n Retailers have fought shy of electronic shelf labels, but as the technology is taken up overseas, Ed Bedington explores the benefits it could hold as a trading tool in the UK Shelf edges are about to get sexy. Once upon a time the chalk board was king, but that was deposed by paper and ink. Now there's a revolution brewing in the form of sleek, stylish electronic shelf labels. Having said that, the technology isn't exactly new ­ it's been hanging around on the fringe of the retail scene since the mid-90s. As retail analyst David Stoddart of Teather & Greenwood says: "It's one of those things that retailers could have been doing for a while, but so far they've managed to avoid it." Using the system, prices can be changed in the shop, or at head office ­ so every store in the chain is instantly updated. Information comes from a computer and is passed through transmitters in the ceiling to the labels. There's a variety of reasons why electronic shelf edge labelling, or ESL, could prove vital for retailers. The technology provides pricing agility ­ the ability to change prices at the touch of a button ­ stock and planogram information at the shelf edge and importantly, pricing accuracy. The system also allows retailers to do away with the costs associated with ensuring prices are printed and kept up to date on the shelf and gives them the ability to fluctuate price according to demand. Yet despite all these potential benefits, the majority of UK retailers are still sitting on the fence. However, things could soon be about to change. Both Tesco and Safeway are about to start trials using the technology, and although both remain tightlipped about the projects, there's speculation as to whether this could be the breakthrough needed for ESL technology. In the past, the biggest barrier to setting up a system was simply cost. When each label costs about £20 and each store contains about 30,000 SKUs, it doesn't take a mathematical genius to work out the economics. But that may no longer be such an issue: "The prices are coming down and the more people experiment with it, the more volumes go up and the more the price drops," says Accenture's retail strategy manager Jonathan Miller. PriceWaterhouseCooper analyst Kim Green agrees that the systems are becoming financially viable: "The cost of the technology is now reaching a point where people have evaluated the labour costs of manual systems and it's now becoming a viable economic choice." And it's not only the price that's improving ­ the technology itself is getting more robust. Green says: "One of the reasons there's been a reluctance to adopt it is if it crashes or locks out, it would be catastrophic. People are waiting until the performance has been rigorously tested." There is also confusion over systems ­ retailers may be unsure whether to go for an infra-red set up or radio frequency transmissions. Accenture's Miller says: "Radio frequency has the advantage that the signal will go through anything, but infra-red has the drawback that it needs line of sight, and if something blocks the signal it doesn't work." But that is disputed by Swedish ESL manufacturer Pricer which says it is a problem it has managed to overcome. Marketing manager Thomas Lundgren puts it simply: "We use diffused infra-red so the light is bouncing all over the place which means no line of site is required. You could have the label in your pocket and it would still get through." He adds that the infra-red also has the advantage of being able to transfer more information quicker than radio frequency and is not subject to any interference. So, with all these advantages and the reduction in barriers, are we about to see the humble shelf edge evolve into a hi-tech trading tool? Not yet in the UK, but the technology is beginning to make an impact overseas. German retailer Metro has installed the Pricer system in 53 of its C&C stores, featuring more than two million labels, around 40,000 per store. In Ireland, Superquinn has just completed a pilot run with NCR and is now evaluating the results. America has also proved fertile ground with retail giants Wal-Mart running trials and other retailers, such as Stop & Shop, running systems in a number of stores. Shaw's is one US retailer which uses ESL in 23 of its stores in Connecticut and has done so for a number of years. But according to spokesman Bernard Rogan there has been another driving factor behind the organisations decision ­ legislation. "In Connecticut the law stated that each individual item had to have the price stuck on it, and the only way to avoid having to do this would be to have electronic shelf edge labels. It's a big advantage not having to replace price labels all the time, all that labour is removed." But as a concession to old habits, Rogan says the law also states that each store must keep a supply of grease pencils which a customer can use to write the price onto the product, if it will make them feel better. But as yet, no-one has. So even in the US, ESL has not become widespread. Rogan says: "The state laws have been the driving factor behind it here, and in states which do not have the laws it has not been a priority to roll it out. It is being driven by the need to replace repetitive pricing." Interestingly Shaw's is a subsidiary of Sainsbury which abandoned its own trial of the technology at the beginning of last year. The company tested an infra-red system at its Winnersh store in Berkshire, but at the time it appeared problems with the technology and costs proved prohibitive. A spokesman says: "We trialled the technology for a year but decided not to continue with it. We're always interested in new technology and are keeping an eye on the sector, but at the moment we have other priorities." Sainsbury is likely to be keeping a close eye on its rivals' operations to see whether they can make a success of ESL. Tesco plans to run a trial in its Irlam store in Manchester from March, and the labels will be used throughout the store on all products. A spokeswoman says the product information would remain on traditional printed paper, but that the price would be displayed on an electronic display which could be updated either at store level, or centrally, with a press of a button. "We are hoping it will free up staff from a time consuming task and allow them to focus on helping the customers." So Tesco's main aim is to cut costs and labour, but it is only scraping the surface of what ESL can achieve, according to the manufacturers. NCR's European director for ESL Hans