The Plan

By Kim S. Nash  |  Posted 2004-02-05 Print this article Print

Is Wal-Mart an unstoppable force? Larry Johnston may be the yardstick. The former GE Appliance savior is now trying to beat the nation's largest grocer at its own game—with a combination of brains and technology.

The Plan

So far, Dunst has laid the framework to wean Albertson's off its mostly mainframe, mostly proprietary applications and has taken the first steps toward replacing or upgrading 90% of the company's applications by 2007. He has installed Oracle Financials, rolled out PeopleSoft software for human resources and updated the company's high-speed network infrastructure so sales information can be beamed to the company data warehouse for analysis. Over the past year, Dunst says, the company installed a redundant high-speed network throughout its operations, using a combination of frame-relay and small-aperture satellite-communication technologies.

As a result, sales data is ready for analysis "by the time the customer gets to their car in the parking lot," he says. Before the upgrade, sales information was processed in batches overnight. It could take up to 48 hours for managers in Boise to see if sales promotions were working.

By the end of 2004, Dunst estimates Albertson's will be split 50/50 between old and new applications. Integration software from BEA Systems is being used to assist the transition from the old COBOL programming world to the new Java environment.

Speaking to investors last fall, "Gabe" Gabriel, the executive vice president of supply chain, said Albertson's supply-chain and distribution facilities were also essentially sound, but as with other grocers, "there was a noticeable lack of attention paid to such areas as technology in systems, inventory management, procurements specifically through strategic sourcing, and logistics optimization."

For example, Albertson's employed electronic data-interchange technology to exchange orders and invoices with suppliers, but it had not yet made the next big leap (as Wal-Mart had) of automatically placing orders and sharing data with suppliers based on sales at the till. All the various initiatives being undertaken, Gabriel said at the time, were designed to help negotiate better deals on prices—lowering the cost of getting products from suppliers and manufacturers to stores, reducing out-of-stock situations and helping reduce vendor costs.

Albertson's is building iSupplier Self-Service Portals and opening them up on the Net for suppliers to view and accept purchase orders, as well as create shipping notices. The goal is to eliminate the current need for mailing purchase orders, and to cut down on costly phone and fax inquiries. The company planned to begin accepting electronic invoices through the supplier portals by early February.

Two other key steps are being taken to streamline the electronic exchange of orders and invoices. Albertson's has asked Trigo Technologies to provide a repository for standardized product information. The grocer also asked all of its suppliers to synchronize their product information, such as pricing, ingredients, descriptions, and packaging, through UCCnet, a non-profit industry organization. UCCnet has created a Web database of 14-character product codes that it hopes will eventually replace Universal Product Codes (UPCs). The goal is to create one global language for retailers and suppliers, so Albertson's buyers can talk to suppliers in China, Thailand or Brazil and know that they're comparing apples to apples or shavers to shavers.

At the store level, the pennies-on-the-dollar purchase of 4,000 NCR "FastLane" registers from Kmart was a bit of a coup. Dunst says he knew Kmart had purchased the registers and after hearing of their bankruptcy filing in January 2002, he immediately suggested to Johnston that Albertson's make a low-ball offer for them. It took three months before Dunst was able to track them down to lessor GE Capital, but a deal was signed. (Five hundred additional FastLane units were acquired separately.)

Albertson's Store of the Future idea is fledgling—just three stores are testing it and even those aren't outfitted to carry out Johnston's full vision. But it's likely to be one technology concept that won't be emulated by Wal-Mart, which prefers to keep technology out of customers' eyesight. Speaking at the CEO2CEO conference in New York in November, Johnston outlined his goals: Web shopping lists, global satellite positioning systems tied to handheld devices in shoppers' hands, in-store mapping, personalized promotions based on stored data, automatic checkout and custom-stocked stores.

A customer's shopping experience will begin at home with an Internet portal. The shopper will develop a shopping list using menu plans and shopping histories. If a family member has a peanut allergy or is on the Atkins diet, that information can be plugged in and menu choices suggested. When she gets to the store, she'll use a loyalty card to obtain a handheld device, like the one used by Bishop in Barrington, Ill. Loyalty cards have been deployed in all but one of the company's seven retail divisions, with Albertson's collecting data on 1.4 billion shopping trips in 2002.

