Now Kroger says it plans to turn the tunnel, dubbed "Advantage Checkout," into a commercial product to sell to other retailers, including competing grocery chains. But after all that effort to create something other grocers don't have and can't currently buy, why is Kroger giving away its competitive advantage?
Kroger certainly hasn't kept the tunnel a secret. Since last spring, any competitor has been able to walk into the Hebron store and watch the tunnel in action as customers put items on the double-speed conveyor belt, to be scanned by cameras and then bagged by employees while the customers use separate pay stations to scan their coupons and pay the tab.
But unlike most pilot deployments, this isn't just a handful of off-the-shelf products stitched loosely together that any competitor can copy. Kroger actually created an R&D lab four years ago to produce technology that the chain needed for its stores but IT vendors weren't offering. The tunnel is the most visible result, and it's something no other retailer has or can quickly reproduce.
That's the very definition of a competitive advantage. And it's something that's almost never seen these days in IT, where the rule is that you don't build, you buy—and whenever possible you buy the most mass-market, off-the-shelf products you can.
Kroger isn't saying how much it has spent developing the tunnel, but there's no doubt the investment is huge. Maybe it's not a surprise that Kroger feels the need to partner with Fujitsu to turn the tunnel into a commercial product to recoup at least some of that investment.
Then again, maybe Kroger isn't about to give away quite as much of its one-of-a-kind competitive edge as it might appear. Consider:
Result: Kroger could keep its competitive advantage from the tunnel for several years. That's the most any retailer (or IT vendor, for that matter) can hope for these days. There will be more tunnels from more vendors. Eventually, every grocery chain will use them—or not. But they won't represent a competitive advantage, just another product.
Kroger does have one other competitive advantage it's not likely to lose. Unlike the vast majority of retailers, Kroger has a real R&D lab developing hardware. That in itself is a competitive differentiator. After all, nobody except an IT vendor develops hardware anymore. Software? Sure, though prevailing wisdom is that off-the-shelf is preferred over built-from-scratch.
But hardware? When was the last time you heard of a retailer creating a hardware IT product to use in stores that's bigger than, say, a barcode scanner? That doesn't happen. (Even those custom handhelds are typically smartphones or PDAs with added software. Apple, one of the few retailers in a position to create retail IT hardware, doesn't bother; it just repurposes iPhones.)
Only a handful of other U.S. retailers are rich enough and IT-sophisticated enough to try something like that (think Target, CVS and Walgreens for IT sophistication and Wal-Mart for money). They might decide to get into the IT R&D business, though it doesn't seem likely.
But after four years in the R&D trenches, Kroger may have developed an advantage it literally can't give away.