Self Service For Convenience Stores white paper

NCR SelfServ Checkout Confidential Page 1 of 16

Implementing Self-Service

Convenience Stores


Table of Contents

Executive Overview .......................................................................................................................... 3

Today’s Business Drivers ................................................................................................................ 4

The consumer appetite for self-service ................................................................................ 4

Consumers concerns and requirements .............................................................................. 6

Retailer’s decision criteria .................................................................................................... 7

Industry opportunities – A more in-depth view ..................................................................... 9

Store of the future – A projected installation view .............................................................. 12

Blueprint for Success – The SelfServ Checkout Development Process ..................................... 14

Short Term Development Requirements ............................................................................ 14

Scoping, Development and Implementation Roadmap ...................................................... 14

Typical Customer Resource Framework ............................................................................ 16

NCR SelfServ Checkout Convenience Store


Executive Overview The following white paper provides a comprehensive look at the self-service business drivers present today that have fostered an explosion of self-service offerings across numerous retail formats: Grocery Chains, Home Improvement Retailers, Mass Merchandise stores, even extending into diverse implementations within Travel Centers and Book Stores. These improvements are now extending into the Convenience store industry as well, through a number of pilots across the country. Three areas for exploration:

We will examine consumer’s appetite for self-service; how this technology has become ubiquitous, simultaneously providing increased service and reduced labor costs.

A brief discussion of consumer desires and concerns, including speed, convenience, and control.

We will share example retailers’ decision criteria including effect on: return on investment, the customer experience, security, and the integration of new technology into current environments.

Extending further, we will look at some of the specific benefits expected as part of a self-checkout implementation, with some real world data supporting the importance of this new way of conducting business. In addition, the Business driver section concludes with a short walk through from a customer’s perspective of how the transaction would occur. The white paper concludes with an overview of NCR’s typical engagement/development process and its’ use as a “Blueprint for Success”. The description shares some perspective of how NCR would engage with a retailer to match the available self-service technology with the unique needs of the retailer. With NCR having completed over 200 successful retail self-service implementations, into a very diverse set of segments, as well as into a significant base of self-service outside of retail, assuring a solid foundation of success on which to build your unique solution. NCR encourages you to engage with our trained team of self-service experts in order to understand how this can fit and enhance your business and levels of customer service.



Today’s Business Drivers

The consumer appetite for self-service

Considerable study has gone into the public’s perception and acceptance of Self-Service. The verdict becomes clearer after each year of study. The consumer has a strong interest in the technology, across a broad demographic, and has increasingly, been positively influenced by the presence of Self-Service kiosks as part of their decision process. The 2011 NPD survey reveals that 42 percent of U.S. consumers prefer self-checkout when shopping in a physical store and by that same percentage, believe that self-service technologies would improve their in-store experience. In the overall retail environment, the top driving force around self-service interest and retailer implementation has been consumer preference. This consumer preference is based on the speed (70%) and convenience (45%) that self-checkout provides and has been consistently shown those to be the motivating factors over the last 5+ years. Self-Checkouts continued growth is a testament to this solution’s ability to deliver value to both the retailer that deploys the technology, as well as to the end user’s ability to recognize and capture value through its use. In today’s economic environment, the ability for a solution to

increase customer service while simultaneously reducing the cost of labor is rare indeed. As per an IHL study published in August 2012, self-checkout shipments for 2011 represented 23% of all kiosk shipments, continuing its leadership position in the self-service segment. Self-service as a whole is broadening, as new technologies and techniques have become more widespread but self-checkout still represent an 8% year over year growth relative to other offerings.

Without question, the Self-Service Revolution is real and is a force in today’s market. Self-Service is prominent in a broad spectrum of segments, existing across a very diverse demographic, and would suggest that the value derived from its use is broad-based as well. The level of success would simply not be possible if it only served one or two needs of the



retailer and consumer. In the following pages, we will explore a diverse set of factors and decisions that are important to the success of Self-Service. The most successful implementations will address the widest set of factors.



