Fri, Oct 05, 2001 page24

• Point-of-sale technology transforms retail service

  CUSTOMER RELATIONSHIPS Elm Square Technologies is trying to redefine not only the customer experience, but also help companies deal with foreign-born workers

  • By Beth Healy / NY TIMES NEWS SERVICE
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  They're not cooking up Big Macs in the back room at Elm Square Technologies. But they probably could.

  In an old Andover, Massachusetts, textile mill, the company's consultants and software developers have set up a model McDonald's restaurant with a shiny metal counter, an overhead price board, a photo backdrop of a kitchen, and high-tech cash registers.

  

  Ken Shapiro, a McDonald's franchise owner in North Reading, Massachusetts, watches Julio Santos use a high-tech register at the drive-through window. Elm Square Technologies has created a new wave of point-of-sale terminals.

  PHOTO: NY TIMES

  It's all part of the Elm Square approach pioneered by CEO Tom Jones: See it from the customer's perspective. To solve a thorny technology problem, these engineers didn't hunch in cubicles and bang out code. They donned uniforms and served up McNuggets and fries for two weeks. They took orders during busy lunch hours, felt the stress of making correct change at the drive-through window, and saw Spanish-speaking cooks struggle to read food orders in English.

  Then the company's software development division spent two years building a system that overhauls the way a burger giant does business. It was a significant gamble for Elm Square, now four years old, which plunged into the task with the blessing of just one local McDonald's franchise owner, Ken Shapiro, who agreed to test the technology at his North Reading restaurant.

  Customer centered

  It's the type of customer-centric approach that technology companies will have to embrace to survive in the new Darwinian environment where customers are more scarce and simplicity sells better than intimidating technology.

  Elm Square has designed touchscreens with simple graphics and bold colors (to replace ancient machines that had 200 buttons with menu items scrawled in tiny print) networked to kitchen computer screens that can translate orders into Spanish or German. Portuguese is on the way. The new computers require fewer keystrokes for every sale, and they show how to make change, with pictures of dollar bills and coins. A Web system lets Shapiro monitor the store remotely, so he can track sales hour by hour, check staffing and customer waiting time, and communicate with managers. Self-service ordering for customers is just around the corner.

  "This was not an easy gig," Shapiro said. "When we first started, I didn't know if this would really happen."

  He was willing to give it a shot, mostly because his daughter, then 7, was best friends with Jones' daughter. Shapiro is known by McDonald's executives to be an innovator, willing to take risks to grow his business. And he knew Jones's track record, he said. "I know his ability to make things happen."

  Jones, 56, is not fresh out of MIT, although he has taught there as well as at Harvard. He has been interested in the way customers behave since the 1970s, decades before the Internet came into focus and cliches like "CRM," or customer relationship management, were in vogue. At 23, he helped start a company called Epsilon that was a pioneer of the customer database business. It was a concept that only charities grasped in the early years, Jones said, and that wouldn't come into its own until much later.

  Virginia Renehan has been working to develop membership at the San Diego Zoo since 1979. In that time, she said, the famous zoo's membership has climbed to 270,000 households from about 40,000. Epsilon built the group's database and was the first to be able to track renewal rates and show how long people were members, which led to tailored direct-marketing letters.

  "Now CRM is a buzz word. We were doing it back then," Renehan said. The technology has evolved, she added, but "the true formula really hasn't changed that much."

  Jones sees Elm Square as the new generation of Epsilon. The company's top ranks are dominated by Epsilon alumni. There's still an intense focus on customer relationships, only the mission has been sharpened to address point-of-sale (POS) technology. While most people were chasing the Internet in the mid-1990s, Elm Square and its software development unit, exit41 (named after its exit off Interstate 495) were working on the face-to-face sales transaction, where most commerce still takes place.

  Huge niche

  The interaction at the cash register may not be glamorous. But it's a potentially huge niche. Just as ATMs have become the main way consumers bank, Elm Square is betting that a new wave of POS terminals will transform the way routine purchases are handled at fast-food joints and gas stations.

