company announces a multibillion-dollar technology initiative with no preexisting infrastructure, no software code and an 18-month deadline to delivery?
In most cases you'd call it a recipe for disaster. In the case of Wal-Mart, a company with the power to force others to follow its technology agenda, you'd simply call it "tough love."
That two-word description, according to a January article in Computerworld Magazine, is exactly how Wal-Mart CEO H. Lee Scott summed up his company's philosophy on radio frequency identification (RFID) in a speech to suppliers last winter. For those who missed it, the company sent out letters to top suppliers last June requesting that all pallets and boxes come equipped with RFID tags by Jan. 1, 2005, a request designed to facilitate better warehouse tracking. Suppliers so far seem to have gotten the message. This June, a year after the initial letter campaign requesting 100 participants, Wal-Mart reported that 137 companies had climbed aboard.
"We see this as beneficial to the entire supply chain," says Procter & Gamble spokesperson Jeannie Tharrington, summarizing her company's eager participation in the so-called "mandate." "Right now our out-of-stock levels are higher than we'd like and certainly higher than the consumer would like, and we think this technology can help us to keep the products on the shelf more often."
Such comments, of course, reinforce a growing theme in the business and technology press: Those worried about Wal-Mart's deleterious effect on mom and pop retailers need to put down Nirvana's "Nevermind" album and catch up on present-day reality. Nowadays, even billion-dollar behemoths face the awkward choice of doing things the Wal-Mart way or watching a major portion of their customer base wave goodbye.
Not surprisingly, most are choosing to set their strategic clocks to Arkansas time. This summer, just before Wal-Mart launched a pilot RFID rollout in a handful of Texas stores, the Worldwide Retail Exchange, an industry consortium launched by supermarkets and other large retailers to improve back-end efficiencies, announced that it, too, had seen a dramatic increase in members willing to participate in its "global data synchronization" effort. The effort's focus is to make sure that the code a supplier uses to describe a consumer product in its own databases matches the code in retailer databases, a simple concept in theory but a fiendishly complex task in reality. The reason: Most retailers and suppliers rely on proprietary software code and standards to define current bar code data. Adopt a common standard, says WWRE's chief marketing officer Nick Parnaby, and a package of toilet paper or can of tuna suddenly becomes trackable across all portions of the so-called "supply chain" -- factory, truck, retail shelf and checkout line.
Wal-Mart's decision to unilaterally impose RFID on its suppliers made making the case for "global data synchronization" to the rest of the industry a done deal, whether or not they understood what they were doing.
"[Before RFID] you couldn't describe it to your chief executive in less that 25 words," says Parnaby. "With RFID, you suddenly have people's attention."
Granted, investment levels in technology among supermarkets, a retail sector that has given up 21 percent of its North American market share to Wal-Mart over the last two decades, remain modest. Of the 20 companies that have participated in the data synchronization program, Parnaby estimates the average investment to be $250,000 per company. Still, he sees it as an ante on what has become an increasingly high stakes poker table. It's a sign that volume-dependent chains like Krogers, Albertson's and Safeway are willing to gamble on Wal-Mart's ability to make RFID an industry-wide product tracking standard.
"Wal-Mart has created this herd moving in the right direction," Parnaby says.
But is it really the right direction for anyone besides Wal-Mart? Some industry observers suggest that supermarket chains that are attempting to survive in a Wal-Mart world may find that no matter how many technological "efficiencies" they introduce, they will never be able to challenge Wal-Mart in the area where it remains supreme -- price. If they really want to differentiate themselves, they may have to look elsewhere. Instead of searching their databases for answers, they might just have to ask a simple question:
"Can I help you to your car, Ma'am?"
