Retailers get to check out new scanner.

Byline: SHERRI BURI McDONALD The Register-Guard

As the latest entrant in the fast-growing market for grocery self-checkout systems, PSC Inc. couldn't wait for retailers to come knocking. So the Portland-based company went to the retailers.

PSC, which makes bar-code scanners at two factories in west Eugene, rehabbed a 26-foot trailer and installed a Quickcheck Express self-checkout demo to showcase the company's new technology.

The system looks like part checkout lane, part ATM. The machine's touch-screen gives consumers visual and audio prompts. Customers slide their groceries over a scanner that doubles as a scale for produce, then bag their items. Scales under the bags compare the weight with database calculations of what the scanned items should weigh, thereby thwarting cheaters.

A cashier at an "attendant" station monitors activity at four Quickcheck lanes via video security cameras. The cashier is also on hand to scan weighty items and check customer I.D. for such items as alcohol and cigarettes. The machines take debit or credit cards, or cash bills, and they can return change.

Retailers are turning to self-scan systems in a big way, to help keep customers happy and to help save on labor costs, analysts say.

PSC sales representatives and the trailer have been on the road for the past seven months, visiting grocery chain executives in 30 states, from New York to Oregon. They recently ended their "Checkout America" tour in Portland.

Retailers' response to the tour was positive, said Mark Farrell, industry market manager for PSC's self-checkout products.

"It allowed customers to get a hands-on look at the product," he said.

The Quickcheck is in beta testing at an undisclosed Virginia store, Farrell said. A different retailer is testing it in a lab environment, chief operating officer Bill Parnell said. The Quickcheck is manufactured at PSC facilities on the East Coast.

PSC's tour is the first step of a long journey to get a piece of the self-scanning market, which is now worth an estimated $150 million and has the potential to expand to many times that size, industry analysts said.

As the newcomer in a market already dominated by other players, PSC has a challenging road ahead, analysts say.

"I'm not saying it's impossible," said Jim Friendly, an equity research associate with Raymond James & Associates in St. Petersburg, Fla. "But since Optimal Robotics and NCR have been in this market for a while and formed relationships, I think it would be more difficult to carve a niche in that market segment."

Optimal Robotics Inc., the Montreal-based maker of the U-Scan Express, is the industry leader, with 70 percent to 80 percent market share, Friendly said.

Optimal's revenues should grow 20 percent to 30 percent to an estimated $126 million in 2002, Friendly said. Friendly's firm, Raymond James, was involved in Optimal Robotic's secondary offering, which raised $56.2 million in March 2000.

The U-Scan is now used in 1,200 stores owned by Kroger Foods, including several Fred Meyer locations in Oregon.

PSC used to manufacture and help market the U-Scan in a joint venture with Optimal Robotics. But that agreement expired in December 2000.

PSC wanted to stay in a market that was rapidly gaining consumer acceptance, so it partnered with Kyrus Corp., of Taylors, S.C., which developed the software for Quickcheck.

Rick Morgan, editor of "Scan: The Data Capture Report," a trade publication based in Erie, Pa., said the business is booming in self-checkout, and he predicts that PSC will do well.

"They had the luxury of watching what Optimal Robotics did, and maybe they learned things about the market or what customers wanted," he said. "I'm sure they have a decent product that will fare well in the market."

About five years ago, when self-checkout was introduced, retailers initially saw it as a way to cut labor costs, said Jennifer Nugent, marketing manager for NCR's self-checkout system. That's still a concern, she said. Now, however, "more of the drive is coming from consumer demand for self-checkout and retailers looking to provide greater customer satisfaction," Nugent said.

In 1999, only 6 percent of consumers responding to a survey by the Washington, D.C.-based Food Marketing Institute said they were experimenting with self-checkout systems. By January 2001, 16 percent of respondents said they used automated or self-checkout in at least one store.

Only a small fraction of retailers have installed self-checkout, so there's room for multiple players, NCR's Nugent said.

"I think because the market is very untapped, there's a great opportunity for competition among providers," she said. "But it's going to be a fierce environment."

In its pitch to retailers, PSC emphasized the advantages of Quickcheck over other available systems.

Quickcheck costs $125,000 for four express lanes and one attendant station. PSC offers price breaks for large orders.

The machine is easy to use, Farrell said. PSC found that family members often teamed up at the Quickcheck, with one person using both hands to scan items two at a time, and another family member bagging them.

Quickcheck is also easy for retailers to incorporate into their existing floor plan, Farrell said. Four units and one attendant station fit into two 7-foot-wide grocery lanes.

Another advantage is that the self-checkout lanes can convert to staffed lanes when business dictates, Farrell said.

PSC and other makers of self-checkout systems envision growth far beyond the grocery industry. Optimal Robotics is doing a pilot project at a Home Depot store in Florida and an undisclosed drug store is testing the system, Friendly said.

"We're starting late," PSC's Parnell acknowledged. "But so far, so good."

He noted that one out of five customers that have entered PSC's beta-site store in Virginia have used the Quickcheck to check out.

PSC INC.

Business: Bar-code scanner manufacturer

Headquarters: Portland

Local employees: 575 full-time regular in Eugene; about 75 temporary workers

Latest development: Introduced Quickcheck, a self-checkout system for supermarkets

Financial performance: Loss of $15.8 million on sales of $145.5 million for the nine months ended Sept. 29, 2001

- PSC Inc.

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