Tunnel Vision: Will Kroger Give Away Its Advantage?

Written by Frank Hayes
January 20th, 2011

When Kroger first began testing its high-speed “checkout tunnel” in a store in Hebron, Ky., it was an unusual case of a retailer’s IT group actually creating a new system. The software reportedly came from IBM and the optics from Northrup Grumman, but the final system is all Kroger’s—including patents on the technology for automatically scanning UPC codes at twice the speed of a regular checkout belt.

Now Kroger says it plans to turn the tunnel, dubbed “Advantage Checkout,” into a commercial product to sell to other retailers, including competing grocery chains. But after all that effort to create something other grocers don’t have and can’t currently buy, why is Kroger giving away its competitive advantage?

Kroger certainly hasn’t kept the tunnel a secret. Since last spring, any competitor has been able to walk into the Hebron store and watch the tunnel in action as customers put items on the double-speed conveyor belt, to be scanned by cameras and then bagged by employees while the customers use separate pay stations to scan their coupons and pay the tab.

But unlike most pilot deployments, this isn’t just a handful of off-the-shelf products stitched loosely together that any competitor can copy. Kroger actually created an R&D lab four years ago to produce technology that the chain needed for its stores but IT vendors weren’t offering. The tunnel is the most visible result, and it’s something no other retailer has or can quickly reproduce.

That’s the very definition of a competitive advantage. And it’s something that’s almost never seen these days in IT, where the rule is that you don’t build, you buy—and whenever possible you buy the most mass-market, off-the-shelf products you can.

Kroger isn’t saying how much it has spent developing the tunnel, but there’s no doubt the investment is huge. Maybe it’s not a surprise that Kroger feels the need to partner with Fujitsu to turn the tunnel into a commercial product to recoup at least some of that investment.

Then again, maybe Kroger isn’t about to give away quite as much of its one-of-a-kind competitive edge as it might appear. Consider:

  • If Kroger wants to put tunnels in even a fraction of its 3,600 stores, it needs more tunnels built. Right now, the Hebron store has the only two prototypes. Hooking up with a manufacturer means Kroger doesn’t have to be in the manufacturing business as well as in R&D. And Kroger is certainly in a position to be first in line for as many of the tunnels as it wants to buy. Competitors will just have to wait.

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    2 Comments | Read Tunnel Vision: Will Kroger Give Away Its Advantage?

    1. Richard Nedwich Says:

      Very interesting, and I agree that Kroger does hold the advantage.

      At Symbol Technologies, a retail heavyweight in its heyday, a similar decision was made to OEM embedded scanner technology to competing vendors. The result? Symbol enjoyed lower costs thanks to higher volume production, competitive information of how many scanners and rugged mobile computers with that embedded scanner were used by each competitor, and a sustained competitive advantage in using the latest greatest first, then passing it down the OEM chain later.

      Perhaps Kroger could achieve similar advantages, along with the knowledge of how to use and enhance the solution better than their competitors?

    2. Jan Dragotta Says:

      The future has many things in store for retailers but paramount is an anticipated shortage of workers to run our stores in the next decade. Anything that helps those workers get more accomplished with more accuracy is a boon. Also, the competitive differentiation a retailer will have in IT comes not from any single point solution but the composite Enterprise applications that are enabled via web-services to use that information across the organization. That infrastructure is not easily replicated at competitors so I think Kroger is very smart as this article says. Well done, Kroger!


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