PRESENT AND POTENTIAL USAGES OF SCANNER-DERIVED INFORMATION FOR MANAGERIAL DECISION-MAKING IN FOOD RETAILING by Jeffrey Miller Thomas Thesis submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE in Agricultural Economics APPROVED: Oran Capps, Jr., Chainnan Don L. Long David E. K~nyon September, 1986 Blacksburg, Virginia PRESENT AND POTENTIAL USAGES OF SCANNER-DERIVED INFORMATION FOR MANAGERIAL DECISION-MAKING IN FOOD RETAILING by Jeffrey Miller Thomas Oral Capps, Jr., Chairman Agricultural Economics (ABSTRACT) This study addresses the lag in effective usage of scanner-derived information in managerial decision-making. The purpose of this research is to clarify the informational needs of the various levels of manage- ment in a retail grocery firm and to develop an informational management system to deliver such information. The four specific objectives of this project are: (1) to identify the decision-making roles of the various levels of management in a firm, (2) to identify the present usage of scanner-derived information in decision-making, (3) to identify specific scanner-derived information which could facilitate the decision- making process, and (4) to develop a firm-wide information management system which would provide each management level with the information it needs and would coordinate total firm operations, but would not burden a particular level with large volumes of unnecessary data. The information used for meeting the objectives of this research was largely collected through open-ended discussions with various levels of management within seventeen cooperating retail grocery firms. The discussions placed emphasis on the current usages of scanner-derived data and on how to facilitate the use of scanner-derived data in managerial decision-making. This research substantiated the hypothesis that little use had been made of scanner-derived data for managerial decision-making in retail grocery finns. Also, barriers to the effective use of scanner-derived data were documented. The specific infonnational needs of the various levels of management, as discovered through the discussions with managers of the cooperating firms, were used as the basis for the information management system. ACKNOWLEDGMENTS First and foremost, thanks must go to the chairman of my graduate committee, Dr. Oral Capps, Jr. His supervision and constant encourage- ment contributed greatly to the completion of this research. His tireless efforts in my behalf, in both my academic and personal life, have contributed greatly to the success of my college career. For these efforts, I will always be indebted. Special thanks are also in order for Dr. Don Long for his service on my committee, for his insights into the operations of the grocery industry, and for his expressions of kindness that have been greatly appreciated. I am also very grateful to Dr. David Kenyon for his service on my committee and for his advice and guidance in areas of my personal life. I wish to formally thank the United States Department of Agricul- ture for funding the research project from which this thesis was written. I would also like to thank John DeMoss and the Virginia Food Dealers Association, as well as Al Evans and the Mid-Atlantic Food Dealers Association, for their help in contacting the firms that parti- cipated in this study. I also would like to thank the following firms for participating in this research: Austin's Warehouse of Groceries; Jeffersonville, Indiana Bon Foods; Dumfries, Virginia Farm Fresh; Norfolk, Virginia Food City; Abingdon, Virginia George's Thriftway; Sykesville, Maryland iv Giant Foods; Carlisle, Pennsylvania Giant Open Air; Norfolk, Virginia IGA Foodliner; Stuarts Draft, Virginia Ken Lewis - Liquor Discount; Louisville, Kentucky Kroger, Inc.; Roanoke, Virginia Malone and Hyde; Nicholasville, Kentucky Richfood, Inc.; Richmond, Virginia Santoni's Markets; Baltimore, Maryland Ukrops; Richmond, Virginia Value Foods; Baltimore, Maryland Wades; Christiansburg, Virginia Wetterau Food Services; Bloomington, Indiana To my friends at Tech I am indebted for their patience and enthusiasm, as well as for their efforts to make life more enjoyable. To William Park, John Roswell, Chris Grover, and Preston Tucker, I owe special thanks. Finally, a very special thanks goes to my family for providing me the opportunity to continue my formal education. Their support and confidence sustained me through many difficult times. V TABLE OF CONTENTS 1 INTRODUCTION 1.1 Background......................................... 1 1.2 Problem Statement.................................. 2 1.3 Objectives ••••••••••••••••••••••••••••••••••••••••• 3 1.4 Benefits to Food Retailers ••••••••••••••••••••••••• 4 1. 