Consumers concerns and requirements

Consumers make the choice to use self-service for a number of reasons and those reasons evolve as more usage occurs. Documented studies performed by IHL show that the typical consumer raises their opinion of self-checkout with each usage. After using these systems 10-15 times, 78% of the consumers say they “like it” and 98% percent of the consumers state they would continue to use the technology. Having said this, let us explore some of the factors affecting the consumer’s choice to use the technology. Speed - Speed is certainly a factor in early adoption, but remains a top factor in virtually all survey results. Self Service can significantly reduce queue length; a real positive effect on throughput than consumers readily recognize. Often there is only one cashier in the convenience store environment. If three customers approach the register at the same time, two people are standing in line with the second person in line waiting for a long period. Self-checkout allows more people to check out at the same time at all times the lanes are operational. The fact that consumers are engaged in the transaction has a positive effect on the perceived speed of transactions, with consumers consistently citing improved speed even in scenarios that might be slower than with a trained cashier. Convenience - Customers in a hurry, or not “at their best in appearance”, often consider the self-service approach to offer them the ability to complete their transaction efficiently without the need for interaction with a cashier. Proper implementation of self-service provides the added benefit of a consistent consumer experience. This consistent experience, the shorter queues, as well as the option of choice are factors included with consumers citing convenience as a benefit of self-service. Control - Consumers increasingly desire and expect a means of controlling transactions involving their hard-earned money. The nature of self-service allows the customer to control the pace of the transaction and “audit” all the activities as they scan their purchases. This additional element of control has proven to be a strong positive factor for consumers that either wish to audit their transactions or to be in a position to make “decisions” at the point of purchase that may be difficult otherwise. We have learned that customers also like the control of whether to bag or what bags in which to place their items. Self-service provides this control.



Privacy - Consumers appreciate the element of privacy that self-service provides for items that they deem sensitive and are uncomfortable purchasing in front of a cashier. The ability to choose self-service eliminates discomfort for the shopper for these purchases. Ease of Use - Consumers cite intuitive user interfaces as a pleasant way to conduct transactions. Certainly a segment of the consumer population would cite the fact that having full control of the transaction is easier than relying upon (and auditing) another person that is performing the transaction on their behalf. In those instances that a customer does not care to use self-checkout, a solution that allows the cashier to use the self-checkout equipment as they would their normal POS insures meeting all customers’ needs. Accuracy and Trust - Surveys have shown that the consumer’s view of a retailer’s store can be enhanced by providing customers with a self-service option that fully engages them, provides control of their transactions, and allows them to work at their own pace. The fact that coupons, cash, credit card or other tenders never leave the control of the consumer with a Self Check-out system brings another measure of insurance that the transaction is safe and not subject to error or fraud. Consumers, as well as retailers, often approach their initial self-service engagement with a skeptical eye, as it is certainly a new and different paradigm. This sense of apprehension typically dissipates quickly as a deeper understanding of the solution and its benefits as understanding increases. As with most revolutionary changes to our interaction with the world, there are legitimate questions about the solution’s effects on our retail transactions. The public has adopted this new approach to business at an unprecedented pace, largely due to the value (cited above) that they enjoy through its use. The consumer‘s experience and perceptions have continued to improve as the solution has improved and this will continue as the user experience becomes further personalized.

Retailer’s decision criteria

Our experience has shown that the decision to advance a retailer’s business model to include self-service has often been one of the most significant decisions they have had to make in some time. The presence of self-service has the potential to touch virtually every part of a retailer’s operation and proper understanding and planning are paramount to maximize the success of the project. The following summary highlights a few of the issues that retailers must consider. Brand Considerations - Self-Service can be a boost to a retailers brand image. The technology can provide a headquarters-driven, consistent and positive image with a self-service twist. Providing the choice of self-service for customers expands and enhances the reputation of the retailer to being one focused on consumer needs. In addition, with a properly configured and functioning self-service environment, your attendants can actually increase their interaction with the customers, further building your reputation as a service-oriented shopping destination.



0 1 2 3 4

Incremental increase in sales/revenue

Improved inventory restocking on store

shelves through redeployed labor

Reduced labor costs

Improved customer service throughout store

Increased customer loyalty

Return on investment

Improved throughput flow

Improved customer service at checkout

Retailers interviewed have

seen 20% to 50% of transactions through self-checkout systems.

Retailers

interviewed have seen 20% to 50% of transactions through self-checkout systems.

0 1 2 3 4

Incremental increase in sales/revenue

Improved inventory restocking on store

shelves through redeployed labor

Reduced labor costs

Improved customer service throughout store

Increased customer loyalty

Return on investment

Improved throughput flow

Improved customer service at checkout

Retailers interviewed have

seen 20% to 50% of transactions through self-checkout systems.

Retailers

interviewed have seen 20% to 50% of transactions through self-checkout systems.

