Where Are The ESLs?

Here is a quick bit of trivia. What do these four things have in common?

1. CD-ROM
2. Microsoft Windows
3. Apple Macintosh
4. Electronic Shelf Labels

The answer: all were invented in the mid-1980s. Since their initial introductions, all but two have undergone massive changes. Microsoft Windows is in its eighth iteration, and the Macintosh has become simply the Mac, and is arguably giving Microsoft a real challenge. CD-ROMs haven’t changed much, but it’s notable that they have largely been replaced by electronic file transmission and flash drives.

This leaves only the electronic shelf label (ESL) as a holdout from the days of the disposable camera (which are also gone). As facetious as that sounds, the bottom line is that ESLs have changed very little since their inception. Power use has gone down, and batteries are better. But they still use batteries. Displays have grown larger, but they are still monochrome.

ESL hardware manufacturers like to tout a couple of benefits — specifically labor savings and price accuracy between POS and the shelf. To be sure, these are honest benefits for ESLs over traditional paper or vinyl shelf labels. Those same manufacturers also point out that Europe is using ESLs. While that is true, it’s important to add some perspective here; all the ESLs currently deployed across Europe wouldn’t be enough to outfit Kroger here in the U.S.

Back to the labor and price accuracy, though. If these are real, proven benefits—and they are—why haven’t more retailers made the move to install ESLs? There are a number of reasons.

• Labor savings. While there are benefits in terms of labor reduction, by not having store employees walking around changing prices, the return on investment through labor savings alone takes about five years. The cost of ESLs—currently about $5 per unit for a basic monochrome model — spread across 40,000 SKUs and the total store count adds up quickly.

Just the hardware cost per store alone is roughly $200,000. There also are installation costs, programming, back-end hardware and getting the whole thing to work on top of that. But just sticking with the $200,000 per store, times that by 250 for a regional chain and the capex investment is already at $50 million. Outfitting a national chain with a couple thousand stores would add up to half a billion dollars. And just about the time that the labor savings starts to offer a payback (about five years), the hardware will need to be replaced because the batteries are dying.

• Pricing accuracy. This is an area of importance for all retailers. Ever since the introduction of UPC barcodes and scanners, there have been price discrepancy issues between what the shelf tag shows and what the product actually scans. Virtually every retailer has made huge strides here, and has stringent policies in place to ensure pricing accuracy, as well as resolution steps for problems.

The savings in fines and the increased shopper goodwill aren’t going to come close to covering that $50 million investment. So, it’s a great benefit but it’s just not enough juice for the squeeze required.

• Marketing concerns. This is the big one. Retailers are not in a big hurry to spend $50 million or more to lose the ability to use the shelf edge as a marketing tool. A New York Times story earlier this year quoted the CEO of one of the larger ESL suppliers when asked why ESLs hadn’t been more successful. “(Supermarkets are) treading carefully because the fear is they’ll put 30,000 of these in a store where people are used to seeing paper and it will be a drastic change,” he said. “They worry that their sales will drop.”

Bingo. No matter how slick the hardware is today, it’s still monochrome (i.e. black and white, or close to that). Color sells. Store circulars and newspapers went all color years ago. No one has a black and white screen on their phone. Monochrome labels look like what they are: a 1980s solution to a 1980s problem.

The promise of color is out there, but it’s further out than anyone in the industry wants to admit. For retailers, there is risk in that as well. No one wants to be the decision-maker to install monochrome labels only to have color come out two years later. Talk about a career-limiting moment.

ESLs will someday become the standard. It’s hard to say when that will be, but with advances in technology they will eventually overcome the hurdles outlined above. It’s unclear what that will look like; it could be an interactive touch screen on the shelf edge that eliminates the idea of a label altogether. Flexible, color LCDs are already available, but there are lots of challenges there as well. The shelf edge in a typical supermarket can be a brutal environment, to say the least. Any electronic solution will need to be cheap, easy to replace and tough as nails, which essentially defines the current paper-laminate or vinyl label.

For now the traditional paper label is still not only viable, it’s helping retailers use the shelf edge as a marketing medium in ways they hadn’t thought about 30 years ago when the idea of an electronic label was conceived. After a couple of decades of renting out shelf space to the highest bidder, retailers are taking back control of the shelf and using it for their own purposes, promoting their brands and differentiating themselves in the minds of shoppers.

Jeff Weidauer is Vice President of Marketing and Strategy for Vestcom International Inc., a Little Rock, Ark.-based provider of integrated shopper marketing solutions. He can be reached at jweidauer@vestcom.com, or visit www.vestcom.com.