Tech Budgets On The Rise

Retailers are spending on both necessary upgrades and innovation in the form of mobile apps and social networking

Looking back a couple of years, convenience store retailers hit the pause button on information technology (IT) spending — with many only investing in systems or upgrades needed to continue running the business. Last year, with the past economic turmoil beginning to lift, IT budgets began to rise once again, and this trend continues this year, according to the 2011 Convenience Store News Technology Study.

Retailers are not only upgrading systems as a necessity, but also to implement the newest innovations in technology at their chains, such as a more robust business intelligence system; mobile apps, payments and coupons; loyalty programs and more. For the first time in the history of the CSNews survey, social media made the Top 5 list of technology investments retailers are planning for this year.

Only 39 percent of responding retailers reported plans to spend less in 2011 compared to 2010. In fact, 25 percent said they will spend the same amount, and 36 percent plan to spend more. Most of the investment went to store-level technology (71 percent) vs. headquarters (29 percent).

While PCI compliance is still a large part of the IT budget for many chains, each year the number of companies reporting compliance increases. In 2011, 84 percent of the retailers surveyed reported reaching PCI compliance, compared to only 54 percent last year. A total of 14 percent are still in the process of becoming compliant, and 2 percent have not started down the road yet. The majority of respondents fall into either the Level 1 (processing more than 6 million Visa transactions) or Level 2 (processing between 1 million and 6 million Visa transactions) merchant categories — with 64 percent at Level 2 and 23 percent at Level 1.

Fig. 1 Spending on Technology/Automation

POINT-OF-SALE SYSTEMS

Point-of-sale (POS) terminals are used by 97 percent of responding chains, and 83 percent integrate with the headquarters office and store-level personal computers (PC), while 17 percent use a stand-alone PC. Credit and debit authorization is offered by 99 percent of responding chains, and 86 percent integrate it with the POS. Furthermore, although 95 percent have a safe at their store locations, only 24 percent integrate them with the POS, compared to the 52 percent with money order terminals (integrated by 50 percent).

For those companies selling motor fuel, 83 percent integrate the fuel pumps with their POS, and 52 percent integrate tank monitors. Also, pay-at-the pump technology is offered at 97 percent of responding chains. The biggest growth in this area is the use of fleet services systems and car wash terminals. In 2010, only 51 percent of respondents had a fleet service system compared to 62 percent this year. Car wash terminals rose from 29 percent to 34 percent. Additionally, integrating these technologies with the POS jumped from 63 percent to 76 percent for both.

Fig. 2 Level of PCI Compliance

BUSINESS INTELLIGENCE USE EXPANDS

In 2010, 64 percent of c-store retailers reported utilizing some form of business intelligence (BI), and in 2011, the number jumped to 74 percent. There has been a shift from vendor-based systems to proprietary systems. In 2010, 70 percent of responding retailers chose vendor-based business intelligence systems, while 30 percent relied on proprietary options. This year, only 58 percent are using outside vendors.

The top two applications of business intelligence remain the ability to analyze sales and category performance, followed by loss prevention and detection. Retailers are also relying on the software to analyze store performance management, and inventory and in-store organization.

However, after successfully using BI in these areas, many retailers are beginning to dig deeper into the data they are capturing at the POS. For the first time, marketing and promotion effectiveness jumped in front of vendor management, showing an increase in usage from 34.6 percent to 40.6 percent — although 36.2 percent still use it for vendor management as well. And store layout optimization, market basket analysis, assortment planning and customer segmentation all saw increases across the board.

Fig. 3 Point-of-Sale Integration

Market basket analysis showed the biggest retailer interest for the future, as 21.7 percent reported plans to use this option at a later date. However, the two applications with the biggest change were assortment planning, which rose from 12 percent to 17.4 percent using it, with 10.1 percent planning to utilize the option in the future, and customer segmentation, which went from 13.0 percent of retailers using it in 2010 to 17.4 percent in 2011.

PAYMENT SYSTEMS & AUTOMATION

Credit and debit remain the top offerings when it comes to in-store payment systems, followed by prepaid/stored value cards, which have continued to increase in popularity each year. In 2010, 49.8 percent of chains reported using this option, and that number rose to 58.0 percent this year. Also, 37.7 percent use electronic check verification technology and 34.8 percent use electronic benefits transfer.

