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Getting Connected

The convenience store industry, deservedly or not, often has been perceived as a technologically challenged industry, but that perception could be altered dramatically this year.

Not that it will be easy. "We're catching up, but it's a long race," said Scott E. Hartman, president of CHR Corp., which operates 52 Rutter's Farm stores based in York, Pa., and chairman of the National Association of Convenience Stores (NACS) Technology Committee. "It's one of those races where we're chasing the flag but they keep moving the flag down the track."

Still, c-store operators are putting a lot of their time and resources into information technology (IT) these days. According to a survey of 141 convenience store companies conducted last July by Gerke & Associates, Columbia, Mo., 85 percent said they plan to spend the same or more on IT during the next 12 months, despite the sluggish economy. "It's getting more complex out there and a lot of infrastructure needs to be put in place," said Hartman.

Gene Gerke, president of Gerke & Associates, pointed out that the c-store industry has already tackled some of its major technological challenges, such as offering consumers the ability to pay at the pump, where 60 percent of its revenues are generated. ExxonMobil's ballyhooed Speedpass program, allowing consumers to pay with the mere wave of a key fob, is one of the most widespread applications of radio frequency identification (RFID) technology to date. "Does Safeway have that? No," said Gerke. "Do fuel retailers have it? Yes."

As the c-store industry continues to upgrade its tech capabilities and sophistication, a great deal of focus is being put on systems and standards that promote data communications and connectivity, especially those that leverage the Internet infrastructure, including IP and XML. Those systems address the two basic realities affecting c-store companies: the wide geographical dispersion of their outlets, and the wide array of devices and suppliers they deal with. The new technologies can help convenience operators simplify and integrate those elements in a way that can bring about unprecedented efficiencies and cost savings.

In addition to righting its own house, the convenience industry, facing growing competition from hypermarkets and supermarkets, is trying to reach out more to consumers, and turn casual shoppers into loyal customers. Operators are doing this with sophisticated cards, key fobs, kiosks and other systems at the forefront of consumer-oriented retail technology.

On the connectivity side, c-store operators, through NACS, are driving the development of standards in four areas: payment systems, device integration, electronic business-to-business (B2B) communications (with trading partners) and POS back-office integration. All of those arenas address the way data and systems can be linked in the most cost-effective way.

The Gerke & Associates survey demonstrates the impact that the standards movement has already had on the industry: 90 percent of respondents have pursued some electronic B2B activity, with 70 percent reporting some B2B communications with fuel suppliers; 14 percent of companies with fewer than 200 stores are experimenting with XML/EDI; 20 percent have installed WANs (wide area networks); one-third have achieved some level of systems integration.

Payment Systems
As it stands now, c-store operators' choice of credit-card processing equipment at the store POS and the pump — and thus the POS system itself — is controlled by the particular brand of fuel they sell. Changing fuel brands generally means changing all of the payment equipment. Companies want to change this to a plug-and-play scenario, giving them freedom of choice. They would also like to make it easier for new POS vendors to enter the c-store market, from which they are effectively barred by the oil companies, so that retailers can have a wider selection of best-of-breed systems.

Loring F. Perez, CFO of 90-unit Spectrum Stores Inc., West Point, Ga., and a member of the NACS technology committee, feels strongly about the need to "disconnect the oil brands from control of the POS." That control, he said, "makes it impossible for the multi-branded jobber to offer features to the consumer that he could offer if he were unbranded," such as gas discounts or loyalty cards. "Let the marketers market — we have a local advantage, but we can't use it."

Perez, for example, said he is precluded from offering his own Spectrum loyalty card across his four brands; he can only offer cards for each brand. This gives new non-branded competitors like Wal-Mart an advantage, he said, which ultimately will hurt the brands. "To be competitive, you've got to do something — either work around it or get rid of the brands," he said. "The longer you allow the hypermarkets to sell theirs, the less viable the brand is."

Miller Oil Inc., which operates the 55-store Miller Mart c-store chain based in Norfolk, Va., was able to launch a chainwide loyalty card program in January, despite selling six brands of oil plus its own. The company found a solution not linked to any of its different POS systems, which include VeriFone, Gilbarco and others. "I want to build loyalty to Miller Mart, not Texaco or Amoco," said Keith Miller, senior vice president.

The Miller program is offered and hosted by Visible Results, which has U.S. offices in Kansas City, Mo., but is based in Auckland, New Zealand. The company maintains a customer database based on information filled out in a questionnaire and it collects information on purchase amounts from the stores. Stores use a separate terminal linked to Visible Results that is independent of the POS. The program employs revisable mag-stripe loyalty cards with a heat-sensitive thermo-chromic display area that can create new textual and graphical images with each use.

