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Tunnel Vision: Will Kroger Give Away Its Advantage?

January 20th, 2011

  • Fujitsu (or whichever IT vendor Kroger ends up partnering with) will most likely reengineer the tunnel to be more compact and less expensive to manufacture. But Kroger will be in a position to know the reengineered tunnel from the inside. That means Kroger could dictate design details that will make it easier for Kroger to add capabilities that aren’t in the IT vendor’s product.

  • Kroger’s R&D lab is probably already working on the next generation of the tunnel. It can see the future.

  • Even when competitors get their hands on a commercial version of the tunnel, Kroger will have years of experience using the machines in stores—and knowing where they work best, how customers react, what kind of training employees need and when the technology will actually start to pay for itself. No doubt Fujitsu will get some of the basic information on how to set up the tunnels. The rest is proprietary to Kroger, and will remain an advantage.

    Result: Kroger could keep its competitive advantage from the tunnel for several years. That’s the most any retailer (or IT vendor, for that matter) can hope for these days. There will be more tunnels from more vendors. Eventually, every grocery chain will use them—or not. But they won’t represent a competitive advantage, just another product.

    Kroger does have one other competitive advantage it’s not likely to lose. Unlike the vast majority of retailers, Kroger has a real R&D lab developing hardware. That in itself is a competitive differentiator. After all, nobody except an IT vendor develops hardware anymore. Software? Sure, though prevailing wisdom is that off-the-shelf is preferred over built-from-scratch.

    But hardware? When was the last time you heard of a retailer creating a hardware IT product to use in stores that’s bigger than, say, a barcode scanner? That doesn’t happen. (Even those custom handhelds are typically smartphones or PDAs with added software. Apple, one of the few retailers in a position to create retail IT hardware, doesn’t bother; it just repurposes iPhones.)

    Only a handful of other U.S. retailers are rich enough and IT-sophisticated enough to try something like that (think Target, CVS and Walgreens for IT sophistication and Wal-Mart for money). They might decide to get into the IT R&D business, though it doesn’t seem likely.

    But after four years in the R&D trenches, Kroger may have developed an advantage it literally can’t give away.


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