Frei takes the concept one step further when he says: "This is not just about price management, although pricing is one of the most compelling reasons. It can also allow item level merchandising." Even more evolved labels with text message capability will mean staff will be able to access important information, such as planogram data, stock levels and product information ­ all at the touch of a button on the shelf edge. An important function of ESL is that it can also provide much greater accuracy when it comes to pricing. Because the system is electronic, it only requires the price to be inputted once centrally and it is then automatically passed out to the shop floor across the entire chain, taking away the potential for human error. PWC's Green says: "Customers may pick up a product thinking it's a certain price then find it's more at the till, due to a simple error or mistake between the price file (a central database of product prices) and the manual printing of the label. If someone wants to make a fuss they can complain to trading standards who have the power to fine the retailer. If ESL works effectively, it has the potential to obliterate any problems retailers might have with trading standards on that issue." Of course, one of the more interesting aspects of ESL is the opportunity it provides for variable pricing. This is certainly something that has captured the imagination and led to speculation that retailers will be able to carry out happy hour style promotions by reducing prices at various times of the day. NCR's Frei says: "You can use dynamic pricing to flatten out trading demand throughout the day." He also points out that retailers could also do a negative happy hour, putting prices up at certain times to take advantage of demand. However Superquinn's marketing director Eamonn Quinn says offering different prices at different times can be dangerous. "Customers do talk to each other and they have a greater sense of fairness nowadays." He says you run the risk of alienating customers by only offering certain deals to certain shoppers. The majority of UK retailers certainly seem keen to distance themselves from the idea of carrying out any kind of happy hour promotion. Asda, which at the moment has no plans to test ESL, has even taken out a national advertisement to claim that "every hour is happy at Asda!" Tesco has also said that it does not intend to go down that road, although variable pricing could well be used. A spokeswoman says: "We may vary prices on perishable products to help cut shrinkage, reduce certain products to clear. However, because of our stock controls and just in time deliveries we have very few products that we have to reduce." A reduction of prices on short shelf life products could prove popular, but with paper labels it's difficult to carry out effectively. PWC's Kim Green says: "ESL gives you great dexterity when it comes to prices. Re-labelling products throughout the day would be labour intensive, but electronic labelling would circumvent that, allowing price reductions as the day wore on." He says retailers' systems could be set up to automatically reduce the prices on certain products if the number in stock exceeded a maximum limit at a certain point of the day. Accenture's Miller says the ability to vary pricing will allow retailers to be more competitive by reacting almost instantly to changes in pricing locally ­ something that might interest a number of the multiples which are proponents of regional pricing. This is not something that Shaw's is pursuing however. Rogan says its hands are tied at the moment: "Although we can see obvious benefits of reducing prices to reduce shrinkage, the legislators in Connecticut are nervous of us doing that and because it took us a long time to get them to agree to ESL, we don't want to kill the golden calf. They see it as enabling us to take advantage of the customer, but we see it from a different angle ­ that of giving our customers a better deal." The technology also has the potential to adapt even further in the future, according to Accenture's Miller who says combining ESL with radio frequency tagging would enable a product to talk directly to the shelf edge, telling the label what it is and how much it costs, hereby bypassing the need for someone to input the details manually. "The labels would also be able to identify customers carrying RDF tags in their loyalty cards and would be able to give specific information for those customers, perhaps highlighting that the product contains nuts. However, all this is still a long way off." So there exists a lot of potential for benefits when it comes to ESL, but one question remains outstanding, one which Tesco is hoping to answer with it's trial: will the customers like it? Cap Gemini Ernst and Young analyst Richard Hull thinks it will take time: "I think customers may well be cynical at first, viewing the labels as gizmos, but over time they may come to trust them." PWC's Green says when it comes to price reductions and special offers the labels may not be as effective as more traditional tags. "Customers may not be as attracted to it unless you have a big red label marked reduced'." But label manufacturers are already coming up with a solution. Thomas Lundgren says Pricer has created a multi-coloured label which can be used to highlight special offers and deals, for instance, a red field could surround the price. So with all these possibilities are we going to see the UK retailers finally getting on board? Teather and Greenwood's Stoddart is not optimistic for now. "I'll never say it won't happen, but I think it will only happen when retailers have exhausted every other initiative, then they may well come back to it. When they've automated the back of the store and automated the front of the store, all that's left is the centre. It's a case of finding the lever which needs to be pulled to get them to have it, and it certainly hasn't been pulled yet." But the reluctance of the retailers doesn't seem to worry NCR's Frei: "Twenty years ago we had to get retailers to accept the benefits of scanning, and it took a long time to convince them, but now they wouldn't think twice about it. It's operationally accepted technology." He says they are focused on getting the benefits across to the retailer and is optimistic the technology will take off. "I think we are between the trial and adoption phases. All it's going to take is for one or two retailers to roll it out and I think we'll see a dramatic uptake." n {{COVER FEATURE }}