NACS's approach to the payment systems issue has been to become an accredited subcommittee of the American National Standards Institute (ANSI), which develops standards for companies in North America under the International Standards Organization (ISO). The NACS subcommittee has created a technical guide, TG-23, on how ISO 85/83, a host-host messaging format for data transmission, can be used in the c-store industry as a standard for transmitting credit-card information from the pump to the processing organization. Adoption of ISO 85/83 by all relevant parties (payment processors, oil companies, POS vendors) would create an environment where it would be possible to change brands and terminals at the pump and swap POS systems, said John Hervey, chief technology officer for NACS.

So far, only Paymentech, a payment processor, and POS vendor VeriFone (for at least one model) have adopted the ISO 85/83 standard proposed by NACS. "Several other processors are looking at doing it," said Hervey. "We're in the latter stages of development, but the early stages of implementation." For major oil companies like ExxonMobil to adopt the standard would require changing their messaging format to the tune of about $1 million, he added. As a result, they are unlikely to adopt the standard until it is time to update their equipment or redevelop their network.

Device Integration
The disconnect between the myriad devices in the average c-store — money order terminal, lottery machine, automatic safe, car-wash controller — and the POS/back-office terminals can result in a host of inefficiencies and snafus, especially for cash accounting. Progress has been made with device-to-terminal integration, though not as much as desired.

NACS is planning a pilot later this year that would create a one-way interface between a lottery machine and a POS terminal so that a lottery sale could be recorded (but not initiated) at the POS. The pilot is pending approval from the state lottery commission involved.

But the big news is that this year NACS is taking a new approach to device integration and communication. Following an initial meeting in March, the association is bringing together "the best minds in the industry" again this month to develop "a standard network architecture for the convenience and petroleum site of the future," said Hervey. Rather than trying to integrate individual devices to the POS or the back-office terminal, c-store operators would simply hook them up to the network, which would facilitate communications among all systems in the store and out to headquarters. This would establish what are being called "Global Device Standards."

"There are times when you want the autosafe to communicate with the POS or the back office," Hervey said. "With the network, you'll be able to send a message to the device that needs it without having to make a physical connection. We'll be better off." He is hoping that a pilot implementation will take place by September.

Hartman sees the network having an "IP Ethernet-type backbone," integrating devices in a Web-enabled, IP-based "smart" store environment. This would enable high-bandwidth communications within stores and between stores and headquarters, and even to suppliers, he said. He welcomes the idea of a network transmitting multiple types of data, like fuel tank readings, temperature and rate of usage, across a networked environment to multiple devices and recipients, rather than a traditional "point-to-point" communication between stand-alone devices. For this to happen, the communications links in devices will have to be converted from modem, serial ports to Ethernet-type connectivity. That won't necessarily be expensive or complex, he said — it depends on the device.

Hartman estimated that the cost to install a new network infrastructure would run about $10,000 per store. The cost to retrofit individual devices could run between $100 and $1,000 per device; new updated devices would be far more. "The infrastructure costs and the risks are high, so you're going to want to shake it and test it well," he said. "But this is where the technology is heading. We're trying to lay out where the future is going so people can make intelligent decisions." He compared this change to the gradual way in which scanning was adopted. "In the next year or two you'll see demo projects, but it will be five or more years before there's a large industry implementation."

Hartman has been working on store-to-corporate connectivity solutions for a while at his company. He is currently evaluating a Windows and an Ethernet solution, and hopes to run a test this summer in a few stores. He's working with ExxonMobil to run their credit network across his network.

Whether the IP communication would go over the public Internet or over a private network remains to be seen, Hartman said, but a lot of the current dial-up and satellite links won't be robust enough to handle the future activity. Frame relay might do the trick, but it can become costly when the bandwidth requirements ramp up. DSL or cable may not be sufficient to handle both data and voice lines together in a business environment. It ultimately depends on the types of applications that will be transmitted and their bandwidth requirements, he said.

IP connectivity has brought down the cost of satellite-based networks: In January, Spacenet, McLean, Va., introduced the Connexstar service, which provides broadband Internet connectivity (500 Kbps) to chains with between 50 and 300 sites for only $119 per month per site — pricing previously available only to large chains, said Fritz Stolzenbach, director of marketing.

Another vendor, Houston-based PerformanceRetail Inc., applies the lessons of integration to the application suite it offers to c-store retailers on an ASP (application service provider) basis. That suite integrates best-of-breed applications from other tech suppliers that have been modified for the c-store space, such as merchandise management from Retek and financial management from Oracle, into one offering, tying in POS data from stores as well. Performance Retail employs Web-based SeeBeyond technology to facilitate data transfer and translation between applications, and to connect to legacy applications. The system allows corporate downloads to stores of price updates and uploads of POS data.

Electronic Business-to-Business (B2B) Communication
For a paper-based industry that has done very little with electronic data interchange (EDI), the traditional standard of data communication in retailing, the convenience store industry is making serious progress in the development of XML-based B2B communication over the Internet.

