CSPCONVENIENCE STOREPETROLEUMSecuring the Area! Providing! AvoidingROI Substance . . . . . . . . . . . . . . 42Incidence . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Providing ROI SubstanceFive retailers put interactive technology to the test througha six-month study to determine the impact interactive hason the bottom line. The results may surprise you.By D. Douglas GrahamThe convenience store and retail petroleumindustry has been technologically challenged since its inception. Until recently,many companies could not seem to warrant the investment in technology. Manyretailers looked at technology with a skepticaleye. The real question was whether more moneycould be made opening new stores or by investing in technology? The answer was openingstores, at least from a traditional look at its return on investment.The problem has been that ROI isn’t as easy tomeasure with technology as with other more tangible business segments. Multiply that statementwhen it comes to deciding to make an investmentin something like interactive technology.To gain a better understanding of the potential of interactive technology, five retailers recently took part in a six-month testunderwritten by Westec Interactive,Newport Beach, Calif. and conductedjointly with b2b Solutions, a LakeForest Ill.-based consulting firm.Companies participating in thestudy included: E-Z Mart StoresInc., Texarkana, Texas; Krause GentleCorp., West Des Moines, Iowa; 7Eleven Inc., Dallas; Thornton Oil Corp.,Louisville, Ky.; West Star Corp., Olympia, Wash.There were 80 sites in total that were included in the test, half of which were control stores.Preliminary findings, released in June, indicatedthat all measured areas showed improvement when interactive was in play at thesites. Test stores showed average sales permonth increased 11,056, while control stores’ sales increased an average of 5,952. The net increase of the test storesover the control stores averaged 5,104.Gross profit in the test stores improvedby a net increase of 1,608 vs. the control group. Merchandise variationimproved by 637, cash variation by 95, andturnover by 989. The total gross savingsamounted to 3,329 per store, per month whenWestec’s interactive system was in place.One of the most important factors in terms ofbeing able to achieve the desired ROI came in theway of employee retention, according to SteveKimmes, vice president of operations for KrauseGentle, which operates roughly 300 Kum & Gostores.“We were able to hold down cost by reducing turnover.” The system provided the chain another tool to set itself apart from its competition.Executives at E-Z Mart shared Kimmes’ view,after overcoming initial skepticism.“Supervisorswho were initially skeptical are now using the interactive technology very successfully to improveemployee retention,” said James “Bubba”Kirkland, director of merchandising.Source: Westec Interactive, b2b Solutions42 CSP AU G U S T2000“Our San Antonio, Texas, store was havingdifficulty keeping employees and there was highturnover. With monitoring capability, our employee retention has improved greatly. In addition, the interactive technology has helped usimprove employee effectiveness.”What was discovered during the months ofthe test was the number of different ways interactive systems can impact a chain’s performance.Once deemed merely a security device, retailersare now realizing they can use the technologyin almost every aspect of operations.Standard protocolRemote interactive security systems are a stepor two beyond the widely deployed CCTV systems most retailers use today. Remote interactivesystems are yet another spawn of the digital revolution. It is now possible not only to observewhat is happening at a location, but also interactwith the individuals there. Some systems have one-way video (store toremote location) and two-wayaudio (store to remote locationand remote location to store).The test started with a retailtraining session to educate the fivecompanies on the system components and Westec’s responsesystem. Chains also receiveda training program (CDor video) and manuals totake back and train theirstore-level employees.Those that were to use theInTouch Manager, which allows remote access to a site, were givenadditional training.To ensure a fair comparison of results between the two test groups, testand control stores consisted ofmatched pairs, so each test store mirrored the control store in the key areas.Criteria included:

Source: Westec Interactive, b2b Solutions Stores were in the same market with similardemographics. The same supervisor was responsible forboth the test and corresponding controlstore. The stores had the same profile (c-store,gasoline, fast food). Stores had similar volumes. Cash shortages at each store were the same. Merchandise shrink was similar at each site. Employee turnover was equal at each location. Gross margins were constant. Each store had a similar history of robberies/incidents.The test was conducted to validate the effectiveness of interactive services and remotemanagement. Westec executives set out to unblock the thinking that the system was limitedto helping chains overcome security issues. Thecompany wanted to further establish additional applications for the technology, develop a ROImodel, and shorten the industry adoption cycleof new technology.Retail participants primarily wanted to lowershrink and improve store security and safety.They were also curious to find out firsthand ifthe system could have an impact on sales andgross margin. Reducing turnover and improving operational effectiveness were also key goals.Accomplishing all, plus substantiating the ROI,would prove the biggest challenge. Retailers arefrequently presented with amazing numbers bymanufacturers looking to bring their product toa chain. Having a company come in and proveit to them on the level that