As prospective buyers for supermarket chain Safeway emerge almost
daily, industry experts warn that integrating their IT systems is
an issue they ignore at their peril. Daniel Thomas reports
As the takeover battle for Safeway intensified last week, IT
professionals warned that the success of any prospective merger
could depend on effective integration of the two companies'
computer systems.
With Asda owner Wal-Mart and Sainsbury both now considering
counter-bids for the UK's fourth largest supermarket, in an attempt
to scupper the agreed £2.9bn offer from Morrisons, speculation over
the future of Safeway's IT systems has intensified too.
US venture capital firm Kohlberg Kravis Roberts also confirmed its
interest in the retailer and said it was considering making an
offer. Market leader Tesco, meanwhile, was reported to be
considering an offer for some of Safeway's smaller stores, in a bid
to prevent its main rivals gaining any market share.
Most supermarkets today rely heavily on IT systems to keep
supply-chain and purchasing costs to a minimum so they can maintain
low prices without hitting profits.
Lack of awareness about the implications of mergers and
acquisitions for these systems can have a serious impact on the
success of any project, warned IT industry expert Colin Beveridge,
who oversaw several mergers during his time as an interim IT
director.
"Companies usually have serious cost-saving ambitions, but these
can be seriously undermined by disparate infrastructure and
systems," he said. "I have seen prospective mergers totally
abandoned because of system problems."
So which of the three main bidders is best placed to integrate its
IT systems into Safeway's infrastructure?
According to Tony Savage, senior consultant at retail analyst firm
RMDP, the fact that Morrisons has not traditionally spent heavily
on IT could work in its favour because it will find it relatively
easy to integrate Safeway's existing IT projects.
"Morrisons has always focused on extending the life of its systems,
but I have no doubt that it will take advantage of some of
Safeway's initiatives," he said. "For example, the self-scanning
system that Safeway introduced has been particularly successful and
should not be too hard to integrate."
However, the overall integration between the two supermarkets' IT
systems will be more complex, Savage warned.
"Both companies run IBM in the back office but the point-of-sale
terminals are different so this may take some time," he said. "I
expect they would run the two separate IT systems together for at
least a year."
Jacqui Hendriks, research director at analyst firm GartnerG2,
agreed that acquiring Safeway would allow Morrisons to broaden its
use of IT.
"Morrisons is not known for deploying new technology in its stores
or supply-chain operations, and in time this would have been a
serious inhibitor to growth," she said. "Safeway, on the other
hand, has built smart customer fulfilment systems for ordering,
transport, distribution and supplier management."
Change management strategy, often the key success factor in
takeovers, will be especially important if Morrisons' bid is
successful, Hendriks said.
"Safeway is a mature retail chain, with experience of a number of
mergers and rebranding exercises," she said. "However, Morrisons
has become a major retailer remarkably quickly and has little
experience of absorbing new cultures on this scale."
Asda Wal-Mart, on the other hand, is well versed in mergers and
acquisitions and has one of the most advanced IT systems in the
world, meaning integration would not be too much of a problem,
Savage said.
Crucially, he added, both Asda and Safeway run IBM-based retail
systems. "They run identical versions of IBM's Supermarket
Application version 2. Integration would be straightforward as the
data and messaging formats are identical."
The sheer size of Wal-Mart's IT operation gives it an advantage as
it has influence over suppliers such as IBM, Savage said. "It has
worked in tandem with IBM to produce its own Java-based messaging
system, for example."
Wal-Mart's 1999 purchase of Asda has already demonstrated the US
retail giant's expertise in integrating IT systems. Analysts at
Deutsche Bank last year estimated that the merged group would save
£150m a year when Wal-Mart's IT systems were fully integrated with
Asda's systems.
Sainsbury, Savage said, would find it more difficult to integrate
its IT systems with those of Safeway, as it operates different
retail systems to the rival supermarket.
"Sainsbury still runs the ICL ISS/400 solution and it is also
trialling new systems from NCR," he said. "In the end, however, it
will come down to how easy it is for them to handle different
message formats."
The battle for Safeway is likely to be a long, drawn-out affair
with, seemingly, new developments on potential bidders emerging
every day. IT departments from the supermarkets in the running will
be watching closely, because the possibility of a lengthy
integration project could represent a chance for them to shine.