May 2013 Integrated Solutions For Retailers
By Matt Pillar, editor in chief
Over the course of 24 months, BevMo! leveraged big data and cloud computing to rebuild its entire IT enterprise from the ground up.
It’s no secret that Americans love to unwind with a drink. Even as the Great Recession caused consumers to pare back spending in most retail segments, wine and spirits retailers enjoyed both topline sales gains and growth in their share of the adult beverages market. In 2010, the liquor industry tallied up nearly $20 billion in sales on 4% year-over-year growth while wine sales grew 2.7% to $2.9 billion. Collectively, wine and spirits accounted for more than half of U.S. alcoholic beverage sales that year, for the first time surpassing the country’s beer sales.
Spurred by this market growth, BevMo! has become one of the largest beverage-lifestyle specialty retailers in the country, with 132 stores spanning the West coast. But while the industry appeared poised for sustainable expansion, BevMo! recognized that it was not.
In 2009, a thorough review of its IT infrastructure by CEO Alan Johnson and CFO Daniel Carter uncovered significant impediments to its ability to capitalize on growing consumer demand. The POS, core retail software platforms, network, and supply chain infrastructures at the company were all aging, and BevMo! found it difficult to meet regulatory compliance objectives such as PCI (payment card industry) security standards. It also hadn’t invested in opportunities presented by the burgeoning BI (business intelligence) industry, which company leaders knew would drive significant improvements to both back end business efficiency and the consumer-facing experience.
Of course, the volume of IT projects that rose to critical importance as a result of this review looked as though they’d come with an awfully hefty price tag for a mid-sized retailer. Building a brand-new data center and filling it with the iron necessary to power ten-or-so new software applications on a brand-new network, new POS hardware across the chain, and the software license costs associated with all these new applications quickly became an overwhelming prospect.
With big challenges and a limited budget in mind, Johnson and Carter brought Bob Graham on as VP of IT in March, 2010. Graham was immediately tasked with a more thorough review of the company’s IT shortfalls and the development of a plan to overcome them. By the end of April, he presented his comprehensive plan to the BevMo! board of directors, received its blessing, and set to work.
Protecting The House: PCI Compliance Is Job One
BevMo!’s first order of business was to protect the BevMo! brand from the growing risks associated with payment security. In advance of the July 1, 2010, PA-DSS (Payment Application Data Security Standard) and PCI-PED (Payment Card Industry Payment Entry Device) compliance deadline for Level-1 merchants, the company implemented VeriShield Total Protect from VeriFone for end-toend payment card encryption. This 90-day rollout included more than 500 VeriFone MX 860 PIN entry devices. Graham says that decision took its PCI concerns off the table. “Our level-1 PCI audits take a couple of days now, down from the more than two weeks these audits typically take,” he says. The company estimates a dramatic reduction in PCI audit costs as a result.
With its PCI risk mitigated, BevMo!’s 10-person IT team set about building a network and data infrastructure that would support the many new business applications on the company’s radar screen. Spending upwards of several million dollars on facilities and servers to enable application expansion wasn’t an option. Graham, who had extensive cloud computing experience in his previous role as CIO at startup children’s clothier Peek Aren’t You Curious, was confident in his recommendation to the board that BevMo! leverage the savings and scalability afforded by the cloud. “The beauty of the cloud is that application expansion doesn’t require a deep discussion about the expense and architecture associated with sizing servers to scale,” he says. “Of course the board had questions, but we had an insurance policy in our existing infrastructure. It was old, but it was running, and in the worst case scenario we could revert back to it,” he explains. “We also demonstrated that in the cloud, if you want to add an application or if you didn’t size your server capacity appropriately from the start, it’s significantly less expensive and less laborious to correct the situation.” Graham says it took only a single presentation of the plan to win the board’s approval.
An IT Infrastructure Overhaul; On Budget In Under Two Years
With a green light on the cloud, Graham turned to the ARTS (Association for Retail Technology Standards) council for guidance. Graham has been involved with the ARTS council in various capacities since the late ‘90s, and he says the relatively low cost of annual membership pays for itself handily. “ARTS standards eliminate a lot of the integration and testing of applications required in traditional on-site environments,” he explains. “We’re confident that when we run ARTS-compliant applications, they’ll run seamlessly.”
