Shop talk

Germany's METRO Group is developing technology that will change the way we buy our groceries forever. And where better to test them out than on the shop floor. CXO Europe goes behind the scenes at METRO Group’s Future Store Initiative and meets CIO Zygmunt Mierdorf.

“In the first nine months of 2008 METRO sales rose by 7.1% to €47.8 billion”
-Zygmunt Mierdorf, METRO

There aren't many CIOs who are given the chance to test new technologies in a gigantic laboratory complete with real customers. But that's exactly what Zygmunt Mierdorf, CIO of retail giant METRO Group, has been able to do thanks to the company's Future Store Initiative. Created as real-life testing grounds for technologies designed to revolutionise customers' shopping experiences, METRO Group's Future Store in the German town of Toenisvorst, are the shape of things to come, according to Mierdorf.

As CIO one of Europe's largest retailers which runs over 2,100 outlets in 32 countries across Europe, Asia and Africa, he is already responsible for overseeing IT and logistics operations across all Metro's retail divisions including Metro Cash & Carry wholesale stores, Real hypermarkets, Media Markt and Saturn consumer electronics stores and Galeria Kaufhof department stores. And through the company's Advanced Retailing strategy he is spearheading a technological revolution across Metro's operations. Describing the background behind the Advanced Retailing strategy, he says: "The METRO Group Future Store Initative was founded in 2002, as an alliance of companies and organisations from the IT, consumer goods industry and service sectors. "Today more than 90 companies and organisations are working on the project. Together with our industry partners we set the goal to push forward the modernisation of the retail sector. One of the aims of our Future Store Initiative is to test new technologies that make the shopping experience as pleasant and stimulating as possible."

There are two parts to METRO Group's strategy - the development of technology to be deployed on the shop floor for hands-on use by customers and the technology that is being developed behind the scenes to ensure the smooth running of the company's operations.

On the shop floor innovations include the world's first Mobile Shopping Assistant (MSA), an application for mobile phones which can be used to scan product bar codes displaying the price of each product and allowing customers to keep a continuous tab of how much they have spent. When it comes to paying for the product customers simply take the MSA to a pay station to settle the bill. Another groundbreaking innovation is Pay by Fingerprint - a service available to customers who register their bank details with a service provider. Customers can then pay for their goods simply by placing their finger on a scanner.

There are also Smart Scales that automatically identify fruit and vegetables for customers and self-checkouts where customers can carry out the entire checkout process themselves. And having been successfully piloted at METRO Group's Future Store, the technology is now being rolled out across the group's mainstream outlets. "The retail business is well-known for its constant change and quick transformations. We always try to sense the wishes and desires of our customers even before they realise them. Today METRO Group is already using many of the technologies that were tested in stores belonging to its own sales brands."

When it comes to introducing technology on the front line - one big challenge facing METRO Group is the acceptance of it by customers - particularly when it comes to biometric technology. "The technology itself doesn't create any difficulties. It is more about change management within our organisation and it's all about acceptance from customers to use our technology," says Mierdorf. "Let's take for instance the multiple options we have introduced for the checkout process. So far we have been able to substantially increase the percentage of customers using the self check-out area, but people obviously still need to get acquainted with the Pay by Fingerprint facility," he goes on to say.

While the public may take a conservative approach to some of the METRO Group's innovations, however, the company is clearly moving forward. In the first nine months of 2008 METRO Group's sales rose by 7.1% to 47.8 billion Euros and in the third quarter its sales in Germany rose by 2.4% despite the streamlining of the Real hypermarkets stores portfolio amidst difficult market conditions. "We announced our nine month figures to the public which were pretty satisfactory," says Mierdorf. "It is a challenging time but we are convinced that with our business concept and the performance of our sales divisions we are well positioned for the upcoming competition."