While RFID/contactless is accepted by 14.5 percent, compared to 13.0 percent in 2010, biometric payment and self-checkout is not being utilized by any chain in this year's survey. However, self-checkout remains of interest in the industry with the number of chains exploring the technology rising from 6.6 percent last year to 11.6 percent in 2011.

Similar to in-store, credit is still the No. 1 payment option at the pump, offered by 89.7 percent of responding chains, and prepaid/ stored value cards rose from 25.6 percent to 33.8 percent. While cash acceptors increased from 6.7 percent of chains to 8.8 percent, the number still remains relatively small.

Automation and electronic data interchange adoption continues to increase industrywide, including automated fuel tank monitoring, fuel ordering, computer-assisted ordering and automatic replenishment. The number of retailers scanning items they receive rose from 44.9 percent to 50.7 percent, and manual entry by category/invoice increased from 25 percent to 31 percent. Also, more retailers are moving to the item level, with 35.5 percent reporting manual data entry by item, compared to 21.7 percent in 2010.

Proprietary systems remain the most popular when it comes to electronic data interchange (EDI), with 39.1 percent of respondents reporting this option. However, package translators are also growing in adoption, utilized by 20.3 percent compared to 13 percent last year.

Overall, EDI increased across the board for electronic funds transfer — between vendors and headquarters, and banks and headquarters. The biggest increases were seen with payroll processors and headquarters, as 29 percent reported usage compared to 21.7 percent in 2010, and between vendors and stores, up from 18.5 percent to 27.5 percent in 2011.

PROMOTIONS & SALES

With more c-store retailers offering loyalty programs — 44 percent of the survey respondents — promotional and sales activity is stepping to the forefront. A total of 53.6 percent use some form of the technology, up slightly from 50.7 percent last year. Only a quarter of respondents use video monitors in the store, but satellite-feed audio music and advertising continues to increase each year, with 24.6 percent of chains incorporating it into their stores.

Automated frequent shopper and loyalty programs jumped from 15.2 percent to 23.2 percent, with another 26.1 percent exploring the option. Meanwhile, only 13 percent use text messages for promotions and marketing to customers, but 26.1 percent are exploring it.

Fig. 4 Utilizing Business Intelligence

At the pump, only 14.3 percent have video monitors, yet 22.1 percent are exploring the technology, and advertising and couponing at the forecourt increased from 16.2 percent to 22.1 percent.

Additionally, of those retailers offering a loyalty program, 50 percent are rewards-based and 20 percent include a proprietary credit card option. The majority are company-branded programs (55 percent), while 31 percent are tied to a major oil brand, and 14 percent offer both.

NEXT GENERATION TECH

From social networking and mobile apps to text message marketing, c-store retailers are beginning to adopt next generation technology. The number of companies using social networking in their marketing plans nearly doubled from 26.4 percent last year to 41 percent in 2011. The majority use Facebook (92 percent) and Twitter (64 percent), while only a handful utilizes Foursquare and MySpace (16 percent for both).

When asked how they used the various mediums, 96 percent offer promotions via social media outlets and 76 percent advertise events at store locations. Almost half (46 percent) engage customers with questions, and 44 percent offer contests to followers or fans.

While Rutter's Farm Stores pioneered mobile apps in the c-store space, more chains are beginning to introduce the option to their customers, including RaceTrac, TravelCenters of America, Pilot Travel Centers, Flying J and ExxonMobil. Murphy Oil also introduced a mobile app that allows customers to pay for gas at the pump.

Of those surveyed, 13 percent currently have a mobile app, and 88 percent of them offer store locators with it. Additionally, 63 percent give customers access to fuel prices via the app, and 50 percent offer limited-time specials. Only 38 percent have coupons built into the app and 25 percent have a loyalty card tie-in.

Cloud computing is also an option that is gaining ground in the industry, with 13 percent of chains surveyed this year utilizing the technology in some way.

The full version of the CSNews 2011 Technology Study is available for sale at www.csnews.com. Click on the "Research" tab on the homepage.