Digital Networking: Hannaford Bros. is a Cut Above
If a handful of sirloin steaks is nearing the sell-by date at the Hannaford Bros. supermarket on Plaza Road in Kingston, N.Y., assistant manager Mark Hayward knows just what to do: To quickly move beef, chicken or pork off the shelves, Hayward prints out bar-coded discount coupons on a wireless handheld device and affixes one to each package of meat. When a customer checks out, the bar code is scanned and the discount information is transmitted to a data warehouse for storage and analysis at Hannaford's headquarters in Scarborough, Maine.
The store's butcher can access this sales data through an application that runs on an in-store database that pulls the information from the corporate mainframe. Knowing that there's a surplus of, say, lamb chops, he will cut fewer for the following day.
This may not sound like the last word in high technology. But such instant data transmissions make it possible for Hannaford and other grocers to hold their own in an industry well known for its slivery profit margins, which hover between 1% and 2%, according to the Food Marketing Institute, a trade association that represents food retailers and wholesalers.
For supermarkets and other traditional retailers, technological advancements in the last decade have transformed both customer service and business operations. Ten years ago, sending information continuously via a reliable network was simply not possible, according to Lee Holman, vice president of product development at IHL Consulting Group, a Franklin, Tenn., research and consulting firm that specializes in retail and hospitality technology.
Using software in a store that relied on a central server for processing was a "pipe dream," Holman says. Many retailers didn't even have a CIO or VP of information technology, let alone a voice heard by the board, he says.
As retailers built or acquired more stores, they added transmission lines and storage servers to create distributed networks with little regard for how such a computing strategy could scale. "Getting the system to work in the near term definitely took precedence over anything else, including future scaling," Holman says.
In the last decade, retailers have adopted numerous technologies, but none has changed the landscape more than advanced data networks, according to several retail analysts. "Persistent broadband between the home office and stores makes retailers much better able to react to changes, troubleshoot and grow faster," says Paula Rosenblum, vice president of research and content for Retail Systems Alert Group, a research firm based in Newton Upper Falls, Mass.
Analysts attribute the rise of pervasive retail networks in the late 1990s to a few factors: an unexpected price drop in broadband connectivity that meant a month of service cost about half as much as dial-up connections (about $100 per line per month); a surge of managed service providers that had the capacity to build large, scalable networks; and a technologically advanced, threatening competitor in Wal-Mart.
For non-grocery retailers, returns management has been one benefit of new and improved infrastructure, says Nikki Baird, senior analyst at Forrester Research. Customers at stores like Best Buy and Ann Taylor can return items at any store, regardless of where they were purchased. Sales personnel can locate the exact transaction in a central server via the point-of-sale system by swiping the credit card used to purchase the products.
It's the network connection between the store and the home office that makes this service possible. That's good for customers, who are no longer limited by location, Baird says, and it's also good for retailers: Companies can analyze returns information for patterns, such as "serial returners," and then implement policies to prevent the culprits from making additional returns.
Inventory lookup is another area that has offered retailers the opportunity to "save the sale," Baird says. For example, if one Nordstrom's store doesn't have a shoe in the customer's size, a salesperson can access all Nordstrom inventory via a persistent network connection and arrange to have the desired shoes shipped directly to the customer's home.
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A Tangle of Networks
Ten years ago Hannaford, now owned by Delhaize Group, a Belgian retailer, was a case study in catch-as-catch-can networking, says CIO Bill Homa, who was hired by the chain in 1996. Inventory and order data was decentralized in its stores, and there was little or no standardization across stores when it came to operating systems, networks, data protocols and transmission lines. "There was no technology strategy," Homa recalls. "It was a disaster."
The Northeastern supermarket chain was using four protocols: Transmission Control Protocol/Internet Protocol (TCP/IP), the standard for most commercial networks; Systems Network Architecture, IBM's proprietary protocol for connecting computers; X.25, a standard protocol for wide area networks that use phone or ISDN lines; and asynchronous protocol, which transmits data in packets. Data was transmitted via three types of transmission lines: satellite, telephone dial-up and leased lines, which directly connect two locations. Transmissions were very slow, Homa says, and the network was unreliable. If it rained hard, the satellite connections went out, and in the Northeast, he observes, "It's always raining somewhere."