XML, short for extensible markup language, is the extremely popular Web-based format that tells a computer how to interpret a text file. Because it is Web-based, XML transmission is much less expensive than EDI.

In January, The Store 24 Companies Inc., based in Waltham, Mass., launched a program with Pepsi's main bottling company for the transmission of XML-based invoice documents into the chain's PDI back-office system for its 80 stores. "It's available to any PDI user who is a Pepsi customer in 75 percent of the U.S.," said Hervey.

For almost a year, Rutter's has had two of its company-owned dairies sending invoices via the XML format to all its stores. "We've eliminated data entry of invoices at the stores," said Hartman. "It was easier to make it work with our own dairies because we had control. We're trying to get more suppliers to do it. They need to get their MIS departments to learn XML."

XML strides are also being made with fuel vendors, helping to cut costs in the highly competitive, low-margin fuel business. Citgo, Conoco and ExxonMobil are using the XML document for bill of lading, said Hervey; Shell and Conoco are using it for price-change notification; Citgo, Conoco and Shell are employing it for credit-card reconciliation.

Spectrum's Perez is adamant about XML communications with oil companies. "We need to automate the fuel purchasing cycle," he said. "It's our biggest opportunity to save money. Today, it's a purely paper-intensive process. There's no excuse for that not happening because the standards are all written in XML." With XML communications, he said, c-stores would be free from reconciling every item — they would only focus on exceptions. This would help hard-pressed fuel jobbers to save money and stay competitive, he said.

Though a number of oil companies have begun sending XML messages, "there is no urgency on the part of the brands to jump on the bandwagon," said Perez. "They don't see it as a big opportunity."

Back-office providers also need to "step up to the plate" regarding XML adoption, said Perez. But according to Hervey, Pinnacle, PDI, AIMS and Full Serve are incorporating the standard. Hervey said NACS is determined to get enough vendors to participate so that even the smallest one-store retailer will be able to benefit from the program

NACS is also working on XML compliance with state lotteries; Iowa, Georgia and Indiana have begun sending documents, and seven other states are preparing to do so.

Overall, Hervey said, "[XML] is in the early stages of adoption but it's like a snowball rolling down the hill and gathering momentum." Still, he added, many c-store retailers are still unaware of the potential in this area. "We need to educate retailers so they put pressure on their suppliers" to adopt XML.

U.S. c-store operators and wholesalers could learn a thing or two about communicating with suppliers by studying the activities of Londis, a $722-million wholesaler based in the United Kingdom that serves some 2,200 Londis-branded, but independently owned convenience stores through three distribution centers (DCs). Londis has formed a dial-up (soon to be Web) link with 19 major product vendors, including Coke, Danone and Kraft, giving them real-time access to Londis E3 inventory management system (from JDA Software). This replaced mostly paper-based communications.

The vendors, who represent 22 percent of Londis's total volume, view their inventory in the DCs, cut their own orders and collaborate with Londis on forecasts for promotions. The arrangement has "raised the profile of Londis" among those suppliers, said Martyn Harvey, Londis's purchasing director. "They like the control. They can see their balances, sales and promotions."

The program has had a major impact on Londis operations, increasing service levels to the DCs for those vendors to between 98.5 percent and 99.5 percent from 97 percent to 98 percent, reducing inventory in the DCs up to 20 percent and cutting lead times by 40 percent to 50 percent.

The Internet is also enabling c-store operators to link to their wholesalers in new ways. Core-Mark International, for example, gives its c-store clients Web access to its e-business portal, which enables them to enter a Red Brick data warehouse and obtain, via the Cognos PowerPlay system, all relevant sales data and analysis on what individual stores are selling. A few hundred chains are using the system, said Amin Noormohamed, director of e-business for South San Francisco-based Core-Mark.

POS/Back-Office Integration
XML is also the standard format of choice for communications between the POS and the back-office in stores, which now require costly interfaces. NACS compiled a dictionary of common data elements that flow between the POS and back-office systems and later put them in an XML format. It expects to approve the latest version, 3.2, this month. NACS has closely aligned its work with that of ARTS (the Association for Retail Technology Standards), the standards body affiliated with NRF, which also has an XML data dictionary.

To drive adoption of in-store XML format among the POS and back-office systems vendor community, NACS is holding an interoperability demonstration at this month where vendors will show the ease of data transmission between a variety of systems.

Though some vendors were initially "reluctant" to participate in the demo, Hervey said, about nine had committed to it at press time, including PDI, Retalix, Intralight, Gilbarco, Apigent, AT Systems, Pinnacle, Tokheim and Fiscal Systems. While all vendors will be demonstrating the "proof of concept" regarding XML data exchanges, to date only Gilbarco has permanently incorporated the standards into its POS system. "We're going to show people it's real, and show vendors it makes sense," said Hervey.
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