POS: You Want Fries With That?

I sold myself to Jewel-Osco last week to save 50 cents on grapefruit. True story. I admit it. I joined the grocer's preferred-member club and told them everything they wanted to know: name, age, address, telephone number and driver's license info.

But worst of all, I enabled them to learn my deepest, darkest, most mortifying secret: I like fruitcake. Yes, something about that most-ridiculed of all desserts tantalizes my otherwise highly discriminating palate.

In the interest of keeping such embarrassing information private, I have resisted joining so-called loyalty clubs, instead relying on such stealth tactics as soliciting naive young checkout attendants to swipe their own member cards for me on the premise that I forgot mine or was just passing through town. But they soon started to catch on. "Hey, aren't you the woman who bought the fruitcake last week?"

However, if there's one thing I value as much as my privacy, it's my time, which led me to start frequenting the less crowded, speedier self-checkout lanes, only to watch the computer again and again ring up my on-sale items at full price. Caught between a rock and a hard place, I chose what seemed like the easiest solution: the loyalty club.

I'm certainly not the only one volunteering information about my shopping habits and using self-service systems in exchange for cost-savings and convenience, as retailers become more adept at extracting information from consumers and using it to provide value through loyalty programs.

In fact, revenue for self-service checkout technologies is expected to show a compound annual growth rate (CAGR) of nearly 20 percent, from $185 million in 2005 to $438 million in 2010, says research firm VDC. Revenue for traditional POS terminals and workstations, meanwhile, will continue to chug along at 4 percent growth to reach $1.3 billion in 2010, VDC says. As such, traditional POS-system vendors such as IBM and NCR are ramping up their self-service efforts and turning to the channel to help sell those systems to SMBs.

What's more, sales of all retail-automation technologies through the two-tier channel--via high-tech distributors such as Ingram Micro--are expected to grow at about twice the rate they will through other distribution models, VDC says.

Ingram is already capitalizing on this trend. In 2004, the company acquired Nimax, a distributor of AIDC/POS, bar code and wireless products, which now operates as a separate business, called the Ingram Micro Data Capture/POS Division. Ingram is now bundling POS products from that division with existing products from its broadline business in such areas as security and digital signage for VARs to resell. It's this type of one-stop shopping that has drawn some VARs to Ingram for POS solutions.

"Now I only have to call one phone number for PCs, printers and IBM POS--everything I need," says Art Julian, CEO of Custom Business Solutions (CBS), a VAR that specializes in selling POS solutions to the food-service industry. Its customers include small bars and big restaurant chains including The Cheesecake Factory and Fuddruckers. "As a result, my costs of doing business have dropped significantly because I have to deal with far fewer vendors."

NEXT: Ripe markets for VARs.

In the POS-systems market, traditional players such as IBM, NCR, Fujitsu and Wincor still command a large percentage of the overall market. Of those, Wincor is the only one that doesn't sell through the channel. Fujitsu and NCR report selling about 20 percent of their POS systems through the channel, while IBM says it sells upward of 50 percent that way. And those percentages are likely to increase as the market focuses more on small and midsize businesses.

One of the ripest markets for VARs is in smaller specialty retail stores, such as garden centers, sporting-goods stores and wine retailers. Their margins aren't as thin as those of traditional retailers, and they're hungry for information on customer shopping habits. For VARs, that could open doors to two sales opportunities: POS hardware and CRM software.

Revenue for shipments of retail-automation technology to specialty stores is predicted to reflect a CAGR of nearly 8 percent, from $1.1 billion in 2005 to $1.6 billion in 2010--a higher rate than for shipments to grocery stores, for example, which are supposed to see a CAGR of only 5 percent—from $825 million in 2005 to $1 billion in 2010, VDC says.

The traditional POS players also face increasing competition from PC vendors Hewlett-Packard and Dell, which offer so-called "PC on a cash drawer" solutions. These systems are gaining favor, especially among small retailers that face the obstacle of big initial investments. In the past 10 years, the number of PCs used as POS systems has grown from 1.5 million to nearly 6.8 million, according to Gartner.

Just last month, in fact, HP announced a new POS partnership with Microsoft, which is also increasing its POS focus in the SMB market with the recent release of its POS 2.0 software for small businesses and Retail Management System 2.0 software for midsize shops. The duo teamed up with payment solution provider First Data to launch a product for small retailers that combines First Data's payment-processing technology with Microsoft POS 2.0 for inventory-management and sales tracking, HP's rp5000 POS computer, firewall technology and antivirus software.

Oracle and SAP, too, are doubling their efforts to tailor POS applications for the SMB market.

In the face of competition from the likes of HP and Dell on the hardware side, Fujitsu has added a new lower-end offering to its POS line, called the TeamPoS 3000 XE, geared for small retailers, for whom low acquisition costs carry a premium. Fujitsu says the lower-end model is not as serviceable as its traditional offerings, such as the TeamPoS 3000 XL, which enables users to quickly swap components without removing cables or unstacking peripherals.