He estimates that the unstable network was costing the company millions of dollars a year in lost sales and expenses.
Each store maintained four or five servers with its own inventory and order data to compensate for unpredictable connections with headquarters, Homa says. "We would lose connectivity in stores," he explains. "We used to lose data and couldn't keep synchronized between the corporate offices and the stores."
And the data that was available was often useless. In the old days, managers used to mark down aging meat by posting a sign in the meat case with the price discount. The cashier knocked down the price at the register, but the only information that was transmitted to the back office was that meat was on sale. "We didn't know if it was steak, sirloin or roast beef," Homa says.
Managing the network was a "nightmare," according to Homa. Prior to 1998, every technical problem required a store visit: "It was poor architecture and it was expensive."
In 1998, Hannaford designed and built a new network. Verizon laid the T1 lines, and Cisco Systems installed the routers and switches for the then-new Asynchronous Transfer Mode (ATM) technology that transferred data in packets over the network. IBM installed its System p5 mainframe server in the company's corporate offices to house data from all locations.
Today, the high-speed network is about 80 times faster than the old one, which transported data at 19.2 kilobits per second, according to Homa. The network relies on one protocol (TCP/IP) and one type of transmission line, a frame relay setup that runs over a 1.5 megabit-per-second T1 line. All 158 Hannaford stores are hooked up to the network. (In 2004, Hannaford replaced the ATM system with Cisco's less expensive Quality of Service software, which monitors and maximizes network performance.)
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Piggybacking On ATM
Happenstance brought Hannaford to ATM: In 1996, Verizon had installed a statewide ATM network in Maine, linking all government agencies and schools at a speed of 10 megabits per second.
"I just asked Verizon if we could ride this network but attach at 1.5 megabits instead," Homa recalls. "They agreed. Otherwise, we never would have tried ATM." Homa says desperation for a better network inspired him with the idea to piggyback on the project.
Hannaford's growth, in terms of store locations and sales, has doubled since the mid-1990s, some of which Homa attributes to the faster, more reliable network. "The network infrastructure has dramatically changed the business," he says.
The streamlined technology made it possible for Hannaford to eliminate 1,000 servers across its then 100 locations, with one or two remaining in each store. The server purge became possible when all store data was consolidated on the single IBM p5 mainframe at headquarters. Stores can access the data from IBM DB2 databases that run MicroStrategy's decision support software, which processes queries from the Maine mainframe.
Homa says the network costs less to support now: Despite 50% company growth in the last 10 years, the technology staff has shrunk by 10% to 135.
It is also easier to maintain with remote management tools that can diagnose problems and fix antennae, routers, switches, servers and printers. Automated alerts notify support staff when there is an irregularity in the system. And if Hannaford can't fix the problem, it sends the alert electronically to Verizon or Fujitsu, the company's hardware service provider.
The network seldom goes down, Homa says: "We don't even measure uptime anymore. It's just always up."
Another benefit, he adds, is that Hannaford knows it's always working with current and accurate data. Managers use handheld wireless devices in each store that run applications processed on the central mainframe to look up inventory, order more products, adjust prices and produce the coupon stickers that get scanned at the register. And all of that activity is transmitted back to headquarters.
"We know if we're cutting too much ribeye or too little lean ground beef on a Tuesday and can plan better for Wednesday," Homa says, referring to the butcher's capacity to adjust the day's cuts based on querying an inventory application behind the meat counter.
The company's category manager in charge of meat can look at companywide buying trends on the IBM mainframe at headquarters. If customers are buying fewer pork loins in November than they were in October, Hannaford can adjust the number it produces across the company.
And the network technology has even made a difference at the cash register—literally. Linux-based cash registers, which connect to the central mainframe, have cut four to five seconds off the time it takes to verify credit card information; 80% of that speed increase can be attributed to the network, Homa says.
"Do you know how long four to five seconds is for a customer?" he asks. "It's an eternity."
At A Glance: Hannaford Bros.
Headquarters: 145 Pleasant Hill Rd., Scarborough, ME 04074
Phone: (207) 883-2911
Business: Operator of 158 supermarkets and combined supermarket/pharmacies in New England and New York.
Chief Information Officer: Bill Homa
Financials In 2005: Sales of $3.4 billion (2006 Chain Store Guide estimate).
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Then and Now