Self-Checkout Picks Up Speed
Self-checkout is gaining traction as more retailers have installed or are planning to install do-it-yourself lanes in their stores. But some merchants have learned that how they deploy self-checkout is just as important as where.
The Food Marketing Institute's 2005 Technology Review survey found that 56% of the 28 responding retail food chains had installed self-checkout systems. That is up from 38% that had installed self-checkout or had planned to in 2004.
Other recent research found a similar trend. In a survey published in June by Franklin, Tenn.-based IHL Consulting Group, 31% of the food and non-food retailers polled said they planned to install self-checkout systems this year, and 50% said they plan to install them by June 2006. IHL would not say how many retailers responded.
Lee Holman, IHL vice president of product development, says the report focused only on North America because that is where self-checkout is most widely deployed. "It's really the driver for self-checkout throughout the world," he says.
Self-checkout also drives consumers toward payment types they consider faster, which are credit and debit cards, industry insiders say.
Dusty Lutz, product line director for FastLane Self Checkout Solutions at Dayton, Ohio-based NCR Corp., says consumer tendency to use credit and debit cards at self-checkout is reducing the use of paper checks in those lanes. That is partly because self-checkout draws smaller transactions and because consumers perceive using checks as a bit slower than using cards.
"In a self-checkout solution, it's more cumbersome because it requires intervention from the attendant," Lutz says of checks, which customers need to hand to staff to verify signatures. Based on conversations with retailers who use NCR equipment, typical staffed lanes see roughly 20% paper check payments, while self-checkout lanes see less than 5%, Lutz says.
John Parsons, U-Scan marketing programs manager at Frisco, Texas-based Fujitsu Transaction Solutions Inc., agrees. When he once worked for a large supermarket chain the retailer accepted any form of payment at self-checkout lanes. But because the electronic payment device could not also capture signatures, customers had to go to an attendant's station to sign receipts for credit card transactions.
While the process would drive customers from more expensive card transactions toward cash, it also risked pushing customers away from self-checkout. The retailer is in the process of adding signature-capture capability for credit cards at all of its lanes. Customers will continue to bring checks to attendants, as they do at other retailers, Parsons says.
Competition among self-checkout vendors has heated up with retailer demand. NCR long has held a top spot in the self-checkout market. But in late 2003, IBM Retail Store Solutions improved its self-checkout position when it purchased Productivity Solutions Inc., one of the pioneers of the industry. Fujitsu received a big market boost when it thwarted an NCR bid to buy the U-Scan self-checkout offerings of Montreal-based Optimal Robotics.
Fujitsu still markets its self-checkout system under the U-Scan name. It claims to have about 40% of the installed base in the grocery market with customers such as Kroger Co., and 10% of the nongrocery market with customers such as Shopko. NCR claims to have 68% of the global and 62% of the North American market. Customers include Wal-Mart Stores Inc, Albertson's Inc. and The Home Depot.
Manufacturers are hesitant to discuss how much they charge for self-checkout equipment, but it is not cheap. Depending on the deals made between vendors and retailers and whether the equipment is new or used, each lane can cost from $16,000 to $25,000, according to vendors and analysts.
When FMI asked retailers who were using self-checkout about their return on investment, more than 60% rated it as positive, 33% as neutral and 6% as negative. When asked what factors factored into their returns, 84% listed decreased labor costs, 58% said it freed employees for other customer-service tasks and 47% said that it helped speed customers through checkout.
In the past two years, Clemens Markets Inc., a Kulpsville, Penn.-based chain of 23 upscale supermarkets and three smaller gourmet shops in Pennsylvania and Delaware, has installed three self-checkout lanes in each of three of its stores, which have 11 to 15 standard lanes. Roy Powell, Clemens director of information services, would not say how much his company paid NCR for its FastLane equipment but says the company expects it to pay for itself in three years.
"We've seen the productivity and benefit of self checkout, but we've learned to be cautious with its implementation," Powell says.
The productivity and benefit comes from reducing overall staff hours-no employees have been laid off-and from giving customers the choice of standard or self-service checkout, he says. Clemens' caution about implementing self-checkout has come from customer reactions to installations in three different situations.
The first three self-checkout lanes went into a new building. "That went very well," Powell says. "The acceptance level for that by the customer base was very high."
Clemens installed the second three self-checkout lanes in an existing store and not as part of any major remodeling project. "Acceptance there was a little more mediocre," Powell says. "We cut the [cashier] hours, and customers were being forced to use self-checkout."
Then Clemens installed three more self-checkout lanes as part of a major remodel and grand reopening of a third store. Customer acceptance of self-checkout there similarly was mediocre. "It's growing, [but] it's not there yet," Powell says.
Consumers are starting to warm up to self-checkout as they grow accustomed to it and other self-service technologies such as pay-at-the-pump terminals at service stations and self-ticketing kiosks at airports, says Heather Ludecke, NCR FastLane product manager. "Customers are expecting that self-service is going to be available," she says. "On the other hand, you do have to have that choice for customers that want the personal service."