But it is not just the high profile shop floor innovations that are helping to drive Metro's bottom line. Innovations such as self-checkouts may be bringing customers into METRO Group's stores but behind the scenes, it is RFID technology that is speeding up its ability to re-stock the shelves. A study carried out by METRO Group and its partners, at warehouses for the company's Cash and Carry division, concluded that the technology could bring savings of up to 8.5 million Euros even if only a small part of the company's supply chain is considered. This led METRO Group to use RFID technology to optimise its logistics and warehouse management processes by attaching RFID tags (transponders) to pallets, clothing shipments and cartons which enable the company to easily process incoming and outgoing goods. Describing the benefits of the technology, Mierdorf, says: "The operational impact of the initiative is even bigger on the side of our business that the customer does not see." For example, by using RFID those in charge know exactly how much stock is still in the warehouse. As stock levels are managed actively, average levels can be reduced.

"Painstakingly counting every single item is a thing of the past as stock levels can be checked using the merchandise management system."

The RFID technology is also being deployed in-store, for instance to provide automated product recognition technology for inventory control and quality assurance monitoring of self-service meat products. In the Future Store products are kept in a Smart Freezer, which features RFID readers that monitor the smart chips attached to the product packaging. This enables staff to uniquely identify every meat item in the freezer and easily keep up to date on when items are reaching their best before dates. Mierdorf says however that the current focus for the company is on the use of RFID in logistics and warehouse management. He does not foresee for instance the replacement of barcodes by RFID tags in the near future. "It will still take a long time before RFID tags on products will completely replace barcodes. Both systems will run in parallel in the coming years and will complement one another."

METRO Group is currently focusing on using RFID to streamline its logistics and warehouse operations and to develop new use cases. "The broad use of RFID in logistics will make several more trailblazing innovations possible. And with our pilot projects with textiles and fresh meat we are gathering experience of deploying RFID on item level." Looking at the technology development over the last 4 years, he predicts that within ten to 15 years RFID technology will have developed to such an extent that it will be possible to calculate the cost of the contents of a customer's trolley simply by wheeling it past a RFID reader. "Just think of such a future check-out: in 10 to 15 years you might just need to drive the trolley through an RFID reading device and all the products inside will be calculated automatically within a second. Queues in stores will be a thing of the past," he goes on to say.

So confident is the METRO Group in the potential of RFID technology that in 2004 it established the RFID Innovation Center in the German town of Neuss which acts as a test and research lab for RFID technology providing suppliers, IT partners and other interested parties with 2000 square metres of space in which to trial different applications of the technology in real life conditions.

This approach is typical of the METRO Group, which strives to work as closely as possible with its partners, suppliers and solutions providers to find solutions to the challenges it faces. Like all retailers it has been hit by the rising fuel prices leading to increases in the cost of transporting goods, as well as by additional increases in the cost of food commodities. And in order to best adapt to these changing conditions it is forming stronger relationships with its partners as part of its Supplier Relationship & Collaboration Management Program initiative. "In the past year, the scarcity of commodities led to an increasing volatility of food prices and the steady rise of energy prices has led to increasing costs for the transport of goods that we offer," says Mierdorf. "Both developments call for innovative concepts in procurement and logistics along the whole supply chain. In other words we are establishing new forms of cooperation with our industry partners," he goes on to say. The aim of the initiative, explains Mierdorf, is to "build up strategic partnerships and to optimise the supplier interfaces on international and cross sales line level with the help of clear responsibilities on both sides." METRO Group's strong international presence makes such strategic alliances and the need to optimise supply chain networks even more imperative.

The company is currently present in 32 countries and it continues to enter new markets, recently having announced a market entry in Kazakhstan and Egypt. Many of its international operations take place in remote areas where it encounters very different logistical challenges from those on its home turf in Germany. Picking one such example, Mierdorf describes the logistical challenges it faces in Russia, where its Cash & Carry stores in Siberia are over 4,500 kilometres away from its first stores in Moscow and St Petersburg.