Westec committed todoing was something entirely different.44 CSP AU G U S T2000Five key metrics would be monitored:sales, gross profits, merchandise shrink, cashshortage and employee turnover. Some companies also elected to monitor additional metrics internally.Sales were monitored as a first indicator thatcould impact the other areas. For example, if acompetitor opened or closed, the sales linewould immediately reflect that and an adjustment in the test could be made. Turnover wasmeasured because of the tremendous direct andindirect costs associated with it.Equipment included an integrated audio system and a mixture of CCTV cameras, including Westec’s PTZ cameras (which can beremotely controlled to pan, tilt and zoom). Thesetup also included a transmitter box for processing voice and image data; a two-way audiosystem complete with high-tech microphonesand speakers; a modem; and two dedicated twoway phone lines or a single dedicated ISDN line.Four to six indoor or outdoor cameras wereused, depending on the coverage needed, plus amultiplexer and VCR , a camera power supply,monitors, supporting brackets and cables. Thealarm system included an alarm panel, alarmkeyboards, door contacts, panic buttons, billtraps, pendant alarm buttons, and a “HotPhone,” which is linked directly to Westec’s VisualCommand Center in California.Additionally, the system included a monitorfacing the front door so customers quickly realize they are being viewed. A variety of standard and customized signage informedcustomers of the system’s presence.Westec’s Visual Command Center conducted a pre-determined number of remote moni-toring visits where someone would “voice in”to announce they were monitoring the store.Other times during the test, the “visits” wouldoccur unannounced.Mike Upp, Westec’s vice president of marketing and business development, explainedhow the system works: “Let’s say the clerk seesa couple of kids getting ready to do a beer run.He pushes a button to activate the system andwithin seconds someone at the control centersees the same thing the clerk does. A voice suddenly comes on over the loudspeaker, telling thekids they’ve been caught and the police are onthe way. That voice seems to come right out ofnowhere. It’s almost like God personally scolding them. Most of the time it has the desired effect. The thieves leave the store in a hurry,without the beer.”Westec’s remote retail software product,InTouch Manager,was also installed on test chain’scomputers. The Windows-based software allowsan authorized person to remotely visit a store.Theadvantage as an employee management tool isunmatched.A manager can do remote site tours,ensure that the store is clean, keep watch of closing and opening procedures, and determine if thelabor hours are being used or abused.InTouch Manager also promises strong marketing advantages. The technology can be usedto monitor customer traffic patterns, verify thatstore displays are being put up appropriately,keep track of customer responses to promotions, and observe purchasing patterns.“The system allows a district manager responsible for 12 stores to do much of his workfrom home,” Upp said. “All he has to do is dialin to determine if the inventory is going up on

the shelves or just sitting there. He can also seewhether or not the beer cooler is full, or the grillhas hot dogs on it at peak periods of the day.“How many people are in line at any givetime, and what are they buying? Are the employees up-selling the coffee program? Are theydoing all the things they were trained to do whenthey first took the job? These are questions youcan’t really answer when you visit a store in person and everyone is on their best behavior. Youcan only find out for certain when no one thinksyou’re looking. But even if your employees assume you are looking, or might be, they’ll bemore likely to do the right things all the time.”The system also inherently provides managers with plenty of opportunities to dispensepraise for jobs well done, not just point out theerrors. It can also be useful in accessing workingconditions, cutting back on corporate liabilities,confirming employee complaints and checkingon the progress of recently hired personnel.“I used to travel to my stores three days aweek and was in the office only two days,” commented Kirkland.“Now I can do it all from mydesk. The most important benefit of interactiveis the ability it gives you to visit stores withouthaving to travel. Whether it’s a merchandisingor human resource issue, the manager can dialup a store and see what’s going on. As long asyou can access a phone line you can visit thestore. In the beginning, there was some resistance to the ‘Big Brother’ aspect of employeesbeing watched. But as they were educated aboutthe advantages of interactive technology, theemployees came to like the system.”Retail resultsE-Z Mart CEO Sonja Hubbard reported oneof the key reasons for participating in the studywas to determine if the investment in the system (which is significant) would pay off. “Thetest subjects were stores we were having troublewith,” she said. Testing began in October 1999.Field operations people, who are in chargeof between eight and 10 stores each, dialed in 46 CSP AU G U S T2000 regularly, as did sales managers and divisionalvice presidents. “The results were good,”Hubbard confirmed.“Sales went up, shrinkagewent down, and all other factors being testedshowed significant positive change.”As a family business, Hubbard has developedclose relationships with employees.“You get toknow the people. With interactive technology Ican meet and get to know people when, geographically, it’s hard to get there. Being a family business, I’m really glad I can meet everyoneup close and personal.”The chain did experience some initial resistance regarding the “Big Brother” issue, but staffacceptance has been strong overall. Many havecome to view the system as a de facto employee that they interact with.At Krause Gentle, Kimmes reported the system did show benefits. “The overall benefitsmanifested themselves in increased gross profits, improved inventory control, reducedturnover of associates and gains in sales,” he said.