THE CUTTING EDGE: COMPUTING / TECHNOLOGY / INNOVATION : Do-It-Yourself Solution : Small Grocery Chain Has Big Plans for Its Retailing Software

Perched high up in the San Bernardino Mountains about six miles from Lake Arrowhead, this tiny Alpine hamlet is not exactly a hotbed of technological innovation.

And Martin Goodwin, a soft-spoken 40-year-old who is vice president of administration for his family’s three-store grocery chain, is an unlikely high-tech entrepreneur.

But Goodwin’s job required him to be conversant in half a dozen separate computer systems that run everything from the business’ accounting books and payroll records to its inventory and credit card records. He realized his job would be much simpler--and the family business a lot more efficient--if all the necessary retail applications could be combined in a single computer system with a user-friendly Windows interface.

And now, three years and half a million dollars later, Goodwin’s Market of Quality runs on 24 Hewlett-Packard PCs, and Goodwin is licensing his very own retailing software system--dubbed “ROS” for retail operating system--to other stores around the world.

“We’re dumbfounded,” said Goodwin, who now runs his year-old company, MS Solutions, from the basement of the family supermarket and proudly declares that he has never taken a single computer class. “How could we be the first ones to develop this in a Windows environment?”

But more experienced software developers say such innovations are increasingly coming from the little guys like Goodwin.

A billion-dollar software company can’t possibly serve all the thousands of niche markets that are demanding better products, said Graham Clark, group manager of retail and distribution industries for software superpower Microsoft Corp., whose applications programs are a key component of the ROS system. So out of frustration--or naivete--they try to create them for themselves.

“A lot of the real innovation in the use of retail technology is happening with independent retailers, where the person trying to apply the technology is the guy who runs the business and is focused on improving bottom-line performance,” he said. “Whether or not you consider him to be a technological visionary or just someone who had a good idea at the time, he was 18 months ahead of the game.”

Goodwin says he was just thinking like a retailer instead of a computer programmer. ROS (pronounced “Ross”) is full of features that he says could only be designed by someone who runs a grocery store--and has boosted profits at the stores by 28%, mainly from reduced labor costs and being able to respond more quickly to the competition.

Many of the features seem simple enough. As a customer’s order is ringing up, the PC that doubles as a cash register displays a running total of the customer’s bill (including tax) and the cumulative savings from coupons. If a check-stand clerk is not sure whether the head of lettuce is of the red leaf or escarole variety, she can call up a picture from the system’s database. When the register is idle, the screen will display advertisements for the supermarket’s floral or deli departments, or run a commercial for a product like Coca-Cola.

In the back office, ROS automatically keeps track of the checks written at registers and prepares a computerized deposit slip that can go straight to the bank--a feature that saves a bookkeeper 40 minutes a day.

The system can also pull up sales data on any product during any time period. With a few points and clicks, MS Solutions Vice President Robert Henry checked the supermarket’s sales of large tomatoes over a four-week period and found that sales tripled when the grocery offered a coupon.

“With the NCR system, you can look at sales for the past 13 weeks or for the past 10 years,” Goodwin said, referring to one of the established retail automation systems. “With our system, you can plug in any dates and check anything you want. That’s the difference with a system designed by retailers.”

Those features impressed Brian Moore, manager of applications services for Spartan Stores Inc., a wholesale grocer serving 500 independent retailers in Michigan, Indiana and Ohio that agreed to purchase 500 licenses for the ROS system.

“It’s hard for us to keep up with the big guys in the grocery business,” Moore said. “But this is a great equalizer. Now we can provide a very cost-effective way for our retailers to utilize information in the same fashion as the big chains.”

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It was late 1992 when Goodwin first approached computer systems consultants about finding a way to blend together the IBM, NCR, Agstar and Arco PayPoint systems that were supporting the three grocery stores into one coherent system. Goodwin talked with a computer consulting firm in Los Angeles and was told it could be done--at a price of at least $125 an hour for a job that would take six months to a year to complete.

“That was too expensive for a family business like ours,” Goodwin said. “I had given up, but my brother David [the president of the grocery chain] suggested that we build it ourselves and then resell it [to recoup the cost]. So we took out a $250,000 line of credit.”

Perhaps the Goodwins were underestimating the effort it would take to build and sell a computer system. But Martin Goodwin went ahead and hired his church friend Henry, a professional computer systems developer, and a small cadre of software developers. They created and installed the first version of ROS by the end of 1993. Since then, they have added features like customer tracking and inventory management.

“It’s got every bell and whistle that any retailer would want to make their operation more efficient,” said Dale Pedersen, a senior account representative with the Certified Grocers of California, which represents 3,500 retail stores in California, Nevada and Arizona. Martin Goodwin said his family members were about to lose their patience with his pet project until Spartan Stores agreed to buy 500 licenses last month.

“We were starting to get to the point where they were anxious about their return on the investment, but when the deal came through with Spartan, we were redeemed,” he said.

The Microsoft software products that are woven into the retail operating system include Access, SQL Server, Excel, Word, Publisher, Powerpoint, Windows NT, Windows 95, Schedule and a few screen savers.

At the core is the ROS, the chunk of proprietary software that Goodwin hopes to license for profit.

Grocery retailers say there is no other fully-integrated computer system for their industry. Another advantage of ROS, Goodwin says, is that its major software elements are available at any computer store, unlike the proprietary NCR and IBM systems they compete against.

For the past two years Goodwin has tested the system on the 20,000 customers who pass through registers at the family’s three stores each week and buy $12 million of merchandise each year. Customers say they like features, such as the on-screen running total.

“It’s great. If you’re short on cash, you can figure out when to stop,” said Sally Freshwater, a land-use technician for San Bernardino County.

“I’d like all the stores to get this.”

So, of course, would Goodwin. He has set up a nationwide network of “solution providers,” each with his or her own network of salespeople who will sell ROS licenses to retailers. MS Solutions also has representatives in Mexico, Canada, Taiwan, New Zealand and Bolivia, and is considering signing up representatives in England and Germany.

Customers can purchase PCs and the necessary Microsoft components on their own or through their local sales representative, who will put the system together and provide basic training. MS Solutions collects a $199 licensing fee for the front-end point of sale system and a $999 fee for the back-end portion, Goodwin said.

Sales began in earnest in October, and the company expects to sell 600 to 700 licenses by the end of the calendar year.

For 1996, the company expects to collect revenue from 8,000 to 10,000 new licensees, said Charles Moeller, president of Retail Solution Providers Inc., the Lee’s Summit, Mo., firm that is handling Goodwin’s licensing deals.

Goodwin plans to continue adding retailer-friendly features to future versions of ROS. He says he is settling into his new role as president of a technology company even though Crestline couldn’t have less in common with the high-powered communities of the Silicon Valley.

“Geography is kind of irrelevant,” Clark said.

“At the end of the day, no one understands the business of running a supermarket better than someone who’s running a supermarket.”