"When we started our business in Russia the infrastructure there did not meet our demands. Many Russian logistics companies had an outdated fleet of vehicles. Road conditions outside the major urban centres are often poor and rail transport is not a competitive option with a view to price and time constraints. Therefore we had to make substantial investments in the Russian infrastructure. We invested into the modernisation of truck fleets and into the optimisation of cooling chains."

Metro is keen to extend this strategy of investing part of its profits into developing the communities and infrastructure around its operations. Within India it has set up a public private partnership with the German Investment and Development Society to train over 40,000 sheep farmers and 1,500 fishing crews in the region in how to maintain hygiene standards and to guarantee the safety of their products. The company has committed itself to reducing its greenhouse gas emissions by 15% within the next seven years having become the first German retail company to publish information on its carbon footprint. To achieve this the company will focus on measures such as saving energy, decreasing refrigerant evaporation, optimising the bundling of goods flows and reducing its use of paper for advertising. "We attach great value to ensuring the future success of our business in a socially responsible manner," says Mierdorf. "We can only generate lasting and profitable growth and successfully optimise METRO Group's investment driven strategy if our core business is managed in a sustainable way," he goes on to say.

While corporate social responsibility is a key priority for Metro like all retailers across Europe, its main strategic objective is to find ways of both attracting customers and ensuring the maximum efficiency of its operations against a backdrop of difficult economic conditions - key factors behind its adoption of RFID technology and investment in the Future Store Initiative.

Despite the challenges ahead however, Mierdorf has a confident outlook on the future of the METRO Group, revealing the company plans to grow at around 6% on an annual basis in the medium term - a reflection too of his confidence in the company's corporate strategy and its development of revolutionary technologies.

METRO Group is one of the most important international retailing companies: Some 290,000 employees from 150 nations work for the company at over 2,100 outlets in 32 countries in Europe, Africa and Asia. The company is made up of the following divisions:

• Metro Cash & Carry, the world's market leader in cash & carry
• Real hypermarkets
• Media Markt and Saturn, Europe's leader in consumer electronic retailing
• Galeria Kaufhof, the system leader in the department store business

METRO AG stands at the top as the strategic management holding company. The operative business is divided into the business segments of wholesale, food retail, non-food specialty stores and department stores. Throughout the group, cross-divisional service companies perform an array of services in such areas as procurement, logistics, information technology, marketing, gastronomy and Real Estate for the sales brands. 

METRO Group in numbers:

METRO and DHL

Earlier this year DHL and METRO Group announced they would start the first national rollout of radio frequency identification (RFID) in France and the largest in French retail logistics.

Beginning this autumn, DHL will equip all shipments to the 89 Metro Cash & Carry self-service wholesale stores in France with RFID transponders and read them out along the entire supply chain. Some 1.3 million pallets per year will be fitted with the RFID tags to facilitate contactless and automated monitoring of the supply chain.

"This project is setting the trend for the whole logistics industry as it brings the era of pilot projects in the RFID technology to an end," said John Allan, Chief Financial Officer of Deutsche Post World Net and as Management Board Member in charge of Global Business Services, home of the Group's Technology and Innovation Management. "RFID is ready for everyday use." DHL expects the major project to send a signal to the entire area of retail logistics as well as to other segments of the logistics industry.

With this project METRO Group continues to drive forward the international deployment of the technology. "By expanding our operational deployment of RFID to France, METRO Group is proving that the benefits of the technology can be realized throughout Europe," said Zygmunt Mierdorf, CIO of METRO Group.

In the RFID project, five DHL food logistics centers will equip all shipments to the self-service wholesale stores with RFID tags. These RFID transponders are read out during the loading process, and the data are electronically transmitted to the individual stores. When the shipments arrive at the recipient's facilities, the tags are read out again and the data are automatically checked against the order.

In comparison to conventional controls using barcodes and barcode scanners, the contactless RFID process speeds up loading and unloading operations. In addition, the automated reading technology increases the precision of logistics processes, while visibility and manageability grow as a result of the improved pool of data. Disruptions can be recognized faster.