Winn-Dixie Turns IT, Once a Liability, into an Asset

Charles Weston took the job as group vice president of information technology at Winn-Dixie Stores Inc. only a few months before it declared bankruptcy in 2005. For some people, that might have been bad timing, but for Weston, it was a chance to reshape IT.

At the time it filed for Chapter 11 protection, the Jacksonville, Fla.-based company had more than 900 grocery stores. The reorganization brought layoffs and store closings, and today, Winn-Dixie operates 521 stores in the Southeast.

Weston said IT operations were partly to blame for the financial problems. It was using applications that were a quarter of a century old in a green-screen environment.

"I think it fundamentally contributed to the bankruptcy," said Weston of the IT systems. The applications were fragmented, and a single job by an employee could involve logging onto five separate screens, he said.

Weston faced fundamental decisions concerning the direction of IT, including whether he should stick with the mainframe or move to a distributed environment for his core business systems. He decided to stay with the mainframe and upgrade to a System z9 mainframe in late 2006. He rejected a decentralized approach, which would involve relying on clusters of servers to replace the mainframe, after analyzing the cost and technology involved in the two approaches.

IBM is pointing to Winn-Dixie's use of the mainframe to help with its ongoing message that the mainframe is thriving. Indeed, market research firm IDC estimated IBM mainframe hardware and zOS revenue at $4.6 billion last year, and it expects a slight increase this year as a result of the release of the System z10 mainframe earlier in 2008.

In its most recent quarter ended June 30, IBM said mainframe sales were up 32%. That sales gain is a result of weaker mainframe sales last year, which slowed in advance of the release of the a hardware update -- a typical historical pattern for the mainframe, said analysts. In the final calendar quarter of 2007, for instance, System z revenue had declined 15% from a year ago.

The long-term outlook for the mainframe, said Stephen Josselyn, an analyst at IDC, is for declining revenue as competition increases. IDC is forecasting $4 billion in revenue for mainframes in 2009. "It's a slow decline over time, but it has surprised me that we have seen as much [mainframe sales] as we have," he said.

Weston said he couldn't share the company's return-on-investment estimates on the differences between a distributed system and the mainframe. But he does point out that margins in grocery stores are tight, and that the cost of managing servers in a distributing environment is not low. Weston said he isn't worried that use of the mainframe will make him susceptible to price increases from IBM. "I believe deeply in the power of competition, and I have to believe that IBM has to compete with the other server platforms," he said.

Weston's mainframe, which was used to consolidate applications running on two older systems, runs PeopleSoft ERP applications, financial applications and the DB2 database, which had been the company's standard. It is running a combination of eight general-purpose mainframe processors, as well as specialty engines, which process workloads for the database and Linux applications. The setup's virtualization capabilities and scalability make it "a tremendously leveragable asset," he said.

The cost cutting following the bankruptcy reduced IT staff by more than a third, but Weston said his department has become attractive as a place to work because of the consolidation and application-modernization effort since the bankruptcy. Winn-Dixie is now building a single portal for all its applications that will eventually be tied into an Lightweight Directory Access Protocol directory that will give employees access to the services they need based on their roles in the company.

The company left bankruptcy in 2006 and expects to report net income of $13 million for its latest fiscal year, which ended in June (download PDF). Total sales for the year are expected to come in at nearly $7.3 billion.

Charles King, an analyst at Pund-IT Inc. in Hayward, Calif., said IBM's mainframe effort is being helped by those users who want their mainframes to do more work, not less. Linux support running on the specialty processor is apparently helping as well. "IBM's pitch of using the mainframe as a consolidation platform has been resonating," he said.

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