One pillar of BevMo!’s new cloud infrastructure is an ARTS-based data repository from Cumulus Data Inc. using Rackspace cloud servers to connect all 132 of its stores with real-time delivery of enterprise-wide transactional data. Much of that data is aggregated from the retailer’s newly installed NCR Advanced Checkout Solution, which it rolled out in 2011 and 2012. The solution features an ARTS-based transaction log architecture, running on the vendor’s RealPOS 80 XRT POS stations. “In our previous POS scenario, we spent three to four days preparing a store for a new POS system and several days in the store to get it up and running,” says Graham. “With NCR, our new POS stations are drop-shipped directly to the store ready to go, and we have them up and running in 3 hours.” Store managers and associates are also now accessing key data from the company’s cloud applications via HP workstations, iPhones, and iPads. “Prior to the initiative, we were reporting peak season flash sales via the telephone. Now, we’re pushing sales data across the enterprise in real time to workstations and Apple mobile devices,” he says.
Also hosted by Rackspace in the cloud is the NCR Advanced Marketing solution, which integrates with Advanced Checkout and supports a variety of cross-channel ClubBev loyalty, targeted marketing, and CRM (customer relationship management) initiatives at BevMo! Further supporting its access to enterprise-wide data is a first-of-its-kind cloud implementation of a Teradata data warehouse for base reporting and data access. “A company of our size would have trouble swallowing the seven-digit cost of an on-premise Teradata platform,” says Graham. “We were the first to pilot Teradata in the cloud, which put a set of tier-1 applications well within our reach by allowing us to focus on investment in applications, not the cost of the iron necessary to run it.”
That initial Teradata implementation is being followed up with a cloud-based rollout of the Teradata Master Data Management as well as Teradata’s Aprimo CRM solution for integrated marketing and campaign management.
New store hardware at BevMo! is connected by a Hughes redundant terrestrial and satellite WAN (wide area network). Graham says that while our primary network transport is terrestrial, satellite connectivity has come a long way toward providing redundancy to keep our stores connected. Like the POS hardware it’s deployed, he says getting a new store online is a plug-and-play proposition from Hughes. “Once the equipment is in place, we can get a new store on the network in as little as two hours,” he says.
Leveraging its access to real-time, enterprisewide transaction data, BevMo! is also running the TransAccess application from Trevarian in the cloud. The retailer leans on ARTS-compliant Trevarian to pull data from its data repository into a host of applications, including digital receipt delivery to consumers, credit card dispute resolution, and supplier visibility, collaboration, and rapid replenishment.
To better manage its inventory and combat out-of-stocks, BevMo! implemented JustEnough Replenishment software. The solution has resulted in a more efficient approach to inventory management across the chain.
Finally, BevMo! is in the early stages of a cloud-based price management and optimization initiative with Revionics, also an ARTS advocate. “We’re turning to Revionics to help us optimize our pricing scheme to optimize sales and margin,” says Graham. “The solution utilizes solid science coupled with our business rules to drive base and promotions pricing, which will help us make smarter merchandising and product placement decisions.”
ARTS Connects Multisourced Big Data In The Cloud
At BevMo!, the cloud has been key to the cost-effective deployment of high-powered applications. Today, Graham says nearly 90% of the application environment there is operating in the cloud. “Almost all of our Windows servers are cloud-based now. With the move to our new headquarters, our previous data center has been pared back to a 10x12 room that’s primarily filled with our Cisco telephony and network hardware and a single IBM P7 system,” he says. “The essence of the cloud is the ability to shift to a utility-based philosophy on application deployment and usage. Now we can buy horsepower for what we need and only pay for what we use.”
While the cloud gets a lot of the glory at BevMo!, Graham is also quick to credit the ARTS data model as a key enabler of its best-of-breed approach to application deployment. “The cloud helped us accomplish a lot in a short period, but we were careful to build out a platform that would take full advantage of the ARTS data model. That’s what has allowed us to integrate and optimize each of these platforms in a way that ensures IT is a business enabler,” he says. “Building out these solutions as one-offs without standards would not have been possible.”