The handheld device will automatically reach out to the Internet, grabbing the customer's shopping list. Then it will log into the store's inventory. Once it has matched the desired goods against the available goods, it will map the shortest route through the aisles for the customer to grab each item. Using patterns of past shopping, the device will present promotions on items that Albertson's believes will be of interest to the shopper as she walks through the store, such as the paper-towel offer Bishop received. If the customer has a prescription to fill or photos to be processed, the Symbol device will let them know with a text message when they're ready.

There are other benefits, as well. "If you happen to pull a product off the shelf that has a peanut ingredient, it will say, 'Put this back, you're going to kill your daughter,'" says Johnston. "When you're done, it will automatically put it on your credit card and you'll roll right through the front end, through a speed gate, just like you would on the throughway."

Though each Albertson's store is connected to headquarters via satellite and a frame-relay network, just a few have built customer portals and deployed handheld scanners. In the end, all that technology could be overkill, says Michael Lenz, a retail supply-chain analyst at Clear Thinking Group in Calgary, Alberta, Canada.

"You're going to go to the store for bread, milk and eggs. It might be a little overwhelming for some folks," Lenz says.

Even if the brains in Boise put in all the technology in the world, they'll need the support of Albertson's cashiers, stockers, baggers and managers—the people in stores to help customers every shopping day. Johnston may want to "energize" his "associates," as workers are called, but he has laid off 35,000 since taking over and is trying to hold the line on salaries and benefits.

Twenty-four thousand workers in Southern California have been on strike since October. Albertson's, along with Kroger and Safeway, wants employees to pay health-care premiums of $20 to $60 per month, a practice Wal-Mart has long employed. The companies are also fighting union attempts to secure raises of 50 cents an hour in the first year and 45 cents an hour in the following two years. A California grocery worker's hourly pay-and-benefits package is almost three times that of an average Wal-Mart worker.

Southern California is one of Albertson's biggest markets and in just four months the strike has cost the company $132 million in sales and $70 million in gross profits, according to Johnston. A federal mediator has taken over the contentious negotiations and asked both sides not to talk about it. However, Johnston indicated in a December earnings call that he's willing to wait it out. "Despite [the financial impact], we remain committed to making our labor costs more competitive," he said.

Meanwhile, Johnston continues his pyramid program of organized optimism. Soon after he started at Albertson's, he hired motivational speaker Ed Foreman to hold workshops with all managers and store directors. They in turn have been directed to spread Foreman's gospel—a relatively simple collection of ways to make "every day a terrific day"—to the rest of Albertson's 200,000 employees.

Foreman, whom Johnston also used at GE, says he will speak to close to 10,000 Albertson's workers at seminars that range from a few hours to three full days.

"There's no secret formula to what I'm doing," he says. "It's about treating people the way they like to be treated, and showing them how to develop a positive, enthusiastic approach to life." There really is no rocket science to Foreman's teachings. He tells people to wake early, go for a morning walk or run, see the positive in any job they perform—no matter how menial—and to count their blessings at the end of each and every day. Laughter is the best medicine, preaches Foreman: "It relieves gas."

Johnston is a true believer. He has created for Albertson's a mission, a 32-word vision, 10 core values and five strategic imperatives. (The imperatives are emblazoned in posters on headquarters' walls, in screen backgrounds on corporate computers and as scrolling text messages on executives' BlackBerries.)

He has stated publicly that his aim is to make Albertson's the number-one seller of groceries. Not "number-one after Wal-Mart"—just plain first. Therefore, he has to beat Wal-Mart, not just make a good go of competing with it.

Johnston has the drive to do it. He has the money to spend on technology. He has hired the people he thinks can beat any rival, dipping right into the expertise of Wal-Mart's own supply-chain operations, for instance.

What Johnston does not have is time.

Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.

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