Factors that drive use or nonuse of self-checkout are as diverse as the shoppers themselves. IHL research found self-checkout accepted most in the South, Holman says. States with more grocery-union mobilization, such as Ohio, Pennsylvania and California, showed more public opposition to the technology.
"In the heavier unionized states, it's not a grocery store where consumers are getting their first experience with self-checkout," he says. "It's a Home Depot."
Ludecke, though, says she does not see regional differences in shopper acceptance. "The consumer acceptance of self-checkout is geographically neutral," she says.
While some shoppers may prefer to wait in lines so they can read the tabloids, many older shoppers like self-checkout because it allows them to check the price on each item as they ring it up instead of having to try to keep up with speedy cashiers, Holman says.
Shoppers on tight budgets also like the control of self-checkout, Powell says. "In self-checkout, they have the ability to be more selective of the products and put products they don't want back into the basket," he says.
Ludecke says that retailers in markets with high percentages of customers with limited English skills find that those shoppers like the option of completing self-checkout transactions in their native languages. FastLane terminals can be programmed to accommodate up to six languages.
While many shoppers perceive self-checkout to be faster, it actually takes more time than staffed checkout, mostly because customers have less experience scanning and bagging groceries than do professionals. As such, self-checkout is not expected to completely replace cashiers any time soon, says Don Pascal, Fujitsu's director of self-checkout solutions.
Powell agrees. "When we've got 18 lanes or so going full tilt in a larger store with people waiting in line, we need to keep them moving," he says. "We've had self-checkout lines during holiday seasons 12 people deep, and that's not our vision of customer service."
Still, Powell says, "we have a whole lot of stores where it's doing 30% to 40% of transactions." He adds that Clemens and NCR have talked about developing self-checkout lanes that could be overridden to allow staffing by cashiers.
For now, Clemens' few self-checkout lanes serve the chain well during slow hours, especially when supervisors can get by with one cashier on duty instead of two when faced with a brief rush of shoppers.
Self-checkout glitches that require help from store staff tend not to endear the option to shoppers, many of whom do not understand why the machines require them to place each purchase in a bag when commanded so the machine can compare the weight of an item to its scanned or manually entered code. Scales often have difficulty reading featherweight items such as greeting cards, and even larger items such as gallons of milk can confound the system-and the shopper-if the range of allowable weight range for that item is too narrow.
Retailers are learning to tweak their self-checkout systems to solve such problems. They can expand the weight range for some items and turn it off entirely for others.
Produce always has been a quandary for self-checkout. Most fruits and vegetables are not labeled with bar codes, and an attendant monitoring multiple lanes is not always going to have time to watch monitors closely to make sure that the apple a customer says is a standard Red Delicious is not really an organic Braeburn that costs twice as much.
Vendors are using or are researching ways to address that problem. IBM's sensors check the dimensions of products as well as the product codes, prices and weights. But that will not tell the difference between organic potatoes and conventionally grown ones.
Most consumers, either through genuine honesty or fear they are being watched, usually enter the correct produce codes, say vendors and analysts. That is because they are more likely to know what type of produce they chose than is a cashier who is trying to speed customers through checkout.
Vendors also claim that self-checkout reduces revenue shrinkage from cashier errors or collusion with shoppers stealing merchandise or switching tags. While FMI finds shrinkage at a rate of 1.6%, Pascal says his self-checkout lanes are at half that rate, 0.8%.
Powell says self-checkout has had no effect on shrinkage at Clemens stores. "Sweethearting from one cashier to friends or family, those kinds of things are going to happen whether it's self-checkout or regular lanes. And those are things we try to watch individually regardless of whether it's a self-checkout or not," he says.
A few retailers are testing other self-checkout tools, including cart-based scanners that allow shoppers to log purchases as they put them in their carts. But those systems have hurdles, too, including the need for store personnel to check shopper accuracy and honesty by either eyeballing the cart as Sam's Club greeters do, emptying it to check items again or weighing it all at once to make sure it matches the items purchased.
The self-checkout technology that would best solve the security-versus-service problem is radio frequency identification tags on all items and readers to log purchases as customers walk out of stores. But the cost of tags and other issues push that possibility a murky 10 years away, with perhaps an overlap of barcode scanning and RFID during a transition from one to another, experts say.
"There will be some convergence of these two technologies, but that's way down the road," Holman says. "They've got some hurdles to overcome before they start having RFID chips on every pack of gum."
NCR is piloting an RFID-enabled self-checkout unit in Germany, but Ludecke would not disclose where or at what type of store.
Powell says he has heard predictions that RFID could become a self-checkout reality in five to 10 years. "That's changed so many times," he says. To hedge their bets, Clemens' planners made sure that each of their self-scanning lanes could be retrofitted with an RFID antenna.
"Everybody's trying to get to the ultimate walk-out-the-door portal without the cashier there," Powell says. "But in the process of reaching that level, you've got to get the technology that allows you to operate today."
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