“The security aspect allows people to haveimmediate access to a trained professional,”Kimmes noted. “Relationships with the localpolice departments have improved, plus the system has had an impact on our ability to apprehend suspects and control crime. I can tell youthe smile on my face is due to the financial rewards I will reap as a result.”Other retailers expressed similar satisfactionin their participation in the test and several expect they will install the system at some level intheir chain.Throughout the test period, retailers reported raw data back to b2b Solutions for analysis.“Every participating retailer had the opportunity to review the results on a three and six monthbasis and then tell us where the interactive technology had impacted negatively or positively ontheir operations,” said Steve Montgomery, president of b2b Solutions. “This gave us the opportunity to better validate the raw data.”Retailers reported the five data segments monthly.Data was then reviewed and dissected.Monthlymeetings also worked togive retailers access toWestec executives to discussvarious aspects of the test.A variety of financial measures were taken intoaccount in the finalanalysis, according toMontgomery. Sales weremonitored, but not usedin the actual ROI calculations. Savings were instead determined bymeasuring the dollarHow it worksThrough a marriage of CCTV cameras and otherhigh-tech devices, a Westec security specialist onthe West Coast can observe what is happening instores throughout the U.S. If they were to see ashoplifter filling his pockets with merchandise, thespecialist can inform him via speakers located atvarious points in the store ceiling, that his activitiesare being observed and recorded.Westec’s interactive system is designed to supportthe clerk in any circumstance in which they feel theneed for assistance.This can range from the storehaving too many customers for a clerk to handle toincidents where the clerk feels uncomfortable dealing with a situation.When an employee feels sufficiently concerned toactivate the alarm button, the security specialist’smain video screen comes to life within seconds, asdoes another screen right next to it.The main screenallows the specialist to observe what’s occurringwhile the second screen contains all relevant storedata, including the number of the local police station.In addition, the specialist can hear what is being saidat the location.The specialist will not intercede untilthey have determined what is happening. Instead,the specialist will observe the situation and determine the appropriate course of action.This might include “voicing down” from the speakers in theceiling or outside the stores indicating that the storeis being monitored and that the activities are beingrecorded and/or informing the local authorities ifsomething that warrants their attention is going on.“I think interactive technology will make a significant difference in safety and security around thecountry,” says Dallas’ former chief of police BillRathburn.“I can foresee governments mandatingthe use of this technology. It is critical to improvingsafety. It will also prove to be a major step forwardas a technology helping police departments, fromreducing time spent on false alarms and preventionof crime to preventing employees from being killedor injured during robberies. Interactive security willbe proven to be a major benefit for law enforcement.There’s no question of interactive security’s deterrence value.”

same period the previousyear for both the test andValidating The ROIcontrol stores. The differences were calculated forboth test and controlstores. The net result wasthat improvements wererealized in each of the fiveareas segmented: sales,gross profits, merchandiseshrink, cash shortage andemployee turnover.The average sales permonth in the test storesincreased 11,056, whilethat of the control storesincreased 5,952. Grossprofit in the test stores improved by a net increaseof 1,608 over controlstores. Merchandise variation improved by 637,cash shortage by 95, andturnover by 989. TotalSource: Westec Interactive, b2b Solutionsgross savings resultingchanges in gross profit, merchandise shortages,with the use of the Westec system was detercash variations, and turnover.mined to be 3,329.This was then compared with figures for theThe test demonstrated a significant ROI.Circle XXX on reply card48 CSP AU G U S T2000The average payback is less than a year.According to NACS 2000 State of the Industryreport, an average new store investment is 1.5million, with an average EBITBA of 140,200,for the top quartile stores.According to Westec excutives reatilers cantake that same 1.5 million and purchase interactive systems in approximately 60 sites,which would yield just over 2 million.The results cemented the notion that thesystem would have an impact on a variety ofareas within a chain. It also worked to give retailers some hard facts to examine. “People inthis industry want to make fact-based decisions,but when a supplier conducts their own research, the results are sometimes viewed witha jaundiced eye. In the case of this test, b2bSolutions worked as a third party to solidify thefacts,” Montgomery said.Prior to this study, Westec conducted similar tests with Circle K, which also showed positive results. “The trouble was that the testingwas done with only one retailer, and becausethere was no independent third party involved,other retailers were reluctant to believe it,”Montgomery said.“We went to great lengths toensure this test was not only accurate, but valid as well.”