RFID to Be Served 7-Eleven Style

Written by Evan Schuman
September 11th, 2004

A dairy truck driver pulls up to a 7-Eleven convenience store and is preparing to deliver crates of milk when the store manager greets him.

“Hold on a moment,” the manager says, as he looks at an RFID readout on his PDA. “These crates over here are bad. Sure, they’re registering a good temperature now, but it looks like they got way too warm for nine hours yesterday. Did you pull over for a break and suffer refrigeration problems? No matter. I won’t take these three over here, but it looks like the others are fine. Bring ’em in.”

That hypothetical scene is exactly where Keith Morrow?the CIO of $36 billion retail convenience store giant 7-Eleven?would like to see RFID take the nation’s largest convenience store chain. But to get those and other capabilities, Morrow knows that he must pave his own path to RFID and not let other industry leaders clear the way.

Wal-Mart was out early and loudly in the RFID game, forcing suppliers to begin the expensive and painful retrofitting and new procedure processes. Other major retail CIOs?including Best Buy and Circuit City?have said they are willing to let Wal-Mart and others lead the way and therefore make the mistakes that they can inexpensively learn from. But 7-Eleven sees its operations as radically different than most other major retailers and that the convenience store segment has far too many unique challenges and opportunities to follow the leader.

“If we do that, we’re just going to get a Wal-Mart solution. I think our implementation will have to be different. Our requirements are different. It’s not in our best interest to let someone else completely” set the direction, Morrow said in an interview.

Much of this involves how extremely different 7-Eleven’s more than 27,000 stores are from non-convenience chain retailers. Beyond the stores being open 24-by-7, 7-Elevens have an extremely varied?even by today’s standard?product mix, from gasoline and sandwiches to prepaid phone cards and money orders. A typical 7-Eleven carries about 2,500 different products.

The neighborhood locations draw not only a large number of customers?about 6 million a day?but a demographic range that is among the most diverse anywhere in retail, cutting across almost all age and income categories. “The demographic of our customers is everyone,” Morrow said. On-site inventory is minimal. At any point, “most of our inventory is on trucks,” he said.

Of the greatest IT concern, though, is the small size of each store, often supporting only two and maybe three POS (point of sale) units. Each shopping trip is also very quick, making the customer expectation of a quick trip out of the store essential. An inconvenient convenience store is not long for this world.

The small number of POSes on location means that any hardware delay is extremely noticeable. Although 7-Eleven’s POS fleet is relatively young (averaging about six years old, while many larger POS systems today are pushing the 20-year-old mark and beyond), the company is looking forward to platform upgrades, store by store. “There are a lot of pent-up demands with our POS,” Morrow said.

Because of that diverse customer base, product mix and huge number of inventory turns, 7-Eleven has had to delegate an unusually high percentage of its purchasing decisions down to the store manager level.

Given the differing tastes and needs, 7-Eleven won’t even leave many of those decisions to the regional managers. Customer demands “vary greatly from street to street” in some areas. “We have to be the local neighborhood-type store [so that we can have] the right products at the moment of truth, which is when the customer wants to buy,” Morrow said.

That’s a lot easier said than done. The CIO points out that such a system “is hard to execute consistently because it’s reliant on [a lot of] people in the work force.”

The retailer has combined a homegrown proprietary retail information system with repurposed hardware from Hewlett-Packard Co. (back-office servers), NCR (POS terminals) and NEC handheld ordering devices (docked, not wireless). HP recently announced a five-year, $55 million deal with 7-Eleven to deliver more than 5,000 custom, factory-bundled technology packages and on-site installation.

But 7-Eleven’s homegrown software doesn’t just deliver the standard inventory and ordering data. With an eye on helping local managers stay locally current, it integrates national weather service updates with local event news. A blizzard, a tournament ballgame and a parade will all have major impacts on proper purchasing decisions.

“We make it easier to use with lots of charts and graphs,” and the system reports back to headquarters every two hours, Morrow said.

The retailer said that his chain was very interested in RFID, but it’s the most futuristic elements?such as item-level tracking?that interests him most, although he agreed with other major retailers that such deliverables are likely a half-decade away. “We want that information at a more granular level about products, especially at the food and drink level,” he said.

The temperature tracking example “is one piece that we are very interested in” because of the chain’s heavy reliance on perishables.

“In a perfect world, we’d be able to monitor [everything] through the life of fresh products,” Morrow said.

Morrow added that his chief worry is the pricing impact. “What would it do to the cost of a sandwich?” At today’s pricing, it could easily double the cost. But RFID pricing of all kinds is expected to sharply decrease between now and when per-item tracking is ready for wide-scale deployment, so it’s not clear what pricing impacts would happen.

Morrow also wants to use RFID to track ingredient and nutritional information, along with expiration dates. A typical 7-Eleven store, for example, doesn’t merely sell cheese. It sells cheese in the dairy refrigerator, and it sells sandwiches with cheese that an employee slices and perhaps a hoagie with melted cheese.

For the cheese in the aisle, “the shelf would know expiration dates” and when a container hit its expiration date, the product’s RFID tag would alert the POS “and say, ‘Come and get me.'”

What is more complicated is knowing when the melted cheese is set to expire and when the cheese in a sandwich is set to expire. This could include “the lot number on the mayonnaise, the block of cheese. We could get it to the nth degree.”


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