Return on Investment - There are many factors to consider when calculating a ROI for a self-service investment. "Soft" benefits are often more difficult to quantify but they can be equally important and valuable in achieving a return on investment. Nevertheless, by focusing on the “hard”, measurable benefits alone an ROI of 12-18 months is a very common achievement. NCR can provide assistance in creating a business impact model for specific implementations.

Speed of Service - Retailers share the concerns of consumers in terms of speed of service. Self-service has significant potential to smooth out the demand peaks in order to maximize throughput for your operations, while simultaneously increasing labor efficiency. The traditional “sweet spot” of self-checkout has been smaller basket size transaction making it an ideal fit into the convenience marketplace.

The Customer Experience - In today’s competitive environment, any sacrifice of customer service is unacceptable. Consumers will use self-service when they believe it is delivering value to them and they will desire more traditional checkout in those transactions (perhaps more complex) that may require cashier interaction. NCR SelfServ checkout provides both options within the SCO lane environment. Additionally, the act of “engagement” that can be a part of the consumer experience reinforces the consumers involvement with the retailer while maximizing their level of control. Security - Unfortunately, one of the leading causes of theft within retail environments is from associates. Self-service eliminates many of these risks by placing a higher level of control into the hands of the consumer, while keeping the reigns of the transaction firmly in control of the retailer. While the operational aspect of self-checkout is different, it has proven to be at least as effective and sometimes more effective in reducing shrink compared to traditional manned lane environments as noted in an IHL study of retailers using self-checkout.



Transitioning to the Technology - The integration of Self Service technology into an existing operation usually requires the participation of many branches of the organization including, loss prevention, marketing, finance, training, cash management, and IT to name a few and each typically has an interest in the approach, methodology, involvement and outcome of an implementation. Since the solution will succeed based on the customer’s perception of value, the proper implementation will effectively capture and retain users, so the method and understanding of the transition are critical. This includes focus in areas of system integration, user experience, promotion, total cost of ownership analysis, as well as long-term migration protection and planning. An initial investment in time in these areas will pay substantial dividends as your project progresses forward. NCR has the experience to minimize the risk and effort in each of these areas and maximize the effectiveness of the implementation. Support - A key element of moving toward a self-service model is the overall support, care and feeding of a project throughout the many phases typical of these implementations. Ideally, plans should include support tools and processes to monitor the systems within a store down to the component level, as well as tools, reporting, and operational practices to address specific needs in your stores and throughout the rest of the enterprise. While engaging your customers into the checkout process adds a variable into the mix, a well-defined methodology enabled by the proper toolset can ensure that your guests enjoy the same, if not higher, level of satisfaction and interaction they enjoy in your stores today.

Industry opportunities – A more in-depth view

The above discussion points give a solid foundation of the key elements driving the retail self-service movement. The following discussion will focus in a more in-depth way on the unique challenges and opportunities in the convenience store market segment. Labor – While labor is a key element of every convenience store implementation, it varies considerably among the various formats in place today. One of the strongest elements of self-checkout is the ability for the implementation to reduce queues, increase throughput while at the same time reduce labor costs. This labor reduction is a function of the labor in use today. The following topics relate to labor and self-checkout’s effect:

Reduction – self-checkout is capable of servicing twice the number, or more, customers using the same labor as a single traditional manned lane. This can translate into labor savings of 70-90 hours or more a week...

Redeployment – A common practice in some convenience stores is to bring labor from other areas of the store (food service, stocking, etc) during busy times. Self-checkout by its nature smooths heavy demand peaks and reduces or eliminates the need to “steal” labor from other areas of the store keeping all areas more productive.

Scheduling – Self-checkout requires no vacations, breaks, sick days.or scheduling requests.



Self-checkout is not subject to wage increases, changes in heath care benefits or other compensation

Increasing customer count – Certain convenience store locations may have parking space that fills during peak periods. Additionally, the checkout queues can become long during these same peaks. This could result in increased drive-a ways by potential customers as well as walk-offs by customers who refuse to wait. This combination can be a difficult problem to address and places a cap on business potential during busy periods. Self-checkout can improve throughput and reduce queues by 70% or more during peak periods allowing customers to get in and out of the parking lot and store quicker and in turn raise the availability of customer’s access to checkout. Overall, labor savings of 20-30% is achievable depending on the number of self-checkouts installed and store format. Additionally, throughput improvements can lead to higher daily transaction counts after queue reduction and parking spaces opened.