Graham also wants to clear up a common misconception about ARTS and its mission. Many of those unfamiliar with the mission of ARTS fear that standardization is akin to the removal of competitive differentiation. “The words standards and proprietary don’t have any place in the same conversation,” he says. Data modeling standards are simply about the efficient delivery of data. Competitive differentiation, he says, isn’t found in the technology, it’s found in what the retailer does with the technology. He points to the new POS at BevMo! as an example. “We have a very sophisticated POS that’s capable of doing lots of interesting things, but the data is delivered in a normalized fashion. Is it more competitive to deploy a hundred people to build a series of complex interfaces, or leverage standards to enable value-based solutions in rapid fashion? We think the latter makes sense.” Graham says ARTS is an open forum where the technology that serves customers and runs businesses is efficiently and collaboratively developed. “If you’re more concerned about what’s proprietary and what’s not, you’re in the wrong place,” he says.
Price Optimization In A Price-Sensitive Market
In keeping with Bob Graham’s mission to build a better BevMo! utilizing ARTS (Association for Retail Technology Standards), the 132-store chain recently began deploying Revionics for price optimization and management. Revionics, itself a member of the ARTS Council, provides one of many applications deployed at BevMo! that integrate seamlessly with its ARTS data model-based infrastructure.
BevMo! purchased the Price and Promotion Optimization solution from Revionics, which helps retailers strategically manage pricing and promotions in a scientific, strategic way that drives profit growth. Behind the solution is a predictive analytics engine that uses demand and sales data to recommend personalized or localized product mixes at the store level, making optimized product placement suggestions for specific stores.
Karen Dutch, SVP at Revionics, says the science behind pricing and promotions is based on predicting demand, setting business rules to meet demand, and applying brand-specific strategy to the equation. The first element requires retailers to tap into Big Data — which in the case of BevMo! lives in its cloudbased data warehouse — to understand and predict consumer demand by analyzing shoppers’ engagements with the brand at every social, mobile, and physical touch point.
“If you had one store and a couple hundred SKUs, you could do this with spreadsheets,” says Dutch. “But in a big, distributed, multichannel enterprise, you have to bring science in to analyze all the data. That’s why the cloud works for BevMo!; no single data center could do this.”
To provide some context for the volume of data required of price and promotion optimization solutions, consider that Revionics pulls loyalty/CRM, POS transaction log, historical pricing, and even weather data — among other sources — into its algorithm. “With this data we can analyze shopper response to changing prices and promotions, weather conditions, and more at the store SKU and personal levels,” says Dutch. “This helps retailers understand which products drive consumer baskets, which get dragged in, and why.”
With this understanding, business rules — such as margin targets at the category or subcategory level, private label sales strategies, and min/max rules — are applied. At this stage, operational constraints around price management are also worked into the equation. Some online retailers, for instance, might be willing and able to execute price changes throughout the day. Brick-andmortar retailers might be constrained by labor to limit price change execution to a weekly exercise. “These business rules and operational constraints vary by retailer, and they play heavily into pricing strategy,” says Dutch.
Business rules dovetail with strategy, the final piece of price optimization that further differentiates a retailer’s price image. Key value items (KVIs) that drive a retailer’s price image are central to understanding price elasticity. “Understanding the retailer’s competitive position and KVIs is an important element of price and promotions optimization,” says Dutch.
While BevMo! is in the early stages of its price and promotions optimization effort with Revionics, Graham sees promise in the implementation. “Revionics has a well-organized process behind its price optimization software, and they collaborate well with us,” says Graham.
For More Information On Revionics Go To www.revionics.com
A Snapshot Of The 24-Month IT Turnaround At BevMo!
From March 2010 to date, BevMo! has been leveraging the cloud and ARTS standards at the core of an aggressive — and comprehensive — IT overhaul. Here’s a list of what it’s accomplished so far:
For More Information On The ARTS Council Go To www.nrf-arts.org