5 Hypotheses • . • • • • • . • . • • • • . • . • • . • • • . • • • • . • • • . • . • . • • 6 1.6 Literature Review.................................. 7 1. 7 Scope . 29 1.8 Thesis Organization •••••••••••••••••••••••••••••••• 29 2 METHODOLOGY 2.1 Introduction ....................................... 31 2. 2 Methodo 1ogy . 31 3 OUTLINE OF MANAGEMENT RESPONSIBILITIES 3.1 Introduction ••••••••••••••••••••••••••••.•••••••••• 38 3.2 Specific Responsibilities of the Levels of Management......................................... 43 3.2-A Chief Executive Officer Responsibilities......... 44 3.2-8 Merchandiser Responsibilities.................... 46 vi TABLE OF CONTENTS (Continued) 3.2-C Store Manager Responsibilities................... 51 3.2-0 Department Manager Responsibilities .••••.••.••••. 52 3.2-E Electronic Management Information Director (EMID) and Scanning Coordinator Responsibilities .•••..•. 54 3.3 Sunmary . 56 4 FINDINGS OF THE INTERVIEW SESSIONS WITH SELECTED FIRMS 4.1 Introduction ••.•••••••..••.•.••.••..••.••.••....... 57 4.2 Responses of the Chief Executive Officers .......... 58 4.3 Responses of the Merchandisers .....••....•..•••...• 63 4.4 Responses of Store Managers ••.••••••••••••.•••••••• 68 4.5 Responses of Department Managers .••••...••.•••..••. 72 4.6 Responses of the EMIDs and The Scanning Coordinators ••••.••..••.••••••...•••••.•••••••.••.. 75 4.7 Responses of Wholesalers •••••••••••••.••.•••••••••. 79 4.8 Sununary . • • . • . • • . 81 vii TABLE OF CONTENTS (Continued) 5 RECOMMENDATION FOR THE DESIGN OF AN INFORMATION MANAGEMENT SYSTEM 5.1 Potential Usage of Scanner-Derived Data in Managerial Decision-Making......................... 83 5.2 The Information Management System.................. 84 5.2-A Information for the CEO.......................... 87 5.2-B Information for the Merchandiser................. 96 5.2-C Information for the Store Manager •••.•.••.••••.•• 115 5.2-D Information for the Department Manager ••..•..•••• 126 5.2-E Information for the EMID ..•.••..••••..••..••••..• 128 5. 3 Sulllllary • . • • . • • . • . • • • • • . • . • • • • • • • • . • • . • • • • . • • • . 133 6 CONCLUSIONS AND IMPLICATIONS 6.1 Introduction ••••..••••.•••••••••••••.•.•.•.•.•.•••. 134 6.2 Concluding Statements ...•....•.•..••....••....•...• 134 6.3 Potential Implications to Food Retailers •.•.....•.. 136 6.4 Implications for Further Research •.•....•.•.•....•• 137 viii TABLE OF CONTENTS (Continued) REFERENCES .............................................. 142 APPENDIX A .............................................. 144 VITA 150 ix LIST OF TABLES Table Title Page 1.1 Growth of Scanner Installations •••••••.•••••••••••• 9 1.2 Impact of New Diet Soft Drink...................... 14 1.3 Store Topline Summary.............................. 20 1.4 Primary Summary Report............................. 21 1.5 Trend Report....................................... 23 3.1 Matrix of General Management Responsibilities 41 5.1 Matrix of Potential Scanner Data Contribution to Managerial Decision-Making......................... 85 5.2 Personnel Evaluation Reports for the CEO ••••••.•••• 89 5.3 Capital Management/Profitability Report for the CEO. 92 5.4 CEO Report for Evaluation of Advertising ••••••••••• 95 5.5 Department Evaluation Report for the Merchandiser •• 99 5.6 Capital Management Reports for the Merchandiser •••• 102 5.7 Merchandiser Reports for Evaluation of Goals and Strategies ••••••••••••••••••••• ~................... 112 5.8 Personnel Evaluation Reports for the Store Manager. 117 5.9 Inventory management Reports for the Store Manager. 123 5.10 Evaluation Report for the Department Manager ••••••• 127 5.11 Reports for the EMID •....•.....•.•.••......•.•.•... 130 5.12 Percent Scanned Report for the Scanning Coordinator ....................................... 132 X LIST OF FIGURES Figure Title Page 3.1 Organizational Hierarchy of a Retail Grocery Firm • • 39 xi CHAPTER 1 INTRODUCTION Section 1.1: Background The early days of food merchandising were dominated by small, full-service markets that predominantly handled dry goods and occasionally some meats and produce. However, with the move to self-service groceries, followed by the growth of the supermarket in the 193O 1 s, consumers were able to choose from a full line of products including grocery items, produce, meats, dairy products, and frozen foods {Leed). Since the inception of these merchandising techniques, retail food stores have experienced rapid growth by carrying an ever increasing number of products and by adding new services such as the bakery, the deli, small cafeterias, and even floral shops. It should be evident that this rapid growth, leading to the myriad of products and services currently offered by retail