Tim Lindsay, vice president of sales and marketing at Dalcom Consulting, a solution provider based in Greensboro, N.C., sells mainly NCR POS systems but has also sold the PC-based models from HP.

Other smaller POS hardware players that have gained traction in the North American market include Radiant Systems, Ultimate Technology and DigiPoS, according to Gartner.

DigiPos sets itself apart from the crowd by offering a blade-server-based POS system. It touts the serviceability of its Retail Blade system, which enables users to replace retail blades quickly by sliding them in and out from a backplane. In North America, DigiPoS sells its hardware through distributor BlueStar, which then bundles it with Microsoft POS software for solution providers.

CBS sells IBM systems 85 percent to 90 percent of the time but turns to a small POS boutique manufacturer, J2 Retail Systems, if a customer prefers another brand or is on a very tight budget. One of the advantages of working with the small manufacturer is that the VAR has direct access to J2's engineers.

For the most part, though, CBS sticks with IBM because of the features it adds to protect systems in harsh restaurant environments. For example, IBM seals the touch-screens to protect them from spills and builds in processor-cooling systems, which help extend a unit's shelf life, CBS' Julian says.

NEXT:bBeyond hardware.

But hardware is just a small piece of the pie for CBS, which also provides software, system design and implementation, training, custom installation, and data warehousing and management. On the software side, CBS resells POSitouch's application for restaurant table service, and it makes its own software line under the NorthStar brand, which handles various restaurant processes, from above-store reporting and financial and payroll integration to central recipe management for multistore chains.

"Our model follows after car dealerships, where they make their money not all on cars or financing or extended warranties," Julian says. "They make a little bit on everything."

That model has paid off for CBS, which began as a reseller of cash registers to mom-and-pop liquor stores and sandwich shops but has enjoyed double-digit growth since the early 1990s.

But the road was not without bumps for CBS; the company learned that the food-service industry is one tough customer when it comes to service from its solution providers, which led CBS to open up its own 24/7 help desk.

"Retail is not an 8-to-5 business," Julian says. "The service expectations are far beyond that of most desktop users."

While there's still opportunity for VARs in the traditional POS market, self-service technology is growing more quickly. On the other hand, that space is still highly fragmented, and ROI models aren't clearly defined.

"Part of the difficulty in getting retailers to try new things is the narrow profit margin in retail," says David Williams, vice president of marketing at Agilysys' solution-provider arm, Enterprise Solutions Group (ESG). "If you're getting into new areas where there aren't established ROI algorithms to plug in, you have to work together to develop [ROI] and initially rely on anecdotal data and customer feedback."

ESG sells traditional POS systems, as well as self-service and kiosk technologies, as part of overall solutions. In fact, the solution provider has even created its own personal-shopping system that equips shoppers with handheld devices from Motorola so they can scan their items as they shop and keep a running tab of their bills. Agilysys has implemented the system, which is integrated with loyalty programs and self-checkout systems, into the Giant Foods grocery-store chain. Metrics such as average dollars spent per cart and shrinkage levels can help retailers gauge system ROI, Williams says.

Key for success in such deployments is having in-house knowledge about retail operations and working closely with retailers before implementation to outline long-term goals, expectations and commitment levels, he adds.

"Consumers can be a fickle bunch. You have to be patient and willing to stick with it. Odds are you won't have it quite right the first time out of the gate," Williams says. "Retailers have to be as dedicated to it as they expect their customers to be, because the amount of work they put into it will reflect the amount of attention consumers pay it."

Also essential for solution providers is careful selection of technology partners, as more sophisticated projects can require some 20 different hardware and software suppliers, Williams adds.

To help link together various players in the emerging self-service market, NCR, for example, in the past year has started to certify select VARs on self-service solutions that combine its hardware with partners' software.

"The transition from assisted service to self-service to consumers eventually owning their own appliances is happening over the next decade," says Jim Haferd, vice president of Global Indirect Channels at NCR. "Sharp resellers are looking to get ahead of that curve, because the applications that work in assisted service are quite different from those that work in the self-service space.

"Over time, self-service will have the highest value-add requirements for resellers," Haferd adds.

Fujitsu has developed self-service systems and kiosks that use the same platform as its traditional POS systems, which it hopes will enable retailers to use the systems for multiple purposes. Case in point: If a store has an informational kiosk in the back room, it can move the system to the front of the store during a busy holiday season for POS functions.

Fujitsu also offers bundles, consisting of its POS systems and iPAD handheld wireless terminals, for inventory management and line-busting.

"We're helping retailers to think more about how they can look at an investment from a whole-store perspective," says Chris Silver, customer-marketing representative for store technology at Fujitsu Transaction Solutions.

Another trigger for kiosk sales is multichannel integration, whereby retailers link online channels and catalogs to enable consumers in stores, for example, to order out-of-stock products via a kiosk. But while multichannel shoppers actually buy more than other shoppers do, on the average, they're also the most difficult to please and are likely to abandon a retailer altogether after one bad experience in any channel, says Gartner analyst Mim Burt.

What better evidence of the need for solutions that are highly customized to specific retailers and their customers—and of the importance of solution providers?