Security – The management of cash within a store can be a time consuming process that contributes to cash shrink. Self-checkout has the potential to alter this portion of the business process making it more secure and efficient. Because of the recycling technology, the units can typically be loaded with a starting balance and allowed to perform for a considerable period with little cash maintenance. In cases where a specific “top off” of notes or coins is needed, this can be accomplished through the front (without opening the unit) and fed through the note or coin acceptor. It is very common for the units to run up to 3 days in a busy environment with limited top offs/pickups required. There are many advantages to this process:

Cash Drawer balancing can be reduced or eliminated by using technology that counts and validates every note and is loaded by a single secure loader box

Cashier handling of currency can be reduced or eliminated with this activity being placed in the hands of management resources

Experience extended periods between full cash counting. A common practice is to extend actual cash counting to be weekly, monthly or as long as quarterly (this is in one customer experience)

In some cases retailers are considering removing their in store safes housing cash with the intent to do drops into the self-checkout units instead of the safe. (this requires thorough discussion before pursuing)

With all funds secure in the units, in-store personnel have little access to cash, deterring the potential for armed theft

.



Security can extend to the customer as well as their cash or other tender never leaves their control as they interact with the self-checkout technology. Building your brand – Automated technology is well suited to provide a consistent and engaging experience for your customers that support your brand in the same way during every visit. A well “operationalized” system has the potential to increase the interaction between your cashier (attendant) and the customer as they are engaged in monitoring of transactions rather than performance of transactions. A consistent experience of reduced queues can contribute to customer loyalty and increased customer visits. System provided “personalization” methods could allow you or your customer to tailor their engagement with the system in a manner specific to them (such as in their language, using their theme, using their level of help, and showing their regularly purchased items, and a host of other system elements to improve the customer experience).



Store of the future – A projected installation view

Morning coffee – A customer approaching the store views the parking lot to gauge the potential wait time within the store. Finding that it appears accessible, the customer chooses to stop in for a morning purchase. As he walks into the store, he glances over to the

checkout lines to find that few, if any people seem to be waiting in line, a good sign indeed. After making his item selection, he proceeds to the automated self-checkout to make his purchase (cigarettes, gum, doughnut and coffee and a fill up on pump 7). He scans his club card and his personalized screen pops up that has a picture of the Golden Gate Bridge that he selected, as he crosses it every day on the way to work.

He selects his regular items displayed on the screen (learned through loyalty card usage) coffee, doughnut and Marlboro, scans the pack of gum and presses the Gas button. The Gas button takes him to a map of the available pumps from which he selects the pump number and dollar amount of his purchase. He sees the gift card selection (that was placed on his screen by the retailer) and decides to purchase one to present to his car pool buddy to thank him for picking him up early today. He dumps all of the change in his pocket into

the unit and inserts a $50 bill to complete the transaction, and the self-checkout calculates and returns his correct change. He leaves the store to pump his gas after quickly checking himself out, avoiding any lines.

Behind the counter, the attendant has been observing the transaction on his approval monitor as his regular customer approaches the unit for checkout. Seeing that he has requested a pack of Marlboro’s she retrieves the correct pack from behind the counter and moves to provide this to the customer, entering his valid birth date into the system. The attendant also does a quick scan and sees that the Gas purchase entry correctly. She bids



her customer farewell and continues watching and helping customers as needed. Note: The above is a hypothetical scenario that is one example of how a customer might interact with the NCR SelfServ Checkout system. NCR has a long history of developing systems unique to the customer environment having completed over 30 different POS integrations to date.

When the time comes for the end-of-day routine, self-checkout can continue to value to the store by reducing the time to count money, provide more security for store associates, and return a unit to service quickly to maintain overall checkout throughput and productivity. With NCR’s newest SelfServ Checkout solution, most retailers have scaled back on counting bills and coins. Since the solution automatically keeps track of all customer tenders and change, and, all associates’ loans and pickups, just a push of a button provides an exact accounting of SCO terminal funds. Retailers count funds less because SCO tracks all monies. Self-checkout benefits continue at the end of the daily sales cycle. After the amount of a final pickup has been determined at the POS controller, cash office personnel can simply and quickly approach the SCO unit, enter the Cash Management application, key enter the required pickup amount, and the terminal automatically dispense the necessary funds through the front of the terminal. Associates do not have to open the unit in order to make that final pickup. The necessary terminal end-of-day (or tomorrow mode) is completed with the self-checkout terminal returned to service. One retailer has commented that SCO has reduced their till balancing time by 50%. Another says it takes 5 minutes a day to close out a Self-Checkout unit. Not only does this save labor, but also less cash handling means fewer mistakes or opportunities for loss.



