jamtronix

Over the last 20 years, there has been a huge consolidation in the Australian grocery retail market. Two giant retailers (Coles and Woolworths) have opened up massive networks of supermarkets all across Australia. The number of stores owned by these retailers gives them huge buying power, so they are  able to negotiate very low prices from suppliers. They have also built out very efficient distribution networks (i.e. warehouses that suppliers deliver goods to, and trucks to get goods from the warehouses to the individual stores). This further cuts their costs, allowing them to undercut rival stores.

In order to compete with the 2 giants (who each have about 35% of the total market of groceries), the remaining independent supermarkets have turned to a company called IGA Distribution (owned by Metcash). IGA runs a distribution network, supplying supermarkets that account for about 15% of the total market. This gives IGA sufficient buying power to negotiate with suppliers prices that are about as good as the majors, and they run an equally efficient distribution system.

But the IGA strategy is to not own or manage any of the IGA branded & supplied stores. So while IGA stores share a common procurement and distribution system, they are NOT integrated at the POS level in the way that Coles or Woolworths stores are.

Now the grocery market has reached a stable configuration, Coles and Woolworths are taking their systems and distribution networks beyond groceries and in to other markets, e.g. they both already own, or have strategic partnerships with, liqour and petrol retailers, and both have started to make forays into financial services (e.g. Coles Myer Credit Cards).

As well as increasing buying power, each new segment allows cross-promotional initiatives that increase the "gravitational pull" of the retailer as a whole. e.g. Fly Buys drives business to all CML brands, and I think if CML ever issued a Fly Buys branded Credit Card that combine both loyalty programs on to a single card, it would be a huge winner. But all these initiatives require the use of a common IT platform.

Nop doubt IGA would very much like to be able to form alliances with organisations in other segments, e.g. partner with a petrol supplier, or a financial services company, but their ability to create these kinds of deals will be substantially undermined by the lack of a universal POS system that new products can be built into.

As n example of how IGA is suffering from their lack of a standard POS platform, consider their response to the 'fuel discount' programs offered by both Coles and Woolworths. Both the Coles and the Woolworths programs work in the same way, if you spend $30 or more at a supermarket, the POS prints a coupon on your receipt that can be redeemed at a participating service station, for a 4c a litre discount. This program drives business to both participating supermarkets and service stations, and so the costs of the discount can be split between both the benefiting parties.

When these programs first came out, the were very popular with consumers, and the fact IGA did not have a similar program hit their sales in a big way. So they were forced to respond, but since there is no centrally controlled POS infrastructure, the only system they could implement is one where supermarkets give grocery shoppers a discount equivalent to 4c a litre if they present a receipt for fuel from any service station when buying $30 or more of goods. This means that the supermarket has to wear the full cost of the program, they can't split the cost with a service station in the way Coles and Woolworths can.

As the new products made possible by networked POS systems - stored value products like gift cards, or financial services like bill payments, or enhanced loyalty programs - become more and more competitive weapons for the majors, there will be a huge amount of market pressure to create a common POS infrastructure to give the independents the same benefits of networking and standardisation that the majors get. i.e. there will eventually be a POS network that parallels the IGA distribution network. I doubt this is something that IGA would want to build and run themselves, but it is probably something they would encourage and promote. But I think once such a network gets built, it will rapidly expand outside supermarkets, and the leading franchisors in any segment that the Coles or Woolworths duopoly expands into will feel the pressure to join a larger cross-promotional group (hence my prediction of a loyalty program that combines IGA and Harvey Norman, amongst others).

There's a few forms this POS network could take. It could require a complete new POS system. (i.e. including the till, scanner, inventory system etc), or it could be a souped up EFTPOS terminal (managed by e.g. MoneySwitch) or maybe even a seperate device (such as a DialTime or Touch terminal). Or maybe even a combination of all of the above, i.e. using a new standard that replaces AS2805 with something a lot more extensible and easy to work with, and allowed both financial transactions (e.g. charging a credit card), as well as non-financial messaging (such as passing details of shopping baskets back to a central loyalty program server that logs it for future data mining, and responds with any applicable discounts). 

Like any system where Metcalfe's Law applies, the hardest part will be the initial bootstrapping and concensus forming. Will be a good prize for whoever gets there first though.