  And the Elm Square folks think looks matter. Jones calls the terminals exit41 develops "funky, with a Fisher-Price kind of feel."

  Craig Tengler of exit41, who worked on the McDonald's project, said, "We are about the power of simple."

  Their style is just beginning to catch on. Over the summer, Elm Square provided technology for 30 "gas stations of the future," introduced by BP Amoco in a number of markets, including Cleveland, Indianapolis, Atlanta, and London. The stations feature 24-hour stores and remodeled gas pumps fitted with touchscreens. The idea is to get customers to interact with the screen while they're waiting at the pump. They can order food to be freshly prepared and picked up inside, see an add for coffee or a snow shovel, check the news or weather, or print out a coupon for a six-pack of Coke.

  The pumps are part of a US$200 million BP Connect program the company has launched worldwide. The petroleum seller is on the cutting edge, Elm Square's Michel Robinson said. With so little brand loyalty in the gas industry, she explained, "They struggle to figure out whether they should be innovative or not."

  For example, kiosks inside the station shops that make Internet maps are popular, but they aren't money makers yet. Elm Square believes it will be easier to drive revenues at the pump, as 30 percent of customers so far are interacting with the screens.

  In fast food, Elm Square hopes its exit41 technology is about to take off. In addition to the North Reading McDonald's, the group has installed its wares at another in Roseville, California, near Sacramento, and a third in Miner, Missouri, near St. Louis. A Wendy's restaurant in Tuscaloosa, Alabama, has just signed up, too. The company figures there are Taco Bells and plenty of other quick-serve chains to tap. Elm Square's systems fetch US$38,000 to US$50,000 per store.

  Of course, the trophy prize would be a stamp of approval from McDonald's Oak Brook, Illinois, corporate headquarters. Elm Square is competing with several other companies eager to provide technology to a company that, even in a slowing economy, booked US$27 billion in sales in the first eight months of this year.

  John Lambrechts, regional vice president for McDonald's in New England, has spent several hours using the new registers in North Reading, and he liked what he saw.

  User friendly

  "I was impressed with the easiness of it, with the ability to easily train the staff," Lambrechts said. It takes about 20 minutes to train employees on the system, he said, compared with several hours on the older systems. And the exit41 technology addresses strategic problems: "I am kind of excited about it, because it offers us an opportunity to work on some things -- service, information gathering and the ability to reduce costs, and some of the language barriers we deal with."

  Typical McDonald's restaurants experience turnover of 175 percent to 300 percent a year, manager say. Finding help is difficult, and kitchen employees in many areas do not read English well. The ability to take orders in English and send them back to the kitchen in another language is a huge breakthrough, McDonald's executives said.

  In the race for McDonald's business, Lambrechts said, "These folks are a little more innovative, and more customer driven."

  Venture capitalists' dream

  This is a venture capitalist's dream, a start-up that has products that work and negotiations underway with Fortune 1,000 customers. But Jones doesn't want venture capital, and he's in no hurry to go public. Exit41's development has been funded so far by US$8 million in revenues from Elm Square's consulting and servicing projects.

  Chalk it up to lessons learned at Epsilon. Jones has raised venture capital and taken a company public. He suffered through quarterly earnings reports and a slumping stock when the company couldn't deliver growth as fast as Wall Street demanded it. He finally sold the company to American Express Co in 1990 and stayed on for a year and a half before moving on.

  Epsilon still exists. It's based in Burlington, has 700 employees, and has undergone several changes in strategy and ownership. In 1997, American Express spun Epsilon back out again, to a buyout group led by Boston's Bain Capital and Greylock Partners, for US$65 million. Now the company is about to change owners again, in a pending US$189 million purchase by the Carlyle Group, a private investment group that is merging its Relizon Co, a Dayton, Ohio-based marketing company, into Epsilon.

  Jones has some regrets about the way things went for Epsilon. He thinks it should have been a bigger company by now. But he's determined not to make the same mistakes twice.
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