Blueprint for Success – The SelfServ Checkout Development Process

NCR has installed self-checkout with 200 retailers, across 14 market segments in 27 countries, with each of these implementations having unique requirements to meet the specific needs of each retailer. The key to bringing success to such a diverse set of requirements is using a disciplined, experienced approach based on a stable and flexible platform. The following section describes the steps and methods for gathering information necessary to reach a successful pilot in the most expeditious manner.

Short Term Development Requirements

In order to begin the necessary Transaction Broker work, the following will be required in our development facility: Completed POS/Environmental Survey – Outlines the current POS environment and specific requirements that may affect use of self checkout In Store Server and POS – Current POS hardware and server loaded with the targeted software that will be in use in the pilot stores Pin Pads – A working pin pad that used in your stores Necessary sign-in ID’s – The development organization will need full access to your POS application in order to access and test the data interface Host Simulator or Tender Test Method – A facility will be is needed to be able to test and validate all tender types to be offered on the system System Manuals – All available manuals such as cashier, installation, configuration and operations are required to validate system operation. Transaction Examples – Examples of each transaction type (i.e. Gift cards, coupons, loyalty cards, money orders, gift certificate, etc). Single Point of Contact for Questions

Scoping, Development and Implementation Roadmap

System Storyboard - Shortly after receiving the above-mentioned items, a scheduled follow up session between NCR and your staff is set in order to do a storyboard 71

Age Restricted Items1 of 4

•Customer has scanned an age restricted item

•Security lane light turns yellow.

•Customer continues with purchase, Go to Scan

and Bag screen

•<Lane Number> button is yellow and shows

“Age Check”

•Lane State Window shows “Scan Items” and

“Enter Birthday”

•Show item name and price on receipt

•Alert message shows “Age Restricted, 23 Years

old minimum, Valid Birthday 07/25/1983

Customer View – Restricted Items screen Attendant View – RAP Main screen



review. The purpose of this review will be to walk through each function within the system and illustrate what will occur on both the customer facing SelfServ checkout screen as well as the attendant RAP (Remote Approval Program) screen. This process will familiarize your team with the intended operation of the system as well as flush out any remaining system requirements not identified previously.

Development/Release Process – NCR employs a closed 5-step development process, with specific key system inputs, system tasks, and system outputs for each stage of the process that prepares the solution for system-wide rollout. This disciplined and proven methodology clearly defines the elements and “gating” requirements for each step of the product development cycle. All necessary steps are clearly identified, assigned a task owner (whether within or outside NCR) and tracked by a Project Manager experienced in the SelfServ Checkout process.

Support Outside the Development Process – Concurrent to the development process, a variety of additional support resources will be engaged to insure the highest degree of success for your self-checkout solution. The following resources are typical to a successful, full-scale self-checkout project. Solution Specialist – The overall subject matter contact for SelfServ Checkout solution topics. Typically, this resource conducts best practices knowledge transfer to retailers through a variety of workshops and available documentation and is available throughout the solution process to insure timely issue resolution. Human Factors Engineering – Engagement may be as simple as completing the design work to insure proper branding of the user interface or as complex as conducting onsite store analysis, decision modeling, or in-depth consulting about virtually any aspect of a retailers operation. Customer Manager – A single point of contact and liaison into the NCR development process that oversees your specific solution development. Self-Service Operational Consulting – A unique individual who has helped retailers for the past 13 years to successfully implement self-checkout pilots following accepted industry and solution Best Practices.



Professional Services Project Management – This resource owns the management of the overall project as well as milestone reporting and tracking back to the retailer resources. Retail Deployment Project Management – This resource typically engages at the conclusion of a successful pilot with training specifically in the rapid deployment of the completed solution into your store environment. Customer Engineering – NCR employs one of the largest support organizations available in the retail market today. These resources cover break/fix activity, help desk support, and software maintenance for the life of the solution.

Typical Customer Resource Framework A more in-depth description of required resources as identified as part of the overall project scoping. Initial expectations of resources necessary will be as follows:

Project Manager (after initial planning phase would expect 2 hours per week) POS Technical Consultant (approximately three days upfront for system walk-thru and

approximately 2 hours per week to answer questions) Store Operations Resources – 1 day for storyboard walk-through and 1 day for best

practices workshops

Network Consultant – May be required if automated system reporting is a part of the solution design. Time and need will need to be determined.

These are estimates and the expectations may change slightly based on input.

Documents

Self Service For Convenience Stores white paper