This is page 2 of:

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.

  • advertisement

    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!


    StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

    Most Recent Comments

    Why Did Gonzales Hackers Like European Cards So Much Better?

    I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
    Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
    A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
